Quebec miners bullish on gold for 2011

Osisko Mining Corp. soon starts commercial production at its $1-billion Canadian Malartic gold mine near Val d'Or with bullion prices near record levels. "You just can't buy that kind of timing," says CEO Sean Roosen.

Luck, technology and teamwork combined to work in Osisko's favour to bring the open-pit mine on stream on time and on budget. It may expand and even go underground later.

Gold led the 2006-08 recovery in Quebec mining, survived nicely through the 2008-09 global recession and rebounded in 2010. The price has gone from $780 US to around $1,500 US an ounce since Osisko began developing the mine in 2006.

The mine and mill will have annual capacity of 700,000 ounces when it hits full production in 2012. The project ran into local opposition and Osisko spent $140 million to move and relocate homes, schools and other buildings clear of the mine site.

Now the 55,000-tonnes daily mill must reduce noise.

Roosen and partners bought most of the Malartic property for $80,000 in 2004. Its stock has been among the best mining industry performers as the project moved through permitting and environmental hearings to construction and first pour in mid-April.

Roosen and his team are now working on their next mine - Hammond Reef near Thunder Bay, northern On-tario - while backing juniors exploring for precious metals in Quebec, Nova Scotia and elsewhere. "Hammond Reef is like Malartic without the site problems," he says. It could potentially produce 400,000 ounces annually and cost $750 million when completed in 2015.

Roosen says he wants to keep Osisko strictly a mining company aiming at intermediate stature with output of 1.5 million ounces annually.

His model is Agnico-Eagle Mines Ltd., up till now Quebec's leading gold producer and nearing the intermediate stage with 1.5 million ounces of capacity by 2013.

CEO Sean Boyd has developed new mines in Quebec, Finland, Mexico and Western Canada on the back of Agnico-Eagle's rich LaRonde mine not far from Osisko's Malartic project. With two new companion mines near LaRonde, the company's total Quebec production was 464,000 ounces in 2010. By 2012 this will rise to at least 600,000 ounces as LaRonde extracts higher-grade ore from deeper levels now being opened up.

"In the '70s when many gold miners gave up because of low prices, we decided to stay and develop LaRonde ... and it has paid off handsomely," Boyd says.

It has produced four million ounces since 1988.

LaRonde, with climbing metal prices, has been an ultra low-cost gold producer. Its ore contains silver and zinc, offsetting the cost of extracting the gold - it produced 6.2 million ounces of silver last year.

But the deeper ore has less byproduct content.

So far Quebec has not been able to surpass Ontario's Red Lake mine, Canada's biggest with annual capacity of 800,000 ounces.

But the 300-kilometre fault lines running from the Kirkland Lake region in northeastern Ontario to the Abitibi and northwestern Quebec are humming with activity.

With high bullion prices, small mines get bigger, old mines are dewatered and renovated and new and deeper mines are built. The money is there; raised in Canada, the U.S., Europe and Asia.

Aurizon Mines Ltd. bought the inactive Casa Berardi mine north of Rouyn-Noranda for $7 million in 1998 when gold was trading at $300 US and invested $100 million to reopen and expand capacity. It now has reserves to support a lifespan of at least 10 years.

Aurizon expects Casa Berardi's 2011 production will be 165,000 to 170,000 ounces, worth well over $200 million at present gold prices.

It has been mining lowergrade ore to get at highergrade material later this year. Its next big project is the Joanna open-pit mine near Rouyn-Noranda and it has another encouraging project near Malartic.

"We'll spend $25 million on exploration and development this year, half for Casa Berardi and half for Joanna and to finance the search for gold, copper, silver, tungsten and rare earth metals in Quebec's far north," says CEO David Hall. "The Nunavik region is a veritable mineral storehouse."

Giant Goldcorp is pushing ahead with the Eleonore project in the James Bay region. Goldcorp paid Virginia Mines Inc. $425 million US for Eleonore in 2006 and is now outlining the potential of what CEO Chuck Jeannes calls "a key cornerstone mine."

A 725-metre exploration shaft being completed before year-end will be used to test higher-grade ore located in the deeper zones. The project will open up a brand new exploration camp since Eleonore has relatively easy road access and an airport 100 kilometres to the North.

Goldcorp has estimated Eleonore could produce an average of 600,000 ounces annually over a 20-year mine life, starting up late in 2014. It has negotiated the participation of the Wemindji Cree.

About 15 kilometres over the border near Timmins another big gold project is taking off. Detour Gold Corp.'s Detour Lake property may have the potential to challenge Red Lake.

Detour Lake goes back to 1983 and it was shut down by the former Placer Dome Inc. in 1999 when gold traded at $250 US. Later geologist Gerald Panneton, a former Barrick Gold Corp. executive, realized its potential after studying a technical evaluation putting the resource at 3.4 million ounces and potential annual output at 600,000 ounces over 15 years. The property has direct road and rail access.

The resource has since been boosted to 14.9 million ounces and mine life to 21 years, based on a conservative gold price. Panneton says he is now working on a plan to take annual output to 800,000 ounces.

Detour Lake's estimated cost is $1.2 billion and Panneton is pushing for first-pour in 2013.

All five CEOs are bullish about gold despite the Mideast turmoil, Europe's debt problems and rising exploration and production costs. Quebec power tariffs are stable but fuel, drilling, chemicals, construction and machinery costs will be higher.