Montreal-based
Lyon Lake is acquiring 100% of the shares of Placer Dome’s Costa Rican subsidiary, whose main asset is the Cerro Crucitas property, comprising nine mining concessions adjacent to Lyon Lake’s Esperanza concession.
Placer Dome has already completed a prefeasibility study at the property, which included metallurgical tests and environmental studies. Although the company delineated resources of 2.2 million oz. gold at the Cerro Crucitas deposit and a further 470,000 oz. at the nearby, higher-grade Conchudita deposit, Placer Dome put the project up for sale after it was deemed too small for its long-term objectives.
In order to acquire its 100% interest, the merged Lyon Lake-Palmer company (as yet unnamed) will pay US$3 million in instalments to two individuals who optioned the property to Placer Dome in 1993. The first US$1-million instalment was paid on signature of the agreement, the second is to be paid on Feb. 16, 1999, and the third is to be paid upon issuance of a mining permit for the concession. The merged company will also issue 500,000 shares to these individuals and grant a 1% net smelter royalty (NSR) to a maximum US$3 million.
Once the merged company has completed a feasibility study, Placer Dome will have a 60-day right to buy back a 50% interest by agreeing to fund its share of expenses needed to achieve commercial production, though the merged company will retain operatorship. If Placer Dome does not exercise its right, it will receive a 1-to-3% NSR, based on the price of gold, to a maximum US$20 million. As part of the deal, Lyon Lake is also getting about $700,000 in assets, including vehicles, camp structures, computers and communication systems.
“It’s a tremendous deal for us,” says Lyon Lake President Guy Hbert. “There were other players in the picture, but we were the first to put money on the table. Another factor is that we have been established in Costa Rica for eight years and are the only company to obtain environmental permits under Costa Rica’s strict new laws.
“The timing is good for us. We’ve acquired this property at the bottom of the market cycle; we will have the exploitation permit and a completed feasibility study in 12-18 months; and within that time, I think we will see a good price for gold and be able to finance the project.”
Hbert notes that while Placer Dome was seeking production rates from Cerro Crucitas of roughly 250,000 oz. gold per year, Lyon Lake is eyeing more modest rates of 140,000-150,000 oz. annually in the beginning, of which more than half will come from standard milling with a 93% recovery.
At the Conchudita deposit, Lyon Lake expects to spend $2-3 million on exploration and definition drilling before the next rainy season.
Meanwhile in western Costa Rica, mining at Lyon Lake’s Beta Vargas operation has been suspended as a result of low gold prices, though exploration is to resume in January at the adjacent Canamazo concession, which represents future ore feed for the Beta Vargas mill and leach pads.
Regarding the merger, two Lyon Lake shares will be exchanged for one share of the new company, and Palmer shares will be exchanged on a 1-for-1 basis. Lyon Lake and Palmer have 42.9 million and 17.2 million outstanding shares, respectively.
Guy Hbert will become president and chief executive officer of the new company, while Palmer President Jerry Pogue becomes a director and takes charge of investor relations.
Apart from the aforementioned Costa Rican properties, the new company’s assets will include three Palmer projects in Southeast Asia: the Bac Giang copper property in Vietnam; the Cibaliung gold property in Java; and the Breccia-Dyke gold-copper project in coastal Myanmar. Palmer is contributing most of the new company’s working capital of $7 million. Hbert says the portfolio will be reviewed and that potential joint-venture partners may be sought.
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