Lac to triple reserves in next five years

For gold and base metal producer Lac Minerals (TSE), 1993 was a year with mixed results. Attempts to reduce cost and increase productivity were offset by after-tax provisions associated with mine closures, reclamation costs at three mines in the U.S. and a rockburst at the Macassa mine.

These provisions totaled $US49 million. In addition, the major’s declining gold and base metal reserves forced it to increase its exploration budget, a move that also pushed down earnings. In 1992, Lac spent about $US13 million on exploration worldwide and it recently formulated a 3-year exploration plan with a budget of $60 million. Last year, the company recorded a net loss of $US63.5 million (US43 cents a share), compared with net earnings of $US12.7 million (US9 cents a share) in the previous year.

The cash cost of production dropped to $US199 from $US213 per oz., yet revenues also declined, to $US439.7 million from $US478.1 million as a result of a lower realized gold price.

For each of the past four years, Lac has produced at least 1 million oz. of gold. It produced 1.1 million oz. in 1993, down only slightly from the previous year.

Gold reserves, after peaking at the 10.6-million-oz. level, have also declined. At year-end, they stood at 9.2 million oz.

Besides gold, Lac produced about 2 million oz. silver, 35,000 tons copper and 31,000 tons zinc. It operates seven mines in North America and two in South America.

In an effort to reduce costs, increase productivity and find additional reserves, management decided to decentralize operations by establishing two regional units based on geographical, rather than operational, lines. The two units, Lac North America (LNA) and Lac South America (LSA), incorporate all of Lac’s operations within each region.

LNA’s mines include Bousquet No. 1 and No. 2, Doyon, Macassa, Golden Patricia and the Lake Shore tailings project in Canada, along with the Bullfrog mine in the U.S.

Operations at Macassa, in Kirkland Lake, Ont., were suspended following a rock burst which occurred last November. During the downtime, operations were reviewed to establish the cause of the burst and devise a mining method that would minimize the likelihood of future rockbursts.

Current plans are for the mine to reopen in early May. There will be an undisclosed change in mining methods and production will resume at an initial rate of 150 tons per day, increasing to 350 tons by October. The current estimate for total annual gold production at Macassa and the Lake Shore tailings project is 50,000 oz. gold.

Currently, LNA conducts exploration from four regional exploration offices — in Denver, Colo.; Reno, Nev.; Vancouver, B.C.; and Bousquet, Que. Exploration efforts are focused on the Red Mountain project near Stewart, B.C., as well as several other projects in Quebec, Nevada and Central America. Lac’s total North American exploration and development budget for 1994 will be $US23 million.

The company plans to spend $US14.5 million exploring Red Mountain and, by the end of this year, hopes to have feasibility-level mine plans in place, as well as a mine development certificate. Production should start by 1997 at 200,000 oz. per year.

Other areas of interest for LNA include the Abitibi greenstone belt where, this year, the company plans to spend $US3 million. Of particular interest are El Coco, a property in northwestern Quebec, and a property at the eastern end of the Bousquet-Doyon trend jointly owned with Cambior (TSE). In Nevada, Lac will continue to explore for epithermal gold mineralization on the Wildcat property in Pershing Cty.

Lac’s South American division will continue to explore and further develop El Indio in Chile, as well as other properties that exhibit potential. The company holds more than 600 sq. miles of ground in the region of El Indio. This ground also encompasses the open-pit gold mining area of El Tambo and the nearby Nevada exploration project.

Last year, LSA initiated a program that increased proven and probable gold reserves by 1.2 million oz., to 3.5 million oz.

This year, it will institute Phase 1 of an expansion program at El Indio at a cost of $US100 million. The plan will call for construction of a 5,500-ton-per-day agitation leach mill and an 11,000-ton-per-day heap-leach facility. The increased capacity will handle the increased ore supply from the open-pit mines in the Tambo area.

As well, Lac will expand underground mining operations at El Indio. It is hoped this will lead to a 75% increase in gold production by 1995 and a 50% increase in copper production by 1996.

Along with El Indio, Lac will continue to explore and start to develop the Nevada project. Last year’s exploration outlined a geological resource of 2.7 million oz. gold. Lac is targeting an annual production rate of 225,000 oz. by 1998 for the deposit.

The major will also expand exploration by searching for deposits in neighboring countries such as Argentina, Peru, Bolivia and Brazil. It plans to spend $14 million on exploration in South America this year.