Thanks to last year’s $5-million exploration campaign at Sigma-Lamaque, the operation now boasts near-surface reserves of 16.3 million tonnes grading 3.02 grams gold per tonne, or 1.6 million contained ounces. The cost of the discovery to McWatters was just US$2.08 per oz. of reserve.
In the measured and indicated resource category, an additional 12.5 million tonnes grading 1.18 grams gold lie near surface. Another 33 million tonnes of mineralized material has been identified along extensions of known ore zones. Most of the new reserves are within 180 metres of surface at the Sigma property, north of the Lamaque property.
As late as December 1999, McWatters estimated resources at Sigma-Lamaque’s surface to be 3.8 million tonnes at 3.28 grams gold.
The new reserve base means that the Sigma-Lamaque complex, already a 9-million-oz. producer over 65 years, will surpass the 10-million-oz. mark sometime this decade.
This positive outlook for Sigma-Lamaque stands in stark contrast to the bleak situation facing the company less than a year ago. In March 1999, underground mining at Sigma was suspended and about 200 workers laid off because of high operating costs and low gold prices.
Adding pressure was Credit Agricole Indo-Suez, one of McWatters’ main lenders. The company decided not to renew a US$10-million credit line. Additionally, McWatters owed $30 million to its debenture holders.
“Nineteen ninety-nine was a turning point for the company,” said McWatters President Claire Derome. “The gold price wasn’t showing any strength and it was pretty clear to management that we needed to reorient the focus of the company.”
The first step in doing that, she said, was to “make Sigma work.”
After the suspension, the company used three sources of feed to keep Sigma’s mill operating at its full 2,000-tonne-per-day capacity. Ore was trucked from a short-lived open-pit operation at McWatters’ East Amphi property, west of town, and from several new open pits at Sigma-Lamaque. In addition, limited feed was supplied from underground at Sigma. This operation exploited high-grade zones where pre-development had been completed.
With its back to the wall, the company launched a bold $5-million surface and near-surface exploration program at Sigma-Lamaque. Work included the drilling of 700 surface holes and selective underground mapping and sampling.
The company also compiled a modern database of past work at Sigma-Lamaque, including near-surface exploration carried out by former owner
Trying to keep its head above water, McWatters began mining the Sigma-Lamaque open pits in the absence of proven surface reserves.
McWatters’ breakthrough came in the second half of 1999, at Sigma-Lamaque. There, the company recognized that sub-horizontal gold-bearing veins occured in predictable zones up the 60 metres wide in envelopes around the better-known, vertical, gold-bearing quartz-tourmaline veins.
A “mineralized-domain” model developed by McWatters’ geologists at Sigma-Lamaque showed four distinct types of veins hosted by mafic to intermediate volcanic and volcaniclastic rock. These veins form domains that mergre into large corridors of gold mineralization 3 km long and up to 1.5 km wide. They remain open below the bottom of the Sigma shaft, 1.8 km below surface.
“We’re now quite confident in this model,” said Jean Lafleur, vice-president of exploration. Further drilling and production in January continued to validate the model, he added.
“Still, we’re faced with the dilemma of width,” he said. He explained that the north and south shear zones, traditionally the limits of Sigma’s underground workings, are no longer considered the true north-south limits of mineralization.
The new mineralized-domain model explains how, over 62 years of operation at Sigma, a 2-metre wide stope along a vertical vein grading 5-6 grams gold could often be widened two or three times with little change in grade.
With new surface reserves, McWatters has shifted operations at Sigma-Lamaque. Whereas it was an underground operation, it is now predominantly a low-cost, open-pit operation.
The situation mirrors events on the Ontario side of the Abitibi greenstone belt in the late 1980s, when
Current open-pit mining at Sigma is carried out by contractors committed to hiring workers laid off from Sigma’s underground operations.
Some of the pits were named in memory of the property’s former structures, and include the Admin pit, the Parking Lot pit and, soon, the Head Office pit.
During the fourth quarter of 1999, these open-pit operations produced 15,065 oz. gold at a cash operating cost of US$153 per oz. and a total production cost of US$172 per oz.
In total, the Sigma-Lamaque complex produced 19,420 oz. gold during the quarter at a cash operating cost of US$207 per oz., compared with 20,153 oz. at a cost of US$330 per oz. during the same period in 1998.
In addition, the company stockpiled 73,000 tonnes of material containing 6,500 oz. gold during the quarter.
“In the beginning, McWatters was labelled a high-cost producer, but I think that after this year we will be regarded as a low-cost producer,” said Chief Operating Officer Donald Brisebois.
In preparation for increased production from the open pits, McWatters is expanding Sigma’s mill to 3,000 tonnes per day. The US$1.9-million enlargement will be completed by July.
Although Placer Dome halted surface exploration at Sigma in 1995, the major spent $15 million building a 2,000-tonne-per-day mill in 1996. Much of the plant — including tanks, piping and pumps — was built to accomodate 3,000 tonnes per day.
McWatters can reach its 3,000-tonne goal by upgrading the grinding circuit with a ball mill, cyclone and another Knelson concentrator.
The company has budgeted another $2 million to boost the mill’s capacity to 4,000 tonnes per day by the second quarter of 2001. By that time, McWatters intends to be mining 3,600 tonnes per day from open pits at Sigma-Lamaque and 400 tonnes daily from underground at Sigma.
“That’s a very conservative plan, but this is what we can afford right now,” said Brisebois. “It makes a lot of sense on the financial side, because it gives more time for our exploration team to do their work on Lamaque and more time for us to redo a strategic plan for Sigma.”
“It’s a bit early, but we know that the 4,000 tonnes is not going to be enough,” added Derome. Milling capacity at Sigma could ultimately reach 7,000 tonnes per day, she said.
As a result of the mill expansion, gold production from Sigma-Lamaque is set to reach 155,000 oz. in 2001 from 82,000 oz. in 1999. At the same time, cash operating costs are expected to drop to US$180 per oz. in 2002 from US$243 in 1999.
While McWatters’ total production from Sigma-Lamaque and Kiena is expected to rise to 250,000 oz. gold annually by 2002, the company could be producing 400,000 oz. per year within three or four years, said Derome.
Over the life of the Sigma pits, the stripping ratio is expected to be about 3.5-to-1 should pits reach a depth of 300 metres.
As the pits grow in size, McWatters will need to move other nearby structures, including highway 117 which leads to Montreal. But such a task won’t be a problem, said Brisebois, because the mine has the support of the town of Val d’Or and the provincial government.
The Quebec government also supports the company financially. McWatters’ received a grant of $70,000 and an interest-free loan of up to $2 million for exploration at Sigma-Lamaque.
Meanwhile, McWatters believes the Lamaque property holds the same near-surface potential as Sigma, a
nd has launched an exploration program based on the Sigma model.
Among several promising targets at Lamaque, the company has defined a granodioritic structure called the West Plug. It lies southwest of the Main Plug, which has yielded more than 80% of the property’s gold.
On the financial front, McWatters closed a rights offering in late January 2000 just days after announcing a 1.8-million oz. resource at Sigma-Lamaque. The offering raised $9.1 million, $6 million of which came from the Fonds Regional de Solidarite. Placer Dome did not participate. As a result of the offering, McWatters has $8 million with 48.7 million common shares and 28.3 million convertible, non-dividend-paying preferred shares outstanding.
In terms of its credit facility, the company must pay US$2.5 million on March 31, 2000, US$3 million by year-end and the balance on March 31, 2001.
Derome predicts the facility will be replaced with a long-term loan before year-end: “The discussions we have with other banks are much easier now.”
While the surface reserves at Sigma-Lamaque were delineated by extrapolating underground structures to the surface, McWatters is using the lessons its learned at surface and taking a second look at Sigma’s underground resource.
As a result, McWatters is now considering using bulk-mining methods to exploit the Sigma-Lamaque structures at depth, a move that will require extensive feasibility work and considerable capital to build a new shaft or decline from the bottom of the pit.
“If we were mining 9-ft. wide structures at depth, can you imagine how many tonnes [of ore] could be left behind in the same domain?” asked Brisebois, a former Placer Dome employee at Sigma. “That’s something we will evaluate very, very seriously because the more ounces we have in the area, the better for McWatters. When people came looking to buy Placer’s assets in Val d’Or in 1997, I said the biggest hidden prize is Sigma. We still have a lot of work to do here.”
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