Alexis promises a turnaround

Alexis Minerals (AMC-T) is looking to redeem itself by restarting the Snow Lake gold mine in Manitoba, with the help of a conditional financing.

Credit Suisse has agreed to provide the junior US$45 million to revive the past-producing mine if the company raises more equity.

While Alexis works on structuring the equity, it is proposing a 20-to-1 share consolidation and name change to reflect its transition to a more focused entity.

Maybe in the past Alexis has tried to do many things at the same time, says Francois Perron, the company’s president and CEO, stressing that its key ambition is to get Snow Lake “across the finish line.”

If shareholders approve the propositions in June, Alexis will roll back its 597 million shares outstanding to 29.8 million, and rename the company to QMX Gold.

The “Q” stands for Quebec — the location of its sole producing mine, Lac Herbin — “M” stands for Manitoba and “X” stands for exploration, which it intends to pick up once funding kicks in.

While the company has had a slow start at Lac Herbin, Perron says it is stepping in the right direction.

“The QMX that I will show people is a QMX that in the last twelve months said they were going to turn around Lac Herbin — done. It’s a QMX that said they were going to take Snow Lake into production. In the next couple of months that is also going to be a reality.”

But Michael Fowler, an analyst with Loewen-Ondaatje-McCutcheon, has a more cautious view.

 “They made some bold statements, and probably very brave, in what they are trying to do.” While he describes the endorsement on a loan for Snow Lake as a “positive,” he highlights the company is not in great shape in terms of its balance sheet.  

Acknowledging that, Perron says the company has a few solutions in place to improve its cash position.

He points out that in mid-May Alexis agreed to sell its base-metal assets in Rouyn-Noranda, Que., for $5 million and a 19% ownership in the new junior, Druk Capital Partners.

While that transaction is yet to close, it will give the company enough cash to work on raising equity for the Credit Suisse agreement.

“We are now able to tell people and show people that it is imminently a real project — it’s a bankable project. I don’t think you can get better proof of that, than having Credit Suisse approve a US$45-million loan.”

The 4.5-year term loan bears a Libor interest, plus 5%.

The proceeds from the combined debt and equity financing will go towards restarting Snow Lake and repaying Alexis’ $10-­million bridge loan.  

Once the financing falls into place, the company estimates first pour at Snow Lake within 12 months, after which it would ramp up to full production of 80,000 oz. gold a year, bringing Alexis closer to its goal of producing 100,000 oz. gold a year.

Perron predicts Alexis could reach that annual output in 2014.

Although Perron didn’t say how much equity he would need to raise, Fowler estimates $30 million. He anticipates Snow Lake coming online in 2015 or later, which is a delay to the company’s estimate.

Alexis is recovering ounces from its sole mine near Val-d’Or, Que., which since last June has been undergoing a $6-million turnaround.  

“I’ve always been surprised they actually continued with Lac Herbin,” Fowler observes. “It’s been a money-losing situation.”

But Perron says the conditions at Lac Herbin are improving and cash costs are coming down, with steady production expected in June.

For the first quarter ended March 31, 2012, Lac Herbin generated 5,529 oz. gold at a cash cost of $1,523 per oz. in sales, which was a roughly $1,000 improvement from one year ago.

Alexis says the mine could turn out 18,500 to 20,500 oz. gold this year, with cash costs averaging between $1,300 and $1,500 per oz.

“If it works out, then that’s great,” Fowler says of the turnaround.  
While the company has a lot to do before it can bring Snow Lake online, Perron says that “by the time everything is done, we will be on very, very solid footing.”

Fowler has a “hold-speculative” rating on the stock and an 8¢ target.

Alexis closed June 1 at 3.5¢ within a 52-week trading range of 3¢-9.5¢.