VANCOUVER — At the beginning of the year Toronto-based producer QMX Gold (QMX-T) — then Alexis Minerals — had quite a lot on its plate. The company was trying to stabilize operations at its Lac Herbin gold mine in Val-d'Or, Que., as well as finalize project financing to develop its Snow Lake gold mine in Manitoba.
Fast forward roughly ten months and QMX has completed a 20-to-1 share rollback and is now seeing some tangible results on its mine optimization efforts at Lac Herbin.
The company has recorded quarter-on-quarter growth from the gold mine, with third-quarter revenues jumping to $8.3 million on the back of falling operating costs — cash costs dropped from $1,625 per oz. gold during the second quarter to $1,366 per oz. in the third quarter. QMX has also succeeded in improving its recoveries, as the Aurbel mill produced 5,235 oz. of gold over the past three months at an average recovery rate of 93.5%, compared to 5,898 oz. during the second quarter at a 90.7% average recovery.
“With the Val-d'Or package our primary goal has been to get the current operating asset in good shape,” explains president and CEO Francois Perron “I look forward to tabling my next reserve early next year. I think on the operations side the tricky stuff is done because we've stabilized our volumes, and we continue to implement measures to improve those operations.”
QMX registered a net profit of $4.5 million or 15¢ per share during the quarter, and completed the sale of its base metals camp in Rouyn-Noranda, Quebec, to newly-minted Falco Pacific Resource Group (FPC-V). In return QMX received gross proceeds totalling $5 million plus 7 million shares in Falco valued at 25¢ per share.
QMX experienced additional success at Lac Herbin on the exploration front. The company focused on in-fill drilling at its FL, Apex and Bonanza zones in a bid to increase mine life.
At Bonanza, recent drill programs have suggested expansion potential, with highlights including: 10.5 metres of true width averaging 7.63 grams gold per tonne in hole LH03-316, and 2.8 metres of true width grading 19.24 grams gold in hole LH03-390. Meanwhile drilling at the FL zone targeted mineralization within the inferred resource envelope and cut 25.9 grams gold over 1.5 metres and 22.2 grams gold over 1.6 metres.
Unfortunately volatile equity markets have taken a toll on QMX’s ability to finance Snow Lake. The company had initially intended to close a $30 million equity raise in mid-October, but after its share prices fell roughly 30%, Perron opted to pull the offering and look for alternate options. QMX is closing in on a US$45 million debt financing with Credit Suisse for Snow Lake's development, but will require an additional raise going forward.
“The strategy has changed a bit. If the market does come back I can adjust to that, but hoping for that isn't good business strategy in my opinion and won't help us get the project going,” Perron explains. “I don't think a lot of companies out there have a shovel-ready project with permits in a mining-friendly jurisdiction like Manitoba. Our bank financing is close to lined up. With the gold price high — and I think it is on the way up — I can probably find a structure that fits for investors that want a cash return.”
On Nov. 12, QMX closed a $17.5 million bridge financing with Third Eye Capital in order to provide some flexibility when it comes to negotiating financing deals going forward. Perron says the bridge will allow him to "work through the numbers" and decide on the best way to nail down Snow Lake's capital requirements.
Perron explains that Snow Lake has a lot going for it, including strong underground infrastructure from historic operations and above-average ground conditions. He points out the operation was profitable at much lower gold prices, stressing Manitoba’s strong local infrastructure and competitive power costs.
Snow Lake holds proven and probable reserves totalling 3.5 million tonnes grading 3.9 grams gold for 451,900 contained oz., but it is the expansion upside that gets Perron excited.
“I'm very pleased we've consolidated that larger, regional camp. The key to unlocking that potential is to get the mine into production, produce cash flow, and fund those exploration programs,” Perron comments. “Obviously these things take time, but we've been using that time to establish a full exploration pipeline that includes in-mine, near-mine, and regional potential.”
Under its feasibility study QMX has already budgeted $8 million for underground drilling during early-stage production. The company has been working with historic data to lay out a specific drill strategy to maximize mine production, while simultaneously taking advantage of its infrastructure to explore for new mineralization.
“Regarding exploration I'd say that fortune will favour the prepared,” Perron says, explaining that he believes the exploration in the underground is significant and justifies the expense. “We've been doing a lot of modelling that is giving us new ideas on how to look at things underground, and I'd call in-mine potential impressive right now.”
Another potential upswing at Snow Lake comes from other exploration outfits in the area. Perron points out how painful it was for his company to make the transition from explorer to producer, and speculates earlier-stage operators would have some interest in joint-venture arrangements with a company like QMX, which would be running a permitted mill with extra throughput capacity under its current mine plan.
“The merits of the land package are there, I think as soon as I've stabilized what Snow Lake is going to do there is huge opportunity for someone that region,” he concludes.
At the time of writing QMX was sitting near 52-week lows at 26.5¢ per share, and had 30 million shares outstanding. The company has an $8 million press-time market capitalization.
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