Agnico-Eagle is indefinitely suspending operations at its Goldex mine in Val d'Or, Quebec, because of water inflow and ground instability, the company said on Wednesday, sending its shares sharply lower.
Agnico-Eagles Mines Limited Vice-Chairman and CEO Sean Boyd speaks during the annual general meeting of shareholders in Toronto April 28, 2011.
The Toronto-based gold miner will write off its investment in Goldex, resulting in a third-quarter charge of about $260 million.
Toronto-listed shares of Agnico tumbled 15.5 percent to C$49.00 in early trading. In New York, the stock was down 14.9 percent.
With proven and probable reserves of 1.6 million ounces, Goldex was one of Agnico's lower-cost operations. The company had expected the mine to account for 184,000 ounces, or roughly 17 percent, of its gold output in 2011.
"Considering the safety of the company's employees and the integrity of the mine's infrastructure and that of the surrounding area, the decision was made to stop production indefinitely," Chief Executive Officer Sean Boyd said in a statement.
The company said it expected its mill would continue to process ore that has been stockpiled on the surface until the end of October.
Agnico said it would try to restart mining operations next year on the western side of the deposit, where the ore zone is still considered relatively stable, but there is no guarantee that this will occur.
Agnico, which owns mines across Canada, Mexico and Finland, said a weak volcanic rock unit in the hanging wall at the deposit had apparently failed. The rock failure is thought to extend from the top of the deposit to the surface, and as a result, ground water had flowed into the mine.
Last week, Agnico said a consulting firm had advised it that the water inflow had damaged the integrity of the rock mass. At the time, the company said it was ramping up its efforts to reduce water inflow and investigating the matter further.
The company said on Wednesday that it decided to halt operations on the advice of a second consulting firm.
Agnico said it had now halted all its previously planned grouting efforts and was focused on working to preserve the surface infrastructure in the area.
The company also plans to make an accounting provision for a portion of the anticipated costs of remediation in the third quarter. It will also reclassify as mineral resources all of the remaining 1.6 million ounces of proven and probable gold reserves at Goldex.
To minimize the impact on its workforce of 233 permanent employees, Agnico plans to transfer some to its other Canadian operations, while using others to help with its remediation efforts at the site.
As announced last week, Agnico said it expects to spend about C$25 million on monitoring and remediation activities at Goldex this year, with another C$20 million being spent in 2012.
Agnico plans to announce third-quarter results on October 26.