Agnico-Eagle completes LaRonde mine expansion

Having expanded its LaRonde gold mine in northwestern Quebec, Agnico-Eagle Mines (AGE-T) is expecting a steady stream of cash flow.

In October, underground production was ramped up to 5,000 tons per day and the mill was modified to accommodate the increase.

“As a result,” says President Sean Boyd, “gold production is set to increase significantly and operating costs are poised to drop sharply.”

During the quarter ended Sept. 30, miners hoisted 326,648 tons of ore to the surface, mostly via the new Penna shaft, said to be the deepest in the Western Hemisphere, at 7,380 ft. Another two years of development work are required for lower levels; however, above the 152-level, there is sufficient underground infrastructure to sustain expanded rates.

The mill cranked out 39,230 oz. gold, 266,000 oz. silver, 5,698 tonnes zinc and 554 tonnes copper during the third quarter. Gold production was 161% higher than in the third quarter of 1999 and is expected to exceed 70,000 oz. in the current 3-month period.

Recovery rates now average 90% for gold and 80% for zinc, the latter having been considerably lower in the past. Actual figures for the recent quarter are: 90.27% for gold; 67.2% for zinc; 65.8% for silver; and 58.3% for copper. Base metal recoveries were adversely affected by mill commissioning.

Head grades improved significantly, averaging 0.14 oz. gold per ton, 1.6 oz. silver, 3.28% zinc and 0.34% copper. Underground ore dilution remains firm at 10%.

Although unit costs rose slightly, operating costs per ounce of gold produced (net of byproduct credits) dropped 47% from a year ago to US$199. When accounting charges are factored in, costs actually fell by 51% to US$238 per oz. of equivalent-gold.

Operating costs in the current quarter are expected to average US$75 per equivalent-ounce, excluding non-cash charges.

Agnico-Eagle realized US$278 per oz. for its quarterly output, up $10 from the third quarter of 1999.

Meanwhile, five drill rigs continue to delineate known resources and seek out new mineralization. Results are proving encouraging.

“On Zone 20 South, definition drilling and muck samples from several mining blocks show the transition to higher gold grades continuing higher up than expected,” says Boyd. “Definition drilling is also confirming areas of above-average gold grades in Zone 20 North, as are holes drilled at its western edge, above the bottom of the Penna shaft.”

In Zone 20 South, above level 122, where mining recently began, recent definition holes cut up to 42.3 ft. true-thickness grading up to 0.73 oz. gold. Most intercepts were 6-9 metres thick, and all included up to 7.42 oz. silver, 0.79% copper and 6.48% zinc.

Also, an exploration hole collared on the Level 20 exploration drift has led to the discovery of mineralization beyond the known reserve envelope. A 9.2-ft. section in hole 20-111 yielded 0.04 oz. gold, 0.87 oz. silver, 2.81% zinc and 0.02% copper.

Hole 20-111 is one of six drilled into the adjoining El Coco property, which was acquired last year from Barrick Gold (ABX-T). All were aimed at projected extensions to Zone 20 South.

Delineation drilling in Zone 20 North, above Level 149, also yielded promising results: mineralized intercepts were up to 17 metres true thickness and ran up to 0.5 oz. gold, 6.16 oz. silver, 11.59% zinc and 1.35% copper. The results will be incorporated into next year’s mining plan.

Furthermore, one hole collared on Level 160, near the zone’s western limit, cut 26.2 ft. grading 0.39 oz. gold, 0.5 oz. silver, 0.21% copper and 1.21% zinc. The interval is characterized by stringer to semi-massive pyrite, similar to high-grade material found at depth.

Deep drilling has also resumed, with the first hole’s having intersected Zone 20 North at a depth of 8,200 ft. and farther east than expected. Within a broader envelope, 59.1 ft. averaged 0.1 oz. gold, 0.56 oz. silver, 0.61% copper and 0.05% zinc.

The results suggest the presence of a broad zone of mineralization exceeding 100 ft. in thickness, with copper grades increasing to the west. Another five holes are currently planned, two of which will target the horizon to the west.

Agnico-Eagle is also driving an exploration drift westwards from the bottom of the Penna shaft to facilitate deep exploration. Most holes would target the unexplored area between the drift and Shaft No. 1, which bottoms at 3,961 ft.

At last report, LaRonde hosted 31.5 million tons of reserves in a global resource of 52.1 million tons. The reserve grades 0.1 oz. gold, 2.33 oz. silver, 0.33% copper and 4.78% zinc, whereas the total mineral inventory averages 0.12 oz. gold, 1.72 oz. silver, 0.44% copper and 3.41% zinc.

A reserve update is scheduled for February.

Despite the operational improvements, Agnico-Eagle lost US$1.4 million (or 2 per share) on revenue of US$15.5 million in the three months ended Sept. 30, compared with a loss of US$5.1 million (10 per share) on US$5.6 million in the corresponding period of 1999. Higher grades and production volumes account for the improvement.

Cash flow topped US$1.5 million, compared with negative US$5.5 million a year earlier. Boyd expects cash flow to remain positive in the current period.

Losses in the nine months ended Sept. 30 totalled US$8.3 million (8 per share) on revenue of US$38.6 million, compared with a loss of US$9.7 million (13 per share) on US$22.9 million a year earlier.

Operating profits in the recent 9-month period topped US$2.3 million, whereas cash flow was negative US$4.2 million.

In related news, Agnico-Eagle is forgoing a private placement in Aurizon Mines (ARZ-T), as a result of the companies’ failure to come to amicable terms. A letter of intent called for the purchase of 5 million units at 80 apiece, with each unit consisting of one share and one warrant. The deal would have given Agnico-Eagle up to a 15.5% equity stake in Aurizon and two seats on its board.

Aurizon had earmarked the proceeds for a drilling campaign at the past-producing Casa Berardi gold mine, also in northwestern Quebec. About 147,000 ft. would have been drilled to increase confidence levels in known reserves and resources.

Casa Berardi hosts 1.5 million oz. in a reserve of 7.7 million tons and 530,000 oz. in a resource of 2 million tons. A feasibility study suggests that the reserve could support annual production of 200,000 oz. over 7.5 years, at an average total cash cost of US$145 per oz.

On Sept. 30, Agnico-Eagle had US$17 million in working capital, of which US$9 million was held in cash or equivalents. Another US$40 million must be spent over the next 2.5 years to complete the expansion program and will most likely be covered by future cash flow. Nevertheless, the company has US$32.5 million left over from a US$100-million credit facility arranged last year.