It’s no secret that the severe bear market conditions which have persisted in the junior mining sector claimed many casualties. A number of smaller mining companies either went out of business or had their operations absorbed by larger companies, over a period of roughly five years, beginning in 2011.
For the survivors, the serious downturn produced considerable damage on the balance sheets of these companies. QMX Gold Corporation (TSX: V.QMX
, OTCQB: QMXGF
) was one of the junior mining companies which was battered by this extremely difficult operational climate.
QMX Gold is a junior gold mining company with its operations based in the world-famous Val d’Or Gold Camp in Quebec. During better years, the Company had acquired and developed producing assets, providing it with a revenue stream which separated it from many other smaller mining companies. QMX’s Lac Herbin Mine produced over 200,000 ounces of gold which was then processed at the Company’s 100%-owned Aurbel Mill.
When gold prices began falling in 2011, while operating costs were still rising, the Lac Herbin Mine soon ceased to be profitable, and mining operations ceased in 2015. At the same time, with overall mining activities in the region declining, the Aurbel Mill was not fully utilized driving the decision to winterize the facility as the Company explores new opportunities for toll-milling.
The cumulative impact of these developments was that QMX Gold became mired in debts and liabilities of roughly $25 million. It no longer had the revenue streams necessary to service this debt and was forced into default on several of its debts.
It was under these dire circumstances that QMX decided to restructure - refocusing on exploration and reorganizing its management team. The Company brought in Brad Humphrey to be the new President and CEO. Humphrey’s background includes more than 20 years of experience in Capital Markets, most recently at Morgan Stanley where he coordinated its global gold research efforts and provided North American gold sector coverage.
In the course of his duties as a gold analyst, Humphrey spent his time pouring over the balance sheets of numerous gold mining companies. When Humphrey looked at QMX Gold, he saw a Company which was asset-rich but cash-poor. Efforts to restructure the Company’s balance sheet were already underway spearheaded by Deb Battiston, the Company’s CFO, and with the new CEO, cleaning up the balance sheet remained a top priority.
The first step was to approach the Company’s major creditors and lay out the potential for the properties if able to resume exploration activities. The major creditors were tremendously supportive and agreed that debt settlement agreements, a combination of cash and stock, would be in all stakeholder’s best interests . While all negotiations have not yet been finalized, QMX has already achieved significant improvements, with debt settlement agreements reducing debts by $8.6 million, in exchange for roughly $2.0 million in cash payments and approximately 15 million shares. The Company anticipates reducing its overall liabilities by approximately $18 million.
Next on the agenda was to talk with some of the Company’s neighbours. The Val d’Or Gold Camp is home to a number of precious metals mining companies, from explorers right up to senior producers like Agnico Eagle Mines (TSX: AEM
While these mining companies are officially competitors, there is a great deal of cooperation between many of these companies, and considerable cross-ownership. With that thought in mind, the company began discussions with some of its neighbours. The end result was a significant strategic investment in the Company by two of these neighbours: Osisko Gold Royalties Ltd. (TSX: OR
, OTCQB: OKSWF
) and Probe Metals (TSX: V.PRB
, OTCQB: PROBF
On October 17, 2016
; QMX closed a $6 million private placement financing with 15 million shares purchased by Osisko, representing approximately 11% of QMX’s issued and outstanding shares. On December 23, 2016
the Company also closed on a strategic investment with Probe Metals, issuing a further 15 million shares, and a similar 11% stake in QMX. The map below shows the proximity of Probe Metals with QMX, as well as the holdings of other members of this community of mining companies.
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As with any strategic investment by a prominent shareholder, the investments by Osisko and Probe were demonstrations of faith in the Company and its assets. However, what separates these investments from typical large investments by outside shareholders is that not only were these investments by mining companies with the expertise to fully assess the quality of assets, these were neighbouring
Having both an intimate familiarity with the regional geology and a strong understanding of the geology of QMX’s particular holdings, suggests these neighbouring mining companies saw their investments in QMX as a bargain, and the best use for their own capital. Also, there is much to like in terms of the Company’s assets.
In addition to its mine and mill (winterized); QMX Gold boasts the single, largest land package in the Val d’Or Gold Camp. Over the course of well over a decade, the Company has already engaged in significant exploration on its 200 km2
Following its recent financings, QMX presently sits with roughly $2.0 million in cash, to be devoted to new exploration activities as well as general operations. The Company has also concluded an agreement with a local construction company for the sale of waste rock from its Lac Herbin Mine, which will provide a modest revenue stream.
All that remained for the Company was to choose among the many prospective gold zones on its property as a focus for its new exploration activities. Here Humphrey turned to QMX’s Senior VP of Exploration, David Rigg. Rigg is the former President and CEO of the Company.
Rigg is a seasoned veteran, with more than 30 years of mining and mine discovery experience, much of which is in the Val d’Or region. QMX Gold (as Alexis Minerals) was awarded the prestigious Prospector of the Year Award with Falconbridge Ltd in 2005 by the Quebec Mineral Exploration Association for the discovery of the West Ansil deposit in Rouyn -Noranda. He has also worked for Agnico Eagle where his credits include being part of the Laronde Mine discovery team which was awarded the 1995 Quebec Prospector of the Year. While there he also contributed greatly to the discovery of the Goldex Extension deposit in Val d’Or. He has international experience in Africa, Sweden, Norway and Mexico.
In evaluating where to commence new exploration activities on its large land package, management took note of the recent, impressive exploration results
from Integra Gold on its Lamaque South property, which included high-grade intercepts of 35.51 g/t over 3.80 meters and 12.33 g/t over 2.10 meters.
Lamaque South is directly adjacent to QMX’s property, bordering it to the southwest. Said CEO Humphrey, “Recent exploration successes on the properties adjacent to ours have been very encouraging and we are eager to begin drilling our initial set of targets. We are maintaining a strong systematic exploration approach to our large land package, with the priority set on targets that fall between and to the west of the Bourlamaque Batholith and Poste Intrusion.”
On December 6, 2016, the Company announced that Phase I drilling had commenced in the Southwestern Zone of its Val d’Or property. The first phase of drilling will employ two surface drills and will complete approximately 4,000m of drilling.
(Click to enlarge)
Once QMX’s management team has received and analyzed results from this initial exploration campaign, it will plan a more targeted Phase II drill program, scheduled for early in 2017. Depending on the success of the first two Phases of drilling, the Company will decide to either follow up with further exploration on the Southwestern Zone, or move to the next high priority zone. However, management is emphatic that with such a large land package its exploration activities must be systematic and methodical. “QMX is in an enviable position with such a significant land package in the prolific Val d’Or region. With at least six very prospective projects across our 200km2
property, one of our greatest challenges is remaining focused and disciplined,” commented Humphrey.
(Click to enlarge)
The Val d’Or Gold Camp hosts both large, bulk-tonnage deposits of lower grade gold as well much richer, but relatively narrow-vein, high-grade deposits. QMX is currently looking for the latter gold formations on the Southwestern portion of its own property. The Company notes that two of the shear zones from Integra’s Lamaque South property continue into the QMX Southwestern Zone.
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The last two years have been tumultuous ones for QMX Gold, but this is true with respect to a large number of junior mining companies. As the Company moves ahead into 2017, it is very encouraged with the progress it has made in recent months in turning around operations, and providing a new focus.
This leaves open the question of longer term goals for the Company. As a (former) precious metals analyst, Humphrey realizes that gold remains a significantly undervalued commodity. When the price of gold begins a true recovery, this would open up additional opportunities for QMX Gold.
To begin with, higher gold prices would invigorate overall mining activity in the Val d’Or Camp, increasing demand for the processing of ore in the region’s several mills. As one of the few mills in the district to offer a full, floatation circuit in its processing, QMX is well-positioned to capture a significant percentage of this activity, certainly enough to justify reopening its Aurbel Mill.
At higher prices, management may also want to revisit making the Lac Herbin Mine operational again. For that to become a reality the Company would first want to engage in significant exploration, as well as additional stope development.
One of the reasons why costs previously soared at Lac Herbin was that a constriction of operating capital meant that the QMX no longer had sufficient, defined resources in order to operate the mine at close to peak efficiency. This means that for now, QMX Gold will go back to its roots as an exploration company.
Even at present; management feels that the Company is trading at a depressed valuation. As the marketplace digests the strengthening of QMX’s balance sheet and its exploration potential, they look forward to the Company trading at a more realistic valuation.
[Figures below reflect trading levels as of November 28, 2016]
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With the Val d’Or Gold Camp’s largest land package and a rejuvenated balance sheet, QMX Gold Corporation is a junior gold mining company poised for exploration growth. Further information can be found here
FULL DISCLOSURE: QMX Gold Corporation is a paid client of Stockhouse Publishing.