Blackdome dividend reduction could spell increased output

Among Canadian gold producers, Blackdome Mining’s (TSE) dividend policy was probably the most generous. Indeed, last year’s payout of $6.7 million was about 109% of net income which was simply unsustainable.

Rather than stymie its growth prospects for the future, Blackdome has announced plans to reduce dividend payments to one-third of net income, J. Scott Drever, president, told the annual meeting in Vancouver.

Claiming the old policy was “liquidating the company,” Drever said surplus funds will now be utilized to meet Blackdome’s objective of 100,000 oz of gold production in three to four years. A good portion of this output will come from outside the Blackdome mine property, he told The Northern Miner, conceding that an acquisition may be required to meet that objective.

Ideally, Blackdome would prefer to acquire a working interest in a property rather than purchase an equity position in a company with an advanced stage project. He would like to see “corporate reserves” climb to 750,000 oz with cash flow and earnings doubling over that period as well, he added.

Following the amalgamation of Brohm Resources (VSE) and MFC Mining Finance Corp., (TSE), which should be completed by the end of July, the continuing company, MinVen Gold Corp., will own a 50.3% equity interest in Blackdome. This is currently held by Brohm. Drever confirmed that Blackdome would be MinVen’s “Canadian growth vehicle” and Blackdome would confine its activities to Canada for the immediate future.

Responding to a concern raised by a shareholder, James A. Anderson, chairman, emphasized that Blackdome earnings would be plowed back into Canada, particularly British Columbia. (The shareholder expressed concern that most of the money would be “going back to Toronto.”)

Another gentleman lamented the impact of the Oct 19 market crash on Blackdome’s stock and he questioned awarding new options to directors to compensate for the drop. There were 322,000 options outstanding, exercisable at $9.50 each at the time of the meeting. Anderson argued the “readjustment” in the stock price after the crash was “not management- related” and he said the new pricing formula was justified. The gentleman also complained about the reduction in dividend payments which was the main reason he bought the stock.

The labor situation at the Blackdome mine has stabilized, Blackdome’s general manager, William Price, told The Northern Miner after the meeting. Disciplinary action has resulted in the dismissal of several underground miners, all of whom have been replaced. No production was lost during the recent walkout as the mill was fed from surface stockpiles. But the labor disruption set back underground development and exploration and Blackdome is assessing the cost which it may try to recover through the courts.

The company has allocated $6 million for exploration work at the mine site this year which will include about 70,000 ft of diamond drilling. Price said it’s uncertain whether all this money will be spent this year but he emphasized the funds are available if required. All stoping areas are currently in the No 1 and No 2 veins but 14 veins have been identified with production potential. The Watson vein will be a target in the current program. Mine life at present is about 3.5 years but Blackdome would like to see this extended further. Last year the mill processed 81,571 tons of ore grading 0.62 oz gold with a recovery rate of 91.8%. Cash costs, including exploration, are $205(US) per oz and about $260 with depreciation.