Chibougamau deal one aspect of Greenstone style

How does this deal sound?

Buy a land holding consisting of 81 claims groups for $300,000 cash and 474,920 shares valued at about $1.2 million in total. Then, within a year, farm-out a 50% interest in 22 of the properties to nine different companies. You get $960,000 in cash as part of the various deals, keep a 50% interest and obtain work commitments of $11.3 million.

That’s what Greenstone Re sources managed to do after it bought much of Campbell Re sources’ Chibougamau land holdings in 1987. What’s more, the deals for those northwestern Quebec properties called for expenditures of $3.6 million by the end of 1988 and already, with less than two months of the year having passed, expenditures have exceeded $3.8 million.

Of course it helped that the same group — a holding company for financier Charles Bronfmann, Claridge Investments, and Montreal businessman Neil Raymond — who were unhappy with their substantail position in Campbell had also made an investment in Greenstone through a private placement. At that point the Claridge investment in Greenstone was small, but it has since blossomed to the point where that group, directly and indirectly, holds about a 53% interest.

But perhaps the greatest irony is that Greenstone doesn’t consider any of the Quebec properties to be among its prime prospects for production. To find those you have to travel to Central and South America.

That is often enough to scare off many North American investors who suspect that any investment south of the Rio Grande River is chancy at best.

But Greenstone President Ian Park can quickly dispel those fears. He’s had a lot of practice, because it’s one of the first questions that come up when he describes, for example, the company’s El Recio (pronounced “el race-ee-oh”) gold property in Costa Rica.

Costa Rica, he says, is one of only a few countries in the Western Hemisphere where Canada’s Export Development Corp. will insure invested capital and re tained earnings for all risks such as government nationalization. According to Park, Costa Rica and Colombia are two of the most highly rated countries for that insurance.

Greenstone is also able to use Canadian international agency funds to do preliminary feasibility studies. For example, the company has already received $89,000 in funding from the Canadian International Development Agency for a project in Colombia and expects to apply for another $250,000. In Costa Rica, it awaits word on an application for $350,000 in funding.

And that assistance is for countries where labor costs, for example, are considerably lower than in Canada. Greenstone expects it will cost less than $2 million to bring the El Recio property into production by early 1989. With production costs estimated to be in the order of $140(US) per oz, cash flow could help get underground production going.

The Chibougamau deal, the Bronfman connection, and the focus on South and Central America — both Park and Greenstone’s vice-president of exploration, Bruce Winfield, have taught themselves to speak fluent Spanish in order to understand the business culture in Spanish-speaking countries — are all aspects of a style that is meant to set Greenstone apart from the multitude of Canadian junior mineral exploration companies.

Whether investors see that “different” style as opportunistic or just eccentric remains to be seen, but so far Greenstone has been warmly accepted. Since listing on the Toronto Stock Exchange on October 30, Greenstone’s shares are currently trading about halfway between their high of $4.50 and low of $3.25.

Neither the Colombia project nor the Costa Rica project will be huge mines: neither will produce more than 30,000 oz a year. But with low capital costs and low operating costs per ounce of gold produced, the projects could turn out to be quite profitable.

Park is most optimistic about the El Recio property in Costa Rica. A drill-indicated reserve base of 750,000 tons grading 0.08 oz gold per ton, based on a 0.03 oz cutoff grade, makes the property’s open pit prospect a viable economic property he says.

The initial results come from the first phase of Greenstone’s drilling program. Almost 15,000 ft of reverse circulation was completed in 63 holes to a depth of 260 ft, from drill setups spaced 66 ft apart. Detailed reserve calculations will be completed once all drill results are available.

The main zone, which consists of oxidized ore, is open along strike to the north and south and to depth. No more drilling is planned on the open pit, but other zones on the property will be drilled in subsequent programs.

Metallurgical tests on the Main oxidized zone indicate high gold recoveries can be expected from heap leaching or agitation leaching with cyanide, the company says.

The company plans to tunnel under the open pit zone, take a bulk sample and confirm grades. A new, underground target identified by trenching, has also been drilled from surface, but results are not available yet.

Greenstone says it has also started development work on the Payan gold project in southern Colombia owned by Anchor Gold Corp. Greenstone is the operator and can earn a 50% interest in the property. The Payan deposit is an alluvial, open-pit deposit.

Current work is aimed at establishing proven reserves of 5.9 million cubic yards grading at least 0.01 oz per cubic yard in order to permit a 6,550-cubic-yard-per-day operation to produce about 20,000 oz gold per year.

Capital cost for such a project would come to about $2.5 million(US), the company estimates.

The company plans to dig 40 shallow test shafts and drill 40 holes to bedrock. If the results are favorable, it could make a production decision by September.

Capital requirements would seem to be no trouble for Greenstone at this stage. El Recio is expected to cost between $1 million and $2 million to bring to production and the Colombia project is estimated to be $1.3 million. The company has $6 million in cash on hand.