McWatters to buy Kiena and Sigma

Rouyn-Noranda-based McWatters Mining (MCW.A-M) has signed a $US70-Million deal with Placer Dome (PDG-T) to buy the Kiena and Sigma gold mines, along with 18 exploration properties in and around Val d’Or, Que.

The acquisition is being financed through a combination of royalty, debt and equity, with US$25 million already having been arranged.

“It’s the best situation for these particular operations,” says McWatters President Claire Derome. “They’ll be in the hands of people who have a long-Term interest in the region’s development.

“It’s difficult for a large company like Placer to justify having so many small operations,” she explains. “It puts us into an exciting position — it’s a perfect fit.”

Meanwhile, Franco-Nevada Mining (FN-T) has reached a deal with McWatters to purchase a 5% variable net smelter return royalty on the Kiena mine and 1.5 million of the company’s share purchase warrants for $10 million.

Franco-Nevada President Pierre Lassonde will join McWatters’ board of directors, as will Robert Desprs, chairman of Alliance Forest Products.

Connecticut-based Gerald Metals will provide a loan of US$5 million, as well as any necessary hedging facilities. Gerald also arranged a revolving line of credit for McWatters with France’s Caisse Nationale de Crdit Agricole.

Derome says the transactions are expected to be completed by July.

The Kiena mine, which entered operation in 1981, has produced 1.2 million oz.

gold, including 85,000 oz. in 1996. Reserves stand at 3.4 million tonnes grading 4.5 grams gold per tonne with an additional resource of 2.5 million tonnes grading 4.1 grams gold.

Mineralization at Kiena occurs in a pyritic albite-dolomite-Chlorite breccia.

The main ore zone extends from 100 metres below surface and has been traced to a depth of 1,000 metres.

The operation employs cut-And-fill, long-hole and long-hole pillar-stoping methods. The mine is serviced by a 3-Compartment surface shaft, which extends to a depth of 922 metres.

Gold is recovered using standard carbon-in-pulp processes, with dore gold poured on site.

The Sigma mine, which has produced 8.9 million oz. gold since startup in the 1930s, really consists of three mines: the underground Sigma I; the open-pit Sigma II, 24 km from Sigma I; and the recently acquired Lamaque underground mine, which is accessible from Sigma I.

Sigma has total reserves of 1.7 million tonnes grading 4.9 grams gold, plus an additional resource of 3.2 million tonnes grading 4.4 grams gold. The operation has an estimated mine life of 5 1/2 years, based on reserves. When total resources are taken into account, the estimated mine life is increased to 19 years.

Gold at Sigma is associated with pyritic mineralization confined in narrow quartz-Tourmaline-pyrite veins occupying fractures and shear zones.

Underground mining is accomplished by cut-And-fill, shrinkage, long-hole and room-And-pillar stoping methods. Ore is hoisted to surface through a 3-Compartment shaft and a 2-Compartment winze. Current mining operations extend from 300 metres to 1,760 metres below surface.

Ore from Sigma II is transported to the Sigma mill for processing, and provides roughly one-quarter of the mill’s total tonnage. The material is subjected to ball mills, cyanidation and Merrill-Crowe zinc precipitation.

Gold is refined into dore on site.

Placer spent US$15 million modifying the mill at Sigma in 1996, boosting daily throughput to 2,000 from 1,100 tonnes. Derome says daily production rates can be increased to 3,000 tonnes.

It is estimated that both mines will produce 185,000 oz. gold per year at an average cash cost of US$269 per oz. over the next five years. Such a production rate would result in an average annual cash flow of $18 million over the next 51/2 years at a gold price of US$340 per oz.

Sigma’s mine management has agreed to join McWatters’ payroll. As a result, the current workforce of 430 will be retained. General Manager Donald Brisebois will become chief operating officer of McWatters, as well as a director.

“The response to the offer was very good,” says Derome. “The workers have been there many years and have settled in the town. It very much reassured them to know that the transaction was going through and that we intend to invest in developing the two mines.”

With respect to McWatter’s other operations, its namesake mine in Rouyn-Noranda, Que., a past-producer, is on standby and will be re-evaluated, as will its Maude Lake project near Matheson, Ont., where stepout drilling is under way.