McWatters sells Kiena gold operation

Looking for cash to help in its bid to revitalize 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 an additional $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 in mid-November.

Mining at Kiena was suspended in late September 2002 as known reserves became depleted. Gold production for the year amounted to 37,626 oz. at a cash operating cost of US$230 per oz. Since starting up in 1981, the mine has churned out 1.6 million oz. gold from 10.7 million tonnes of ore averaging 4.8 grams gold per tonne.

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., April 28-May 4/03).

WQM sees Kiena as a good fit with its two key properties. The company’s wholly owned Shawkey property is 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 grading 4.3 grams gold.

WQM also owns the McKenzie Break property, 20 km north of Val d’Or, where reserves stand at 186,000 tonnes grading 10 grams gold.

If the Kiena acquisition goes ahead, WQM plans to spend $5 million to send an underground exploration drift from Kiena into Shawkey. Exploration will also target other know zones.

Meanwhile, a report by RSG Global concludes that the suspended Sigma-Lamaque complex could be restarted to generate a “significant operating profit.” The report notes that many of the mine’s inefficiencies have already been addressed.

RGS’s report also notes that channel sampling may not adequately represent the entire mineralized zone targeted for open-pit mining.

RGS suggests a 3-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.