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TABLE OF CONTENTS Oct 28 - Nov 3, 2013 Volume 99 Number 37 - 0 comments

Agnico gears up La India for production

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By: Salma Tarikh
2013-10-23

SONORA, MEXICO — Agnico Eagle Mines (TSX: AEM; NYSE: AEM) gets things done quickly: it’s on the cusp of producing gold from its La India mine in northern Mexico, less than two years after acquiring it from Grayd Resource.

Tim Haldane, Agnico’s senior vice-president for Latin America, attributes the success of permitting, building and commissioning the project within 22 months of acquiring it, to the company’s skillful Mexican team and Mexico’s efficiency in advancing mine projects.

“Permitting is pretty fast in Mexico. It is equally as rigorous as any other country, but it’s not bureaucratic and it’s not complicated,” Haldane said in a September presentation from a resort in Guaymas.

“So there aren’t any jurisdictions pretty much anywhere else in the world where you can get business done this fast. Maybe there are not too many teams like our team that can execute on that kind of timeline,” he says, a day before leading a group of visitors — mostly investors — to the La India site.

Agnico has a local staff of 1,500 at its La India, Pinos Altos and Creston Mascota gold projects in northern Mexico.

The country is rich with mineral potential and hosts a mining-friendly government, proficient employees and existing infrastructure, Haldane says.

Agnico has three operations in the adjacent Sonora and Chihuahua states, and paid US$29 million of income tax in Mexico last year. 

Its new La India mine in Sonora is 70 km from the Pinos Altos gold mine and the satellite Creston Mascota project, which are both in Chihuahua. Pinos Altos, a combined open-pit and underground operation, is the reason why the global miner first came to Mexico.

The Toronto-based major acquired Pinos Altos in 2006 and brought it into commercial production in November 2009, with underground mining beginning in early 2010. Creston Mascota started operating as a satellite project to Pinos Altos in late 2010. Most of the ore at Pinos Altos is treated at a 4,000-tonne-per-day processing plant, but the lower-grade material is heap leached with the ore from Creston Mascota.

Pinos Altos is a major gold producer in Mexico and one of the company’s biggest cash makers. Pinos Altos and Creston Mascota together churned out 234,000 oz. gold and more than 2 million oz. silver in 2012. Pinos Altos could deliver 159,000 oz. gold and by-product silver in 2013, with a mine life until 2029.

Creston Mascota, which resumed leaching this March after a temporary suspension in October 2012, could pour 32,000 oz. gold in 2013 and operate until 2018.

Including Creston Mascota, Pinos Altos has 2.7 million oz. gold in reserves and 74.4 million oz. silver, from 38.1 million tonnes grading 2.2 grams gold per tonne and 60.7 grams silver per tonne.

Without the assets in Chihuahua, La India would have been too small on its own to consider, Haldane admits. But he says the company bought La India because of its exploration potential, and plans to build it on the back of its success with Pinos Altos and Creston Mascota.

Agnico received La India as part of its $275-million acquisition of Grayd Resource in November 2011. On the bus ride to the resort, Grayd’s former president and CEO Marc Prefontaine — who put together the land package that became the La India project — said he first heard of the area through a friend who told him about prospectors who had interesting ground in northern Mexico. Prefontaine checked it out, and seeing a potential gold system, secured the area in 2004.

“It took us about two years to really realize we had a discovery and prove it up,” he recalls. But La India was not the only discovery Prefontaine and his team made on the property. In May 2010, Grayd’s team unearthed the large Tarachi gold prospect, 10 km north of La India. Later that year, it published a positive preliminary economic assessment (PEA) for the La India project. The PEA results and the Tarachi prospect drew the attention of Agnico, which was working nearby at its Mexican operations.

“After Pinos Altos, this was a natural because we’d just finished building a satellite-leach operation over there called ‘Creston Mascota,’” Sean Boyd, Agnico’s CEO, says during the La India tour. “So it was an easy one because we had all the costs down — the live data that it took to build one down the road. So we knew it was a solid project.”

Construction at La India is nearly complete, with 95% of the US$157.6 million budget spent as of September. Haldane says the project should come online below budget and on schedule. “There will be a gold bar coming out of La India pretty soon,” he says during the presentation.

Initial production at La India kicks off later this year, with commercial production anticipated in early 2014. Annual output would average 90,000 oz., with total cash costs of US$500 per oz. La India would churn out 40,000 in 2014 and 81,000 oz. in 2015.

The mine has an eight-year mine life based on 33.5 million tonnes of reserves grading 0.72 gram gold for 776,000 oz. gold.

La India has 582,000 oz. gold in measured and indicated resources from 43 million tonnes grading 0.42 gram gold, plus 1 million oz. in inferred from 81 million tonnes at 0.39 gram gold.

The La India property covers 576 sq. km and 45 mining concessions. It’s located in the Sierra Madre Mountains between the towns of Matarachi and Tarachi, 210 km east of Hermosillo.

Early the next morning, visitors drove to the Guaymas airport from the resort. Splitting into smaller groups, we hopped onto Cessna airplanes that flew us over the mountainous terrain. An hour later we touched down at the Tarachi airstrip and took helicopters to the La India site.

Asked how it felt to be back on the property, Prefontaine, who hadn’t seen La India in nearly two years, said the group was getting a kick out of his reaction in the helicopter. “When I saw that,” he says, referring to the site, “I went ‘holy shit,’ and my mouth dropped to the floor.”

 Agnico has transformed the exploration-stage project into an open-pit heap-leach operation on the brink of production in a short time. It began working on the La India project right after closing the Grayd deal. From November 2011 to May 2012, it infill drilled La India’s resource to confirm and expand the resource estimate Grayd had reported in its PEA. This led Agnico to calculate the project’s first reserves in June 2012. That August, the international miner tabled a positive feasibility study to build a multi-pit mine and heap-leach operation at the La India site. A month later its board approved La India’s construction.

A tour of the site shows that Agnico paid attention to the quality of its operations, facilities and camp. “We think it’s worth it to spend a few more dollars on the camp and offices,” Haldane remarks.

After touring the offices, the company gave an overview of La India’s mine plan and processing methods.

Agnico intends to use 90-tonne, 777 haul trucks and 992 loaders from its Pinos Altos and Creston Mascota operations to mine La India as a 16,000-tonne-per-day operation. This works out to 6 million tonnes per year.

The project contains three pits: North Zone, La India and Main Zone. Agnico started mining the North Zone, which is closest to the heap-leach pad, in September. It plans to exploit La India next, followed by Main Zone in 2016.

All three pits have similar gold grades, averaging 0.7 gram per tonne. The low grade is offset by the mine’s low 1-to-1 stripping ratio. The oxide mineralization in the pits starts at surface and reaches a 120-metre depth. Below that there’s a layer of sulphide material that could be extracted in the future. Agnico is conducting metallurgical work on the sulphides, with results due later this year.

Agnico will use a three-stage crushing system to reduce the ore to minus-19 mm for leaching. After this, a conventional carbon-adsorption plant with two parallel trains of five 3.5-tonne carbon columns and a Zadra strip with electrowinning will recover gold from the cyanide solution to produce doré bars. La India has an 80% gold recovery over a 90-day leach cycle.

The miner is building the leach pad in two stages, with the first phase virtually complete by late September. The second phase would begin in late 2014 for US$20 million, with leaching in October. The leach pad has a capacity of up to 50 million tonnes, giving it room to treat more material.

The site has an ample water supply and several water-catchment programs. “We have enough water for this year and will collect more next year,” Haldane says.

One of the attractions at the La India property is the Tarachi target, which is larger than the La India project and has different mineralization.

La India contains high-sulphidation epithermal-style gold mineralization, similar to other operations in the region, such as Alamos Gold’s (TSX: AGI; NYSE: AGI) Mulatos gold mine, 14 km east. “All of La India’s reserves are in oxidized material, amenable to heap leaching,” the company says. “On the other hand, the gold system at Tarachi is best classified as a wallrock gold porphyry deposit . . . suggesting that it has the potential to grow into a much larger deposit.”

Tarachi has 400,000 oz. gold in indicated (34.5 million tonnes at 0.4 gram per tonne) and another 900,000 oz. in inferred (72 million tonnes at 0.4 gram per tonne). Metallurgical work is underway, with results due by year-end.

Analysts believe Tarachi could become a stand-alone or satellite project to La India.

Meanwhile Agnico, which is optimizing all of its operations, anticipates producing 1.1 million to 1.14 million oz. gold in 2014, as La India reaches commercial production and ounces increase from the company’s flagship LaRonde mine and Goldex mine, which are both in Quebec’s Abitibi region. Annual production should climb to 1.2 million oz. in 2015, driven by growth from LaRonde and Pinos Altos.

Agnico is developing the San Eligio and Cerro Colorado satellite zones at Pinos Altos, which has a handful of undeveloped zones. It is also spending US$100 million to sink a shaft at Pinos Altos to help maintain production after open-pit mining winds down in 2020. The shaft should be operational by 2015, Haldane says.

Once in production, La India will become Agnico’s seventh gold mine, joining Pinos Altos, LaRonde, Goldex, Lapa in Quebec, Kittila in Finland and Meadowbank in Nunavut.

Agnico’s formula for success includes a good operating platform, cash flow, internal opportunities for expansion, exploration upside and great employees. And Haldane says that “we have all those elements in Mexico.”



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Photos

Agnico Eagle Mines CEO Sean Boyd checks out the heap-leach pad at the new La India gold mine in Sonora, Mexico. Photo by Salma Tarikh.
Agnico Eagle Mines CEO Sean Boyd checks out the heap-le...
Standing outside facilities at Agnico Eagle Mines' La India gold mine in Sonora, Mexico. Photo by Salma Tarikh.
Standing outside facilities at Agnico Eagle Mines' La I...
The heap-leach pad at Agnico Eagle Mines' La India gold mine. Photo by Salma Tarikh.
The heap-leach pad at Agnico Eagle Mines' La India gold...
A drill rig tests the North zone at Agnico Eagle Mines' La India gold mine in Sonora, Mexico. Photo by Salma Tarikh.
A drill rig tests the North zone at Agnico Eagle Mines'...



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