QMX Gold (QMX.V) reported an updated resource estimate on its Bonnefond South property, just 25 kilometers east of Val D’Or in Quebec. The resource came in at 397,000 ounces of gold in the indicated category consisting of almost 7.5 million tonnes at an average grade of 1.67 g/t gold. There was an additional inferred resource as well: the average grade of the inferred open pit resource was just under 2 g/t and perhaps even more interesting was the maiden underground resource. The QMX consultants outlined almost 1 million tonnes of gold-bearing rock at an average grade of 4.52 g/t gold for just over 140,000 ounces of gold.
This is a positive development for QMX Gold as it still owns the Aurbel mill (under option to O3 Mining, but QMX Gold will always retain access to a capacity of 650 tonnes per day) which would reduce the capex needed to advance Bonnefond South towards production. Using a strip ratio of 8.5:1, a mining cost of C$3.50/t and a processing, G&A and transportation cost of C$35.50 per tonne of rock going through the mill would result in a total production cost of C$68.75 per tonne of processed open pit rock. Assuming a recovery rate of 93%, about 20 tonnes of rock at 1.67 g/t would have to be processed to recover one ounce of gold, for a C1 production cost of just under C$1400/oz (this excludes sustaining capex). A decent start, but nothing to be too impressed about but perhaps QMX is quite conservative in its cost estimates (a processing cost of C$26.50/t could be rather high).
Post Scriptum, January 22nd: Eldorado Gold has made a buyout offer to acquire all outstanding shares of QMX Gold for a total consideration of approximately C$0.30 per share consisting of a combination of cash and stock. Shareholders of QMX will receive C$0.075 in cash and 0.01523 shares of Eldorado Gold (ELD.TO, EGO). Eldorado’s share price was C$14.30 on Thursday, which means the ‘spot’ value of the offer is approximately C$0.293. Investors buying QMX Gold at C$0.28 (the company is trading below the fair value of the offer) are essentially buying Eldorado Gold at C$13.46. The offer is not a knock-out offer, but seems to be fair and as Bonnefond is almost literally within walking distance from the Lamaque mill, the transaction makes sense on all levels.
Disclosure: The author has no position in QMX Gold. Please read our disclaimer.