As costs continue to escalate for gold miners, Toronto-based
Agnico recently gave guidance for 2006 that pegged total cash costs at its LaRonde mine in Quebec at US$50 per tonne — making it one of the lowest-cost gold producers in the industry.
Agnico’s president and chief executive, Sean Boyd, says costs were in the high-US$50 range just two years ago, but have dropped due to positive internal and external factors.
“It’s a combination of mining the deposit at a higher volume, being in a great location (Quebec), and the experience of our workforce,” Boyd says. “And the fact that, at this stage, the mine is fully developed with four separate mining horizons that bring flexibility and mobility to the deposit to feed the mill at 8,000 tonnes a day.”
The rising price of zinc, copper and silver don’t hurt either. LaRonde produces the three metals as byproducts.
Geoff Stanley, an analyst with BMO Nesbitt Burns, says the byproducts are a “big advantage” to Agnico, as the funds they generate reduce overall costs. Stanley does not hold shares in Agnico-Eagle.
In addition, Boyd says cost guidance for 2006 was made using conservative estimates for byproduct pricing. Boyd says the US$50-per-tonne figure was arrived at using a silver price of US$7 per oz., a copper price of US$1.50 per lb. and a zinc price of US65 per lb.
On Dec. 16, silver was trading at US$8.63 per oz., copper at US$2.03 per lb. and zinc at US79 per lb.
Stanley says Agnico’s strength goes beyond low costs. He says the company has put itself in a position to have four operating mines in the coming years. Currently, LaRonde — Canada’s largest gold deposit — is Agnico’s only operating mine.
“They’ve established a good portfolio of development opportunities,” Stanley says on the phone from New York City.
Those opportunities include the recently announced acquisition of
Currently, 30% of the strike length at Suurikuusikko has been drilled. Measured, indicated and inferred resources total 24.3 million tonnes with an average grade of 6.22 grams gold per tonne in the measured category and 4.35 grams gold in the inferred, for a total resource of 3.7 million oz. gold.
Agnico is also sniffing around in northern Mexico. It has until mid-February to acquire the Pinas Altos project for US$39 million in cash and 1.8 million shares of Agnico.
Agnico has been drilling on the property since April 2005, and Boyd says it has intersected high grades of gold and silver outside of the previous resource outline.
Pinas Altos contains 6.9 million tonnes averaging 5.59 grams gold per tonne in the measured and inferred categories, for a total of 1.2 million oz. gold. The property also hosts significant silver deposits with a total measured and inferred resource of 25 million oz. silver.
Closer to home, Agnico plans to have its Goldex and Lapa projects, relative neighbours of LaRonde, in operation by 2008.
Goldex’s reserve is 22.1 million tonnes grading 2.2 grams gold per tonne for 1.6 million oz. Lapa has a reserve of 4.5 million tonnes grading 8 grams gold per tonne for 1.2 million oz.
In determining which prospective properties to go after, Boyd says Agnico places a high priority on political stability — one of the benefits of doing business in Quebec.
“Quebec is at the top of the class in terms of being pro-mining,” Boyd says, citing the advantages of low-cost energy in Quebec, a highly skilled pool of labour, and the proximity of mining suppliers and contractors.
Boyd believes operating in districts that can offer investors similar peace of mind will win more market favour.
“As the market starts to realize the strength of our production growth, and more importantly, the strength of our resource growth, it will set the stage for a better understanding and a higher market valuation,” he says.
On Dec. 16, Agnico shares were up 3.5%, or 73, to $21.41 on roughly 330,000 shares. They have gained roughly 30%, or $4.93 since mid-November when they were trading at $16.48.
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