Madsen sinks cash into namesake mine

Madsen Gold (MGF-T) has formulated plans to spend $3.5 million on underground exploration and development at the newly reopened Madsen gold mine, near Red Lake, Ont.

The mine, which has been producing gold since June, is expected to reach full commercial production later this year.

Madsen’s financing will take the form of a private offering of up to 1 million flow-through shares at $2.25 per share, for a total of $2.25 million. In addition, royalty holder McCarvill (MCR-T), through its Metal Royalties unit, has purchased a private placement of 210,000 common shares at $2 per share, and a 1.35% net smelter return royalty for US$600,000. The royalty will decrease to 0.5% once the initial investment of US$600,000 is recouped, and continue for the balance of the 20-year term of the agreement.

The Madsen mine was previously forecast to reach commercial production in August 1997 at a throughput rate of 500 tons per day. However, the target date has been deferred to late autumn so that underground development can be advanced. In a release, Madsen officials explain that the change will make it possible for the company to sustain daily throughput at 500 tons or more.

Proven and probable reserves are estimated at 1.2 million tons grading 0.271 oz. gold per ton. This is sufficient for seven years of production at projected levels, and ongoing exploration could significantly increase reserves.

Underground exploration of the North Tuff horizon continues to indicate a new orebody made up of several parallel mineralized structures. Madsen believes the North Tuff could be similar in size to the nearby Austin horizon, which produced 2.4 million oz, gold between 1938 and 1976.

Reserves in the North Tuff horizon are being added on the second level (330 ft. below surface) and on the fourth level (630 ft. down). Seven out of nine drill holes have yielded multi-ounce intercepts and visible gold over mining widths of up to 14 ft. The best intercept to date is 3.56 oz. gold per ton over 10 ft. (uncut); when cut to 1 oz., the value changes to 0.374 oz. gold.

Drifting into this structure to confirm these drill results will be a priority.

The North Tuff horizon is open at depth and to the west.

A priority exploration target will be the high-grade No. 8 zone, discovered late in the life of the previous operation and mined on a limited basis between 3,600 and 4,500 ft. below surface. Mining-diluted grade in this area averages 0.533 oz. gold. Zone No. 8 is open at depth and to surface, where mineralization indicates similar, possibly parallel, structures.

In addition, Madsen notes that the Austin horizon was not depleted when the mine closed in 1976. Rather, it is open below the lowest mined area at 4,200 ft. to the west, and to the east where a dyke was incorrectly believed to cut off mineralization.

Since startup in June, the mill has averaged 380 tons per day. Throughput was initially restricted by oversized rock in the surface stockpile, and now by the smaller quantity of developed ore. Gold recovery has averaged 90%, but during days of higher-grade feed, recovery has reached the targeted rate of 95%.

Madsen is expected to produce 40,000 oz. gold during the first 12 months of commercial operation, based on a grade of 0.205 oz. gold per ton. In the second 12 months, mill feed is expected to average 0.288 oz. gold, yielding more than 50,000 oz.

Cash operating costs for the first 12 months are projected at US$260 per oz.

gold; total production costs at US$300 per oz. In the second 12-month period, the production increase is projected to reduce cash costs and total production costs to US$230 per oz. and US$275 per oz., respectively. The company has hedged two-thirds of its first three years’ worth of production at US$369 per oz. gold.

When reserves and ore development are sufficiently advanced to sustain underground mining rates greater than 500 tons per day, Madsen will begin considering an expansion program. The mill is designed to process 650 tons per day with only nominal adjustments, and could be tweaked to 1,000 tons per day for an estimated capital cost of $5 million. Expansion would proportionately increase gold production and further reduce costs, say Madsen officials.

The Madsen mine produced 2.4 million oz. gold between 1938 and its closure, in 1976.