Agnico-Eagle plans second LaRonde shaft

Encouraged by the results of an aggressive exploration program at the LaRonde gold mine near Val d’Or, Que., Agnico-Eagle Mines (TSE) will begin sinking a second shaft on the property this spring.

The 1,600-ft. shaft will provide access to the No. 6 zone, discovered 3,000 ft. east of the main orebody in early 1992. Subout-cropping at 115 ft. below suface, No. 6 is estimated to contain a probable reserve of 688,802 tons grading 0.32 oz. gold per ton, 1.19 oz. silver, 3.7% zinc and 1.16% copper. It remains open at depth.

“We have to be ready in two years, when our grade starts to dip,” said President Paul Penna during a recent interview. “We can’t wait for a better gold price.”

Reserves at LaRonde stand at 9.27 million tons grading 0.175 oz. gold in all categories. In the main zone, which contains 6.7 million tons, the grade decreases from bottom to top. Last year, the mine produced 134,474 oz. gold, up from 116,831 oz. in 1991.

Exploration over the past year has identified four new zones, including the rich new No. 20 zone on the 20th level where drilling recently yielded the best intersection yet — 85 ft. of massive sulphides, including 43 ft. averaging 7% zinc.

The No. 20 zone has now been traced 700 ft. horizontally and 1,300 ft. vertically and is open in all directions.

In fact, recent results have been so encouraging that Agnico has abandoned an earlier development proposal that would have accommodated not only production from the No.6 zone, but future production and exploration at the 20th level. “Since the writing of the original report, the additional results from the No. 20 zone have been very encouraging,” Agnico staff remarked in a recent report. “If the No. 20 zone were to develop into anything economic, the new shaft would be more than 1,500 ft. away from the zone.”

Under the new proposal for a “stand-alone” operation at the No. 6 zone, the cost of sinking the 3-compartment shaft, developing two levels, and drilling is estimated to be $11 million. At an operating cost of $50 per ton, the development would, at best, produce a rate of return as high as 104% (given a gold price of US$350 and a grade of 0.4 oz.). At worst, it would be as low as 17% (assuming US$325 gold, low grade and high operating costs). Scheduled for completion in the first half of 1994, the shaft will use the original LaRonde headframe and 8-ft.-diameter hoist.

But construction at LaRonde is just part of a much larger development program proposed by Agnico. Penna plans to raise $35 million this year to finance shaft-sinking at LaRonde, the Vezza property near Joutel, Que., and the Goldex property near Val d’Or.

To this end, Agnico has purchased full ownership of both the Vezza and Goldex properties. “I don’t function well with a partner” says Penna. At the Vezza property, where preliminary reserves stand at 2.78 million tons grading 0.15 oz. per ton, Agnico proposes to spend $7 million to sink a 1,082-ft. shaft and complete 33,000 ft. of definition drilling. The deposit is expected to provide feed for the hungry mill at Agnico’s aging Joutel operation nearby.

But while a recent report by Nesbitt Research calls the LaRonde property a “cornucopia of mineralogical riches” where reserves could increase “dramatically,” it questions Agnico’s commitment to other, less promising gold projects.

“Although some of these projects have merit, we do not believe that Agnico can afford the luxury of funding all these additional companies (including Goldex Mines and diamond explorer Sudbury Contact Mines) and projects.” Penna is examining several financing options, including a bank loan, rights offering or a combination of the two. He says he will take a final proposal to his board of directors within the next couple of weeks.

Asked about his predictions for the gold price, Penna gestured to the African icon perched menacingly on his bookshelf and said “ask him.” After 12 years of faulty forecasting, Penna says he has given up making predictions about the yellow metal.

He says both the LaRonde and Vezza developments will be profitable at the current gold price of US$330 per oz. Goldex will need a higher price. In 1992, after four consecutive years of losses, Agnico managed to turn a profit through aggressively cutting costs. Cash operating costs dropped to US$229 from US$278 per oz. in 1991 while net earnings jumped to $6.2 million. Cash flow from operations reached $14 million.