TORONTO (miningweekly.com) – Having produced more than 1.4-million ounces from 1991, TSX- and NYSE MKT-listed Richmont Mines is undergoing a step change after discovering a 1.1-million-ounce gold deposit beneath its operating Island Gold mine near Wawa, in Ontario.

This new discovery at its cornerstone gold mine precipitated a management shakeup, interim president and CEO Elaine Ellingham said during an investor presentation in Toronto.

Founded in 1981 by Jean-Guy Rivard, the company has a penchant for small-scale narrow-vein operations in Ontario and Quebec.

“The company’s growth strategy over the years had primarily shifted from being mergers-and-acquisitions driven to organic growth. Being a junior producer dictates that we need a very specific skill set to successfully manage this transition,” Ellingham explained.

Being a mining executive and a professional geologist with more than 25 years experience in the mining industry and having been on the Richmont board for four years, she replaced Paul Carmel in July. The company was currently actively searching for a new CEO with the required experience to drive the company forward to the next phase of its life.

“It’s a good time to look for CEOs. There are many out there,” Ellingham quipped.

The company’s two flagship operations are the Quebec-based Beaufor and Monique mines that were expected to produce between 35 000 oz to 40 000 oz of gold this year, and its cornerstone Island mine, where it expects output of 40 000 oz this year.

ISLAND GOLD DEEP

The 59 km² Island Gold property is located 83 km north-east of Wawa. Ore from the Island Gold mine is processed at Richmont's on-site mill, an 850 t/d rated carbon-in-pulp facility.

Since Island Gold started commercial production in October 2007, Richmont had produced more than 256 000 oz of gold. Underground operations are accessed through a ramp and mining activities had reached a vertical depth of about 400 m.

However, the company’s focus had now shifted to developing the new discovery, located about 500 m to 950 m below surface, beneath the mined-out caverns.

Ellingham said despite the current drill results being fairly wide-spaced, they nevertheless returned high grades over encouraging true widths.

In January, the company updated the compliant resource to now contain 456 000 t, grading 11.52 g/t for 169 000 oz of gold in the indicated category, and 3.2-million tonnes, grading 9.29 g/t for 955 000 oz of gold in the inferred category.

However, the company found the bulk of the deposit to be trending west onto three of four claims it did not fully own. Early this month, Richmont acquired the outstanding 31% ownership of the four patented claims on the Island property, increasing its ownership to 100% from 69% previously. The 31% ownership held by a private third party was acquired in return for a 3% net smelter return royalty payable on all of the future output from the four claims.

“We are confident that the grades would increase into the future. If one is an underground miner, grades are everything. Since we started drilling two-and-a-half years ago, we have added 600 000 oz to the resource and there is significant exploration upside, as we know the mineralisation slopes downward to the east of the new deep deposit, where our drills had not reached yet.

“We have three drills working at the moment and we would soon make a decision as to how to best approach expanding the new resource. We also have to do infill drilling,” Ellingham said, adding that while the company wanted to optimally develop the deposit, the decline had already reached the top of the Island Deep deposit at 635 m, where Richmont planned to start mining the first stopes before the end of the year.

She noted that in developing the new Island Deep model, management would look at expanding the mill incrementally, first to 1 000 t/d, potentially followed by an enlargement to 1 200 t/d, with the ultimate potential to lift the mine’s output to between 80 000 oz/y and 100 000 oz/y.

There were many advantages working in favour of the company at the moment at Island Deep, including the fact that it fully owned a permanent mine operating on site, as well as the skilled people and other necessary infrastructure to promptly turn the discovery into a producing asset.

Because of these advantages, the company achieved a low discovery cost of about $6/oz of gold.

Ellingham added that prices for drilling were good at the moment. “We are in the driver's seat when it comes to contract negotiations.

“The moons seem to be aligned for us as we look toward a future of organic growth,” she said.

Q2 PERFORMANCE

Ellingham reported that the company had “spectacular” results in the second quarter ended June 30, as both the mills were running near capacity. “Even with the gold price of between $1 200/oz and $1 300/oz we are happily turning a profit,” she boasted.

Revenues for the period were C$39-million, a 119% improvement over revenues of C$17.8-million in same period of 2013, mainly owing to a twofold increase in the number of gold ounces sold.

Richmont sold a total of 27 790 oz of gold at an average price of $1 283/oz in the quarter compared with gold sales of 12 826 oz and an average realised price of $1 358/oz in the comparable period last year.

The 117% increase in ounce gold sales reflected a 78% and 19% increase in the number of gold ounces sold at the Island Gold mine and the Beaufor mine, respectively, as grades and tonnages from both mines improved, as well as owing to the addition of the openpit Monique mine and near-surface W zone output in the quarter.

On a consolidated basis, the cost a tonne decreased by 17% year-over-year, mainly attributable to the contribution of lower-cost tonnage from W zone and the Monique mine, as a slightly lower cost a tonne at Island was offset by a higher cost a tonne at Beaufor.

Richmont reported an adjusted profit of C$5.7-million, or C$0.12 a share, which was a significant improvement compared with the net loss of C$1.1-million, or C$0.03 a share, in the second quarter of 2013. Net earnings in the second quarter were C$4.7-million, or C$0.10 a share.

As the company’s gaze shifted towards Island Deep, its other main operation at Beaufor, in Quebec, was steadily churning out gold, lifting output to 8 169 oz in the second quarter from 6 639 oz a year earlier. “With production at Beaufor coming in at under $712/oz, it is a win for us,” Ellingham said. The company had reduced exploration spending at the mine, in favour of focusing on the Island project.

Richmont expected consolidated output of between 75 000 oz and 85 000 oz this year.

The company’s TSX-listed stock traded at C$2.63 apiece on Thursday, having more than doubled in value since the start of the year.