Viceroy, MK at odds over mining plan

The Castle Mountain gold mine in San Bernardino Cty., Calif,, continues to pump out cash for Viceroy Resources (TSE) and MK Gold (NASDAQ), which own 75% and 25% respectively.

Cash flow for the three months ended June 30 amounted to $8.8 million (or 38 cents per share). Earnings for the period totaled $2.1 million on sales of $17.9 million, down from $3.3 million on sales of $16.6 million in the comparable period last year.

The open-pit, heap-leach operation cranked out 43,238 oz. gold during the first quarter, at an average cash cost of US$159 per oz., and production for the year ended March 31 totaled 168,100 oz. at a cost of US$162 per oz.

Operators last year mined slightly more than 4 million tons grading 0.057 oz. gold per ton.

It is a reflection of the success of Castle Mountain that Viceroy is free of debt, boasting $40.4 million in working capital.

All is not peaches and cream, however, as Viceroy is still trying to work out a dispute with MK Gold over operation of the mine.

Viceroy’s long-term, 8-year mine plan is based on competitive mining costs of US65 cents per ton plus equipment costs of US9 cents per ton. MK, the present mining contractor, wants to charge US$1.25 per ton and contends it has a life-of-mine contract.

Viceroy contends that MK’s current mining contract expires in August, 1996, after the remaining 13 million tons in the original development plan are mined.

Unable to resolve the conflict, Viceroy is proceeding with the necessary legal action in Nevada.

Based on the lower mining cost assumption, proven reserves at Castle Mountain are estimated at 29 million tons grading 0.035 oz. per ton.

Viceroy contends that the economic reserve would be significantly reduced if mining were to continue under the MK Gold contract, past the disputed deadline of August, 1996.