Having largely overcome its financial woes of the past two years,
Its first step in this direction will be to develop the dormant Gross Rosebel gold project in Suriname. Cambior now owns the entire project, having purchased the 50% stake held by
Tentatively slated to begin in 2005, production from Gross Rosebel will serve as a partial replacement for output from Cambior’s aging Omai gold mine in neighbouring Guyana.
Gross Rosebel is 80 km south of Suriname’s capital, Paramaribo, and is accessible by plane, or by road from the city. The reserve base, calculated in a 1997 feasibility study, stands at 25.2 million tonnes grading 1.7 grams gold per tonne (or 1.3 million contained ounces gold). The figure is based on a gold price of US$300 per oz., which Campbell deems economically necessary (at US$275 per oz., reserves decline by 10%).
Reserves are based on 1,045 core holes totalling 108,000 metres, 5,054 auger holes totalling 35,000 metres and 45 km of trenches.
Cambior and Golden Star spent a combined total of US$33 million exploring the property, defining reserves in the North Block, which contains the Pay Caro, East Pay Caro and Koolhoven deposits, and in the South Block, which contains the Mayo, Royal Hill and Rosebel deposits.
All these deposits occur along the limbs of greenstone units that have been folded to form a broad, east-trending syncline that plunges to the west. Gold mineralization occurs mostly in free form in quartz and quartz-carbonate veins that are restricted to lithological contacts, fold closures and near-vertical shear corridors.
In the 1997 study, the partners considered building an Omai-scale operation that would have carried a hefty price tag of US$175 million. As gold prices waned during the late 1990s, another study was carried out, to determine the deposit’s amenability to smaller-scale heap leaching, which would exploit only near-surface mineralization. However, the clay content proved too high for profitable heap leaching.
Cambior went back to the drawing board and, in a prefeasibility study completed in September 2000, came up with the idea of building a mill and a carbon-in-leach facility that would only process weathered and transitional material that extends to depths of 75 metres in the South zone and 30 metres in the North.
Under the new plan, Gross Rosebel’s average gold production over a 7-year mine life would be 170,000 oz. per year. Mining would be carried out at the daily rate of 10,000 tonnes and at a direct cost of US$168 per oz. with a gold-recovery rate of 92%.
This development option slashes the project’s capital costs to US$80 million (assuming all equipment is new) and reduces sustaining capital costs to US$20 million. It is likely the costs will be even lower since as much equipment as possible will be dismantled at Omai, shipped down the Essequibo River to Suriname, and then trucked to the Gross Rosebel site.
In Suriname, Cambior hopes to lower costs even further by tapping into cheap hydroelectric power generated at the Afobaka Dam, some 18 km from Gross Rosebel. The electrical grid in the area was built to provide for the country’s power-hungry aluminum smelting industry.
(At the remote Omai operations, by comparison, Cambior must use diesel fuel to power its mill and related facilities. Diesel alone accounts for roughly 30% of Omai’s total costs.)
Cambior intends to complete a final, US$400,000 feasibility study at Gross Rosebel by mid-2002 so that construction could possibly begin by the end of 2002. Cambior says no more exploration drilling will be necessary to complete the study.
Cambior is buying Golden Star’s stake in Gross Rosebel for cash: the junior receives US$5 million on closing and US$1 million annually on the second, third and fourth anniversaries of closing. Cambior also gets Golden Star’s 30% shareholding in Omai’s operating company, Omai Gold Mines, in exchange for assuming Golden Star’s US$900,000 debt to Omai Gold.
At Gross Rosebel, Golden Star keeps a conditional royalty that becomes effective at gold prices exceeding US$300 and US$350 per oz. Under the terms of the royalty, if Cambior brings the deposit into production, Golden Star will receive any revenue in excess of US$300 per oz. on production from “soft” (rippable) ores and any revenue in excess of US$350 per oz. from hard-rock ores, up to a limit of 7 million oz. A 2% net smelter return royalty, payable either to the government of Suriname or to state-owned aluminum producer Grassalco, would be deducted from the revenue applicable to the Golden Star royalty.
Under a 1994 agreement, Grassalco holds an option to acquire a 20% interest in Gross Rosebel at an exercise price equal to 20% of accumulated project costs. This option is exercisable only after the approval of the feasibility study and the granting of an exploitation concession.
Grassalco has a second option to acquire an additional 20% interest, but it can only be exercised after the eighth year of production.
Cambior says it would like to review Grassalco’s option agreements.
Looking at the company as a whole, Chief Financial Officer Bryan Coates says in recent years the miner has been widely viewed as having three knocks against it: a high debt load; a declining reserve base; and above-average operating costs. But he says Cambior has taken decisive steps to address each of these issues and that management is now making the rounds to restore confidence in the company.
The high debt load has been cut to a manageable US$121 million, but the reduction was achieved through a painful process of asset sales, private placements and repayments from cash flow generated during a period of depressed metal prices.
By December 2003, Cambior expects to have reduced its debt load to less than US$50 million, paying the sum down chiefly through prepaid forward deliveries on Omai output.
South of the Rio Grande, Cambior has unloaded almost all of its large portfolio of gold and base metal properties. Today, all that’s left of the major Latin American assets is Omai and Gross Rosebel, though Cambior still maintains an office in Peru geared toward grassroots gold exploration.
Playing a critical role in Cambior’s rebound is Jipangu, a Japanese company oriented toward gold investments. Jipangu, which has become Cambior’s largest shareholder, with an interest of 32%, and has injected some US$20 million of new capital into Cambior since entering the scene as a white knight in late 1999. The placements include enough cash to carry out the recent Gross Rosebel deal with Golden Star.
Jipangu has also committed its “best efforts” to provide a non-recourse financing of US$50 million to Cambior for construction and development of the Gross Rosebel mine.
Coates says that while Jipangu cannot be characterized as an undemanding shareholder, Cambior’s management is “pleased with the longer-term outlook of the Japanese investor.”
As for its overall reserve base, Cambior is consistently replacing its gold reserves in Canada through a string of exploration campaigns at the Sleeping Giant and Doyon mines in Quebec.
Coates notes that with Cambior’s lenders currently requiring the company to hedge 70% of its production, the remaining 30% can participate in any rally in gold prices. (The 70% hedged production does not include any output from Gross Rosebel.)
“The restructuring is over, so we’re more comfortable now,” says Coates, who emphasizes that, looking forward, it’s “important to get assets producing cash flow for us as quickly as possible.”
He says recent positive developments should result in a re-rating of Cambior’s share price to reflect its net-asset value.
For 2001, Cambior’s production target stands at 615,000 oz. gold produced at a cost of US$215 per oz., up from an original target of 585,000 oz. Cambior also expects to produce an attributable 1,430 tonnes of niobium from its half-
stake in the Niobec mine in Quebec, co-owned with
For the first nine months of 2001, Cambior’s losses tallied to US$20.3 million (or 22 per share), compared with a year-earlier profit of US$20.1 million (28 per share). Revenue between the two periods fell to US$145.8 million from US$157.7 million.