Title: Mine profile: Alexis Minerals – Lac Herbin

Sub-title: This junior player has big hopes for its Val d’Or gold mine, which went into full production late last year.

 

One long-time mining industry truism is that smaller players have a hard time getting respect. Although rising gold prices quickly boost the market caps of larger, diversified players, smaller ones have to fight to get noticed. One such company is Alexis Minerals Corp, whose Lac Herbin mine, located in Quebec’s Val d’Or region went into full production late last year.

 

Led by its CEO, long-time industry veteran, David Rigg, Alexis Minerals’ strategy is to use the cash flows generated from its Lac Herbin mine and its Lac Pelletier reserves, slated to go into production this year, to fund a full-scale research, development and operations player. “These are substantial ore bodies,” says Rigg. “We call mines with the resources potential of Lac Herbin, “company makers,” because they have the potential to be the backbone of long-term integrated mining businesses.”

 

Rigg isn’t kidding. Gold is being discovered at the Lac Herbin operation faster than it is being extracted. As at the end of last year, measured resources at the Lac Herbin mine had increased by an impressive 180 percent compared to December 2007, to 124,800 tonnes, grading 9.2gAu/T for 37,100 ounces of gold. Furthermore, the grading of those measured resources represented a sharp increase from the previous measurement (6.8 g Au/t). Total measured and indicated resources at the mine by year end 2008, were 856,300 metric tonnes, at an average yield of 7.5 g.Au/T. That works out to 206,600 contained ounces of gold, or five years supply at the company’s projected production rate of 40,000 ounces per year.

 

Val d’Or: a long-time active mining district

Quebec’s Val d’Or region (rough translation is “valley of gold”), where Lac Herbin is located, hosts a slew of highly attractive mineral resource deposits. The area has been an active mining district ever since the early 1930s, when the Lamaque mine first began production. Since then, the region, with the help of the Quebec government, has attracted a steady flow of investors seeking to leverage those resources.

 

According to the Fraser institute, Quebec is one of best places in the world in which to conduct mineral exploration, development, extraction and processing. The lead time required to get permits and to round up the required authorizations are respectable by international standards. Furthermore, although the generous tax credits that the provincial government offers mining companies have come down recently, these were a significant factor in attracting Alexis Minerals to the province.

 

That said, according to Patrick Sevigny, mine manager at the Lac Herbin operation, the Val D’Or region offers developers advantages that go far beyond the resources available there. “Because there are so many mines already in operation around here, it’s a great place to do business,” says Sevigny, who grew up in Val d’Or and considers himself lucky to able to pursue his career in his home town.

 

“There are a lot of suppliers here that support the industry,” said Sevigny, pointing to buildings with names such as Komatsu, Hewitt Equipment and (with a laugh) one marked “Molsons” (beer). “There are also between 30 and 35 reputable drilling and other mining contractors around town which helps out a lot.”

 

Mine History

The area around Lac Herbin has been known to contain gold deposits for some time. Two previous mining operations, the Dumont and Ferderer mines, had already been mined on the Alexis Minerals properties, not too far from the Lac Herbin site. But it was only in 2003 (the year that CEO Rigg joined) that the company first took a stake in them.

 

By the middle of 2007, a feasibility study regarding the Lac Herbin project, conducted by Golder Associates, an independent engineering firm, was completed. The study, which focused on the measured and indicated mineral resource estimates, complied earlier by Innovexplo, concluded that the deposit was economic to produce at then prevailing gold prices. A similar study, conducted around the same time, concluded that another nearby site to which Alexis Minerals also held the rights, the Lac Pelletier gold deposit, was also economical to operate and could generate roughly similar as Lac Herbin.

 

Staffing the mine

According to Sevigny, one of the major attractions of the Val D’Or region, is its labour force, which includes substantial mining industry skills sets. Furthermore, a good crop of potential employees are available right now, due to recent layoffs by many non-gold base metals producers in the region. Furthermore, new talent is constantly coming down the pipe.

 

“There are many families whose key breadwinners were employed in the mining and related sectors, which offer fairly high-paying jobs for this region,” says Sevigny. “So we have a steady flow of students from the local school board coming to work at the mine on unpaid internships, to learn about how the industry operates in the real world. This gives us an opportunity to identify talent early and to pick out the best people available.”

 

Although mining is first and foremost a resources industry, don’t say that to Rigg. “These are extremely complex exploration and development mandates,” says Rigg. “It is crucial that when a new company comes into a new area, that they attract the right people with the right skill sets. So building a good reputation quickly is very important.”

 

According to Rigg, when a new mining operation begins to set up shop in a town, the locals tend to wait around to see who they are going to hire, to get an idea of what kind of operation the new company is running. That means the first few people hired are crucial. Because the feedback they bring back to the town’s bars, parent teacher association meetings and bowling alleys, will determine in large part how hard it will be for the company to fill its ranks.

 

Rigg already had considerable experience in the Val D’Or region when he started working with Alexis Minerals. But since he had not worked in the town for many years, he took a little bit longer than he would normally, to scout out the scene before he made his first moves. “If you pick one or two good leaders, then a lot of the others tend to follow,” said Rigg. “The key was hiring the right department heads. If you get good people there, you can generally pick and choose from the contacts that they have worked with over the years.”

 

Milling and synergies with the Lac Pelletier gold project

Alexis Minerals officers are also quite excited about work being done on the Lac Pelletier gold deposit, which is located in nearby Rouyn-Noranda. Bringing this deposit into production would substantially boost cash flow at the company, as well as set the stage for synergies with Lac Herbin projects, stemming in particular from combined milling of output from the two bodies. A new and updated pre-feasibility study was commissioned last year, and the results are expected to be reported in April. The company expects results from the study to be positive, and projects the extraction of between 35,000 to 40,000 ounces of gold per year from the deposit starting in 2010.

 

One of the biggest questions related to the Lac Herbin site was how Alexis was going to conduct its milling operations. As a short-term measure, company officials decided to contract out this key part of the supply chain. The ore produced at Lac Herbin is currently batched for a couple of months, and then shipped out to the mill where it can be batch processed all at once.

 

However the milling contractor recently raised its prices to the point, that outsourcing no was longer the ideal solution economically. Over the longer term, as output from the Lac Pelletier operations begins to come on-stream, a more permanent solution will be needed. Alexis Minerals thus recently purchased the Aurbel Gold Mill, mothballed since the 1990s, which is located just 1.0 km east of the Lac Herbin Mine.

 

The Aurbel Mill has an impressive potential capacity of 1400 tpd, but getting it running again will require substantial investments of both time and money. That said, when the mill comes into full operation, Alexis expects to decrease its overall milling and shipping costs by between $10 and $15 per tonne by next year.

 

Starting to get some respect?

Of course despite the hard work done by Alexis Minerals staff in getting the Lac Herbin mine into production, there is no guarantee that the company will ever get the respect they believe they should have. As these words were being written, the company’s shares continued to lag below the $0.50 range.

 

That said, the company’s CEO Rigg remains unflappable. “It takes a while to build market confidence,” says the long time industry veteran. “Once we have a couple of quarters of consistent production under our belts and when Lac Pelletier comes on stream and the new milling operation is fully upgraded and operating, the value inherent in our shares will become increasingly apparent.”

 

Peter Diekmeyer (peter@peterdiekmeyer.com) is CIM Magazine’s Quebec correspondent.

 

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