Dumagami’s new mine a winner for Agnico

In the 3-month period ended Dec 31, this new mine turned out 15,700 oz gold for an operating profit that will exceed $400,000. And the current quarter will be better, with virtually all mill feed still coming from its low grade east pit.

However, soon to come on stream will be the much better grade and larger underground west zone, the discovery of which has completely changed the Dumagami picture.

The original production plan called for a yearly output of 45,000 oz based on a 1,500-ton milling rate. With grade certain to rise with underground ore and the higher 2,000 ton rate, this year should see 70,000- 75,000 oz of gold, increasing to 80,000 oz in 1990 and 100,000 oz in 1991.

And the production of by- product copper, the grade of which is also increasing with depth, will amount to two million lb this year. Silver output, too, will climb to 185,000 oz this year.

Translating this into dollars, operating profit for this first full year is expected to exceed $11 million or over $1 per share, rising to $17 million next year and $26 million in 1991.

There are in reality two separate mines, with combined indicated reserves of 7,000,000 tons above the 21st level (2,800 ft) averaging 0.139 oz gold and 0.37% copper after applying a 20% dilution factor.

The original east mine consists of the open pit which still contains some 616,000 tons grading 0.085 oz gold and 0.l5% copper, with an additional 996,000 tons to be mined from underground grading 0.093 gold and 0.15% copper.

The other 5.4 million tons is in the newer west zone, all of which will be mined from underground. This averages 0.15 oz after dilution, with a progressive and significant grade increase with depth.

The big Bousquet 2 mine of LAC Minerals, which adjoins Dumagami on the immediate west, reports ore reserves of 7.8 million tons averaging 0.187 oz to a depth of 3,300 ft. This is believed to be the western extension of the Dumagami west zone. Indeed it was on the strength of Dumagami’s discovery that LAC initiated the drilling that led to its discovery.

“The over-all grade of our west zone should prove to be just as good as the LAC,” W. A. Hubacheck, senior consulting geologist for the Agnico Group, tells The Northern Miner. Stepping up development

Because Dumagami will now have the 500-tons of extra milling capacity that had been reserved for associated Goldex Mines (TSE) the company is launching a $12.5- million program to speed development of this big west zone. It is to have this mine ready for the full 2,000 ton daily production rate by the time the open pit is finished. Too, it spells quicker access to the better grade deeper ores. It includes installation of a larger hoist.

Not carried in ore reserve calculations, there is already a small but high grade “sweetener” readily accessible. Known as the South zone, it was picked up by drilling on the 2nd level just 165 ft south of the West zone. This contains a minimum of 36,000 grading 0.4ll oz gold, plus copper.

Three different stoping methods will be employed in mining the west zone, depending on the ore width and depth, with cemented backfill to be used below the 15th level. While the latter will be more costly, dilution will be minimized and grade increased.

Unusual for any new gold mine just coming into production, the Dumagami shaft has already been put down to a depth of 3,185 ft, the last 100 ft of which has been slashed to 4-compartment size to permit future deepening without interrupting production.

The company has invested a total of $60 million in the project to date, all raised by equity financing. There is no debt, President Paul Penna points out, adding that the new speed-up program will be financed from cash flow and/or internally.

Dumagami is also embarking on an ambitious exploration program. Budgeted at $1 million per year over a four year period, it will be funded entirely out of cash flow. The program will provide important information concerning the existing orebody, and will explore new targets on the Dumagami property. Dispute before courts

Noranda Inc. (TSE) commenced an action against Dumagami Mines and others in November, 1987 claiming, among other things, damages for breach of fiduciary duty, alleging that there was critical information withheld from it in January, 1986 when it sold its interest in Dumagami to Agnico-Eagle.

Dumagami and the other defendants have pleaded, among other things, that Noranda and Agnico enjoyed a long-term relationship and that only after completion of the transaction did Noranda see fit to complain. The defense calls this “vendor’s remorse.”

The defendants plead in answer to the allegations of Noranda that all of the fiduciary duties and obligations to Noranda have been fulfilled and that further, Agnico at all times operated the Dumagami project in a very cost-conscious fashion, obtaining excellent performance without financial wastage.

The parties, through their solicitors, are in the process of exchanging documentation. Examinations for discovery are expected to take place in late spring or early summer.

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