McWatters sells Kiena, eyes Sigma-Lamaque revival

Looking for cash to help in its bid to revive the struggling Sigma-Lamaque open-pit gold mine, McWatters Mining (MWA-T) has agreed to sell its nearby Kiena mine complex on Parker Island, west of Val d’Or, Que.

Under the proposed transaction, Western Quebec Mines (WQM-T) would acquire Kiena and its inventory, equipment and stores for $3 million. The company would fork over another $1 million once the Kiena mill resumes commercial production. The purchase price includes a non-refundable cash payment of $200,000.

The agreement also calls for McWatters to retain a 4% net smelter return royalty (NSR) on existing resources at Kiena; a 2% NSR would apply to any new resources established on the property. The deal grants WQM the right of first refusal on repurchasing the royalties.

In addition, WQM would pay McWatters $1.50 per tonne to process up to 5 million tonnes of ore from any source at Kiena’s mill; thereafter the rate falls to $1 per tonne.

The deal is slated to close by year-end, subject to due a diligence review period ending Nov. 14.

Mining at Kiena was suspended on Sept. 27, 2002, as known reserves were depleted. Gold production for the year came to 37,626 oz. at a cash operating cost of US$230 per oz. Since beginning operation in 1981, the mine churned out a total of 1.56 million oz. of gold from 10.7 million tonnes of ore averaging 4.8 grams gold.

At last count, Kiena’s C vein hosted a measured and indicated resource of 691,000 tonnes grading 3.91 grams gold per tonne. Similarly categorized resources in the Northeast zone stood at 893,000 tonnes grading 4.31 grams, and in the South zone, at 108,000 tonnes grading 5.43 grams (T.N.M., Apr. 28-May 4/03).

WQM sees Kiena as a good fit with its two key properties. The company’s wholly owned Shawkey property is situated 1.5 km east of the Kiena shaft, and hosts resources of 900,000 tonnes grading 4 grams gold in the 22 zone.

The company’s 67%-owned subsidiary Wesdome Gold Mines (WDG-V) owns the Wesdome property, which is contiguous to the north of Kiena. The property is home to a resource of 2.8 million tonnes running 4.3 grams gold.

WQM’s also owns the McKenzie Break property some 20 km north of Val d’Or. Reserves there total 186,000 tonnes averaging 10 grams gold.

If the Kiena acquisition goes ahead, WQM plans to spend $5 million sending an underground exploration drift from Kiena into Shawkey. The company will also explore other know zones.

Meanwhile, a preliminary report prepared by mining consultant RSG Global concludes that the suspended Sigma-Lamaque complex could be restarted to generate a "significant operating profit." The report outlines plans to optimize operation of the mine, and notes that many of the mine’s inefficiencies have already been addressed.

RGS’ report also concluded that that tonnage and grade for the open-pit portion of the mine could be reduced owing to differences between diamond drilling and underground channel sampling results. RGS says that channel sampling may not adequately represent the entire mineralized zone targeted for mining via an open pit.

RGS suggests a three-month $2-million drill program in anticipation of a revised resource estimate. At last report, reserves stood at 10.4 million tonnes grading 2.67 grams gold per tonne.

Mining at the money-losing Sigma-Lamaque mine was suspended in early October. Milling will continue until stockpiled ore is exhausted.