QMX Gold searches for Snow Lake financing, watches Lac Herbin output
by Greg Klein
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Maybe as much as anyone, QMX Gold TSX:QMX president/CEO Francois Perron knows the challenges of the industry today. His company’s Lac Herbin gold mine in Val-d’Or has yet to meet expectations. A “broken market” has stalled plans to re-open the Snow Lake past-producer in Manitoba. The yellow metal’s sudden price plunge has only added anguish to angst. Still he soldiers on, with a confidence born of long-term perspective.
“People are freaked out by short-term factors,” he insists. “I think the longer term is amazingly bullish for gold. I’m still in the gold business and I’m glad to be there.”
He bases much of his optimism on Snow Lake, a northern Manitoba operation that gave up 1.44 million gold ounces up to 2005. With surface infrastructure including a mill, the mine still has gold to offer, according to 2010 figures that show a proven reserve of 900 gold ounces and a probable reserve of 451,000 ounces.
Those reserves are included in the measured and indicated categories of a resource estimate that shows 1,000 ounces measured, 727,000 ounces indicated and 336,700 ounces inferred. Snow Lake exploration continued throughout 2011, totalling over 42,000 metres of drilling.
A 2010 feasibility study used a 7% discount rate to project a pre-tax net present value of $100.8 million and an impressive 80% internal rate of return. Initial capital costs came to $39.7 million for a reactivated underground mine that would produce 415,600 gold ounces over a five-year lifespan. Payback was set at 1.7 years.
Now, nearly three years later, QMX estimates the initial capex closer to $45 million. “Some of the numbers have moved around but some of that is pure inflation,” says Perron. “We have been optimizing the feasibility study. The initial study had cash costs of $640 an ounce. With a larger camp and a different format for financing equipment, we expect $825 an ounce.”
Snow Lake remains on care and maintenance, with a closure plan in place and dormant but renewable permits. It could be pouring gold in 12 to 14 months and ramp up to commercial production within 21 months. All that’s holding it up is a currently very elusive commodity—money.
“The initial approach was to finance through the public markets,” explains Perron. “By now we all agree that the public markets are broken. We have the advantage of having a project that’s been through the bankable feasibility process. On that basis I’m looking at private equity partners or some kind of strategic alternative like that.”
In May 2012 Credit Suisse agreed to lend the company, then known as Alexis Minerals, $45 million over 4.5 years for Snow Lake development. Contingent on the loan is a requirement that the company raise additional equity. The actual figure, says Perron, “depends on the amount of hedging that we put into it. I’d say they’re probably looking for $10 million to $15 million to backstop the project.”
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