The company is currently producing at a rate of about 45,000 ounces gold per year at its high cost (~$700/oz), underground Seabee Gold project located in Saskatchewan. With the satellite Santoy 8 deposit expected to enter commercial production in Q4 2010, it is anticipated that production will gradually increase to over 70,000 ounces gold per year by 2013 while cash costs decline due to lower mining costs at Santoy 8. With combined reserves of over 500,000 ounces and a long history of production, the mine does not appear to be at risk of near-term depletion.

Claude also owns two substantial exploration projects: (1) Madsen, a past producing underground operation located in the Red Lake district, hosts a resource of over 1 million ounces. Significantly, the project also boasts a 500tpd mill, permitted tailings pond, and 5 compartment shaft to 4,125 feet. There do not appear to be any immediate plans to bring Madsen into production, but presumably the capital costs would be minimal and therefore is probably more an issue of whether operating costs would prove prohibitive. (2) Amisk is a 65:35 joint venture with St. Eugene Mining located in Saskatchewan (about 20km southwest of Hudbay’s 777 mine in Flin Flon, Manitoba). Results from the 2010 exploration program have potentially outlined a 1+ million ounce open-pittable deposit.

Unable to generate any significant amount of positive cash flow with gold at $1,000+ per ounce due to high operating costs, it is hard for us to get too excited. While Santoy 8 may help bring costs down while also increasing the company’s production profile, we aren’t confident the effect will be enough to justify the company’s current valuation. We would prefer to wait and see (1) the effect of Santoy 8 on Seabee’s operating cost profile and (2) clear development plans for Madsen.