Agnico-Eagle’s gold reserves approach 8 million oz. (February 27, 2004)

A year of furious drilling has allowed Agnico-Eagle Mines (AGE-T) to nearly double reserves to 7.9 million oz. gold at the LaRonde mine and nearby Lapa and Goldex exploration properties in northwestern Quebec.

Betweeen 2002 and 2003, LaRonde’s proven and probable gold reserves climbed 1 million oz., to 5 million oz. The reserves consist of 6.8 million tons in the proven category grading 0.09 oz. gold per ton, 2.49 oz. silver per ton, 0.42% copper and 4.24% zinc, plus 34.8 million probable tons grading 0.13 oz. gold, 1.47 oz. silver, 0.31% copper and 2.32% zinc.

The new reserves are all in the deepest portion of the orebody, about 3,000 ft. below the mine’s existing infrastructure. About 2 million oz. are above level 215, near the bottom of the current mine workings at 7,380 ft.

In the measured, indicated and inferred categories are an additional 19 million tons at similar grades, for a global resource at LaRonde of 8.2 million contained ounces gold.

In total, Agnico-Eagle has 12.9 million oz. gold in all categories in five neighbouring properties: LaRonde, Lapa, Goldex, Bousquet and Ellison. The calculations assume a gold price of US$325 per oz., up US$25 from the end of 2002. However, the gains in the Canadian dollar essentially negated the difference so that the reserve boost is truly indicative of tighter drill hole spacing and successful stepout drilling.

The company notes that using a US$350-per-oz. gold price increases reserves by 6%, or about 470,000 oz. gold. Silver reserves consist of 68 million oz.

The reserve update comes on the heels of last year’s exploration campaign at LaRonde, which saw seven drill rigs cut 160,000 ft. of core. In the program:

* one drill tested Zone 7 between levels 167 and 194 (that is, at a depth of 1,670-1,940 metres);

* three rigs carried out production delineation drilling on the key Zone 20-North, between level 152 and 194; and

* three drills on level 215 probed the orebody at depth and to the west, where it remains open, in a project dubbed “LaRonde II Deep Exploration.”

At level 215, Agnico-Eagle has cut a 2,500-ft. exploration drift that extends from near the bottom of the existing 7,380-ft. Penna shaft west toward the boundary with the Bousquet property. By April, workers will have extended the drift an additional 600 ft. to reach Bousquet.

From level 215, Agnico-Eagle has drilled five holes into the known gold resource at depths of 8,800-10,000 ft. below surface, confirming the existence of a higher-grade gold resource. For example, hole 3215-74A cut 74 true feet of 0.2 oz. gold and 0.3 oz. silver per tonne, plus 0.12% copper and 0.04% zinc.

The most intriguing of the five holes was 3215-68A, which intersected 46 true feet of Zone 20-North material grading 0.19 oz. gold, 2.2 oz. silver, 0.61% copper and 1.87% zinc, well outside the current resource outline. The intersection occurred at a depth of around 10,000 ft. on Agnico-Eagle’s recently acquired Terrex property, just a couple of hundred feet outside the western border of the LaRonde property.

Agnico-Eagle says the hole shows a re-occurrence of massive sulphide bands, unlike the deep intersections farther east, with locally up to 15% chalcopyrite mineralization and the re-occurrence of zinc values.

“From an exploration standpoint, we’re quite excited about the westerly drill result,” says President and CEO Sean Boyd. “This could mean we have something developing as we move to the west.”

Historically, all massive sulphide lenses on the LaRonde property have been characterized by zinc mineralization along the eastern limits, but some of the latest holes seem to indicate a thickening of mineralization and increasing massive sulphide occurrences to the west.

Geologically, the company is working on three different models to explain these latest results:

* the lower-sulphide, higher-grade-gold cores observed could be an alteration zone, which would suggest additional potential farther west than previously interpreted;

* hole 3215-68A could be the occurrence of a new massive sulphide lens as indicated by the presence of massive sulphides, copper and zinc mineralization; and

* the results could represent the extension of the LaRonde-Bousquet II horizon, seen in the now-closed LaRonde shaft 1, which bottoms out much nearer to surface.

“The entire Zone 20-North and Zone 2-South horizon at LaRonde is totally unexplored and undrilled to the west on that Bousquet-Ellison boundary below 4,000 feet,” says Boyd. “So in a growing and significant gold camp, it’s unusual to have an undrilled structure with this type of potential.”

He adds: “We want to get a better feel for the volume of gold in this area because that will have an impact on what we decide to do with the deeper reserves and resources at LaRonde.”

As for LaRonde II, Agnico-Eagle expects to complete a feasibility study of the project in late 2004, which should enable it to determine how to gain access to the deeper ore, whether it be via a new shaft from surface or by an internal shaft.

Meanwhile, immediately east of LaRonde, a significant chunk of resources at the Lapa property has been upgraded to a probable reserve of 4.7 million tons grading 0.25 oz. gold per ton, or 1.2 million contained ounces gold.

In the fourth quarter, Agnico-Eagle had seven rigs drilling 38 mostly infill holes at Lapa.

Exploration resumed in January, when five rigs began expanding the known gold zones along strike and at depth.

At the same time, the company has started preliminary engineering work in the hope that production at Lapa can be fast-tracked.

Last spring, Agnico-Eagle bought out its partner in Lapa, zinc-miner Breakwater Resources (BWR-T), for almost US$8 million in cash plus two royalties, and now holds a 100% interest. Combined with a few more recent acquisitions, Agnico-Eagle now controls properties covering a 12-mile portion of the structure that hosts Lapa’s key Contact gold zone.

Agnico-Eagle’s success at Lapa has stoked a mini area play, with Canadian juniors such as Queenston Mining (QMI-T), Radisson Mines (RDS-V) undertaking substantive drilling campaigns this year (T.N.M., Jan. 26/04).

At the Goldex property, Agnico-Eagle has proved up 24 million tons of probable material grading 0.07 oz. gold per ton, for 1.6 million contained ounces gold.

Agnico-Eagle had an independent engineering firm look at Goldex and, based on its recommendations, has decided to launch an underground program to provide additional geological and sampling data. The information is designed to increase confidence in the gold grade.

This year, Agnico-Eagle will excavate three vertical slot raises and carry out more diamond drilling with an eye toward processing a bulk sample and completing a feasibility study in early 2005.

“The advantage of Goldex is that it’s not a deep deposit and is compact, so, in terms of bringing this on-stream, we foresee a period of two and half to three years before production,” says Ebe Scherkus, executive vice-president and chief operating officer.

The overall production profile at Globex would be in the range of 150,000 oz. gold per year. Grinding, gravity and flotation circuits would be built on-site so that a pyrite concentrate could be trucked to LaRonde for further processing.

“We’re proceeding steadily toward our goal of building a multi-mine platform in this region,” adds Boyd.

The frantic drilling pace does not stop there: Agnico-Eagle has already fired up another four underground drills on its Bousquet property to test extensions of known zones and further probe the area around hole 3215-68A.

Last summer, Agnico-Eagle bought Barrick Gold‘s (ABX-T) Bousquet gold property (including Terrex and Ellison), immediately west and south of LaRonde, for C$5 million in cash, C$2 million in Agnico-Eagle shares, and a 2% net smelter return royalty.

Beyond the encouraging exploration campaigns, the last three months of 2003 represented a major financial and technical turnaround for the LaRonde mine after three difficult quarters.

Thanks to significantly higher g
old, silver, copper and zinc prices, fourth-quarter earnings shot up to US$2.4 million (US3 per share) from US$800,000 (US1 per share) a year earlier, as metal revenues rose US$10.3 million, or 33%, to US$41.9 million. Operating cash flow between the two periods nearly doubled to US$10.5 million.

“We expect further improvement in these earnings and cash flow numbers in 2004 as we continue to increase the output at LaRonde and get the advantage of a continuing rise in commodities prices,” says Boyd.

LaRonde produced 70,299 oz. gold in the fourth quarter at a cash operating cost of US$180 per oz. (or US$220 per oz. when the El Coco royalty payable to Barrick is included). In the same period in 2002, the mine yielded 75,235 oz. at US$128 per oz. (or US$198 per oz. including the El Coco royalty). The mill operated at the daily rate of 6,800 tons, up from 5,800 tons in the fourth quarter of 2002.

Agnico-Eagle closed out 2003 with more than US$140 million in working capital, including $110 million in cash, and a completely undrawn $125-million revolving bank facility.

The positive news continued into the new year, with LaRonde producing almost 25,000 oz. gold in January at a total cash operating cost of only US$115 per oz., reflecting an increase in byproduct silver, zinc and copper production being sold at higher prices. The mill operated at an average of 7,100 tons per day.

February, however, was marked by a fatality. An underground drilling and cabling contractor was killed by an explosion set off while explosives were being loaded into a work area. The death was LaRonde’s third in 16 years.

For all of 2004, LaRonde’s total cash operating costs are expected to shrink to just US$155-165 per oz., based on prices of US$5 per oz. silver, US85 per lb. copper and US40 per lb. zinc, and a Canadian-U.S.-dollar exchange rate of 1.30. Factors expected to push down costs include the elimination of the El Coco royalty, which added US$54 per oz. in 2003, and higher metal production.

Overall in 2004, Agnico-Eagle expects gold production to jump 27% to 300,000 oz. and silver output to increase 19% to 4.7 million oz. Byproduct copper and zinc should amount to 24 million and 120 million lbs., respectively.

Still, these forecasts represent a major comedown from the original, 375,000-oz.-per-year operation that was envisaged just a few years ago as the Penna shaft was completed.

“We have a much more flexible mining situation now than we had throughout 2003, and we’ve built several contingencies into the 2004 plan,” says Boyd, who points out that since all the major surface construction is now complete, the company can better focus on underground development.