Richmont builds up Abitibi gold assets

With its operating Beaufor gold mine, its Francoeur gold mine soon to reach commercial production, and two active gold exploration projects named Wasamac and Monique all located in Quebec’s Abitibi region, Richmont Mines (RIC-T, RIC-X) has staked a big part of its future on the district.

At Wasamac, which is located 15 km west of Rouyn-Noranda and less than 10 km east of Francoeur, Richmont started on a 35,000-metre drill program earlier this year.

The company wants to expand on an initial 1-million-oz. resource estimate released in February that tallied 5.1 million measured and indicated tonnes grading 2.51 grams gold per tonne, plus an inferred resource of 11.5 million tonnes averaging 2.72 grams gold. The resource is spread over the Main zone, which sits below historic mine workings, and zones 1 through 3 to the east.

New holes drilled below the Main zone resource returned a true width of 65.7 metres carrying 2.16 grams gold from 544 metres downhole in hole 11-61, and 68.4 true metres averaging 2.66 grams gold from 507 downhole in hole 11-66A.

In zone 2, which sits roughly 1 km east of the Main zone, drill results from just west of the resource included hole 11-65, which hit a true width of 46.6 metres averaging 3.45 grams gold from 738 metres downhole, and hole 11-68A, which cut a true width of 13.7 metres grading 3.38 grams gold from 735 metres downhole.

Drilling on the upper portion of the zone 2 resource returned slightly lower grades than what was previously defined in the resource block.

The company has already completed 9,900 metres in the current program at Wasamac, with two active drill rigs on the property. Richmont reported that a third had been idle because its contractor had encountered a shortage of skilled labour.

Richmont recently reached an option deal with Globex Mining (GMX-T) to earn 100% of a 2.1-sq.-km property immediately east of the 7.6-sq-km Wasamac property. Previous owners have already tested the potential for gold to about 200 metres depth with no significant results, but Richmont wants to drill deeper to find mineralized zones similar to the ones at Wasamac. To fully earn into the property, Richmont will have to pay $3 million in cash, spend $3 million in exploration and issue 500,000 shares to Globex, which will keep a 3% net smelter return royalty on the property.

At the Monique project, located 25 km east of Val d’Or, Richmont recently carried out an 8,200-metre definition drill program to evaluate the possibility of a small open-pit operation, with 47 holes drilled on the previously identified G and J zones.

Results from the G zone included 12.9 metres carrying 6.76 grams gold, 10 metres averaging 8.07 grams gold, 17.1 metres grading 4.25 grams gold and 11.1 metres returning 6.2 grams gold, all at true widths and occurring between 60 and 175 metres depth. Results from the J zone are pending.

The drill program also served to fulfill Richmont’s spending obligation on Monique to secure full ownership of the property. The company is now progressing with geotechnical work and a 3,500-metre condemnation drill program.

Though much of the news out of Richmont has centered on exploration, it is also working to optimize its existing mines and get its Francoeur mine up and running smoothly. The company would especially like to reduce costs, which last year ran at $832 per oz. for the 68,000 oz. gold it produced last year.

And while the company has a strong presence in Quebec, the bulk of its production last year actually came from its Island Gold mine northeast of Wawa, Ont., where it expects to produce 45,000 to 50,000 oz. gold in 2011. Last year the company also completed 7,500 metres of drilling on its Cripple Creek gold property southwest of Timmins, Ont.

For 2011, the company is targeting total production of 80,000 to 85,000 oz. gold thanks to the addition of Francoeur, and then as much as 100,000 oz. in 2012 if production goes well at the new mine.

The company is actively looking for strategic acquisitions to boost annual production closer to 200,000 oz. gold.

The company has only 31 million shares outstanding despite having been around since the early 1980s, and has $47 million in cash and equivalents, and no debt.

In mid-May, the company reported first-quarter net earnings of $8.7 million, or 28¢ per share, on $26.4 million in revenue, versus year-ago net earnings of $1.8 million, or 7¢ per share, on $20 million in revenue. First-quarter gold sales were 19,234 oz. gold at an average of US$1,389 per oz., compared to the year-ago 15,841 oz. gold sold at US$1,116 per oz.

Richmont’s share price was trading at a little over $4 in early February before starting a steep climb, hitting a 52-week trading high of $9.75 in late April. The company, however, was hit hard by market contractions in early May and closed at $7.23, down 52¢ on the day the latest Wasamac results were released. At presstime, shares were at $7.09.