Kerr spurns acquisitions in favor of development

In a bid to expand its existing assets to at least six operating mines, Kerr Addison Mines (TSE) of Toronto is planning to spend $70 million over the next two years on an ambitious development program.

Through the Lac Shortt and Opemiska Divisions of Kerr Addison’s 50.3%-owned subsidiary Minnova Inc. (TSE), the Toronto company already has a stake in four mines which together produced about 81,000 oz gold and 110,000 oz silver.

But with a first-quarter cash position of $171.6 million, Kerr Addison is well equipped to develop a number of key projects including the Winston Lake zinc mine (now in production), the Ansil copper mine and Samatosum polymetallic project.

While the company can easily afford to spend $18 million on a number of exploration projects in Canada and the southwestern U.S., a major mining acquisition isn’t in the cards, said President Ian Bayer at the company’s recent annual meeting in Toronto.

Instead, the 49.5%-owned Noranda Inc. (TSE) subsidiary will take a small equity position in promising junior resource companies needing funding to develop existing properties.

While Bayer didn’t say which companies Kerr Addison would be financing, he hopes that one or two would grow into major assets. Winston Lake

Production began last month at the Winston Lake zinc-copper- silver-gold deposit near Schreiber, Ont., where Minnova (formerly Corporation Falconbridge Copper), is experiencing what Bayer called “normal start-up problems.”

“The metallurgical performance is not yet up to designed levels and we are suffering from a shortage of experienced miners,” said Bayer.

But after spending $68 million, excluding $4 million so far this year, Minnova is planning to extract 300 tonnes of zinc and 27 tonnes of copper concentrates per day from the property.

During 1987, Kerr Addison spent $18.8 million at the Ansil copper project where initial production at a rate of 500,000 tons annually is expected to begin early next year.

Located in the Lac Dufault camp near Rouyn-Noranda, Que., the Ansil property is owned by Minnova. But Ansil Resources (COATS) of Toronto is entitled to a 20% royalty payout from the first $2 million in net proceeds and 7.5% thereafter.

Ansil hosts probable reserves of 1.6 million tons grading 7.2% copper, 0.8% zinc, 0.05 oz gold and 0.759 oz silver per ton. Production and ventilation shafts were recently completed to depths of 1,500 m and 1,347 m and underground development is in progress on three upper levels. Samatosum project

“The orebody is small but very high grade and the mine will produce between 125,000 and 150,000 tonnes of copper concentrates annually,” said Bayer.

A feasibility study is also under way at the Samatosum project where a production decision is expected later this year. Located 100 km north of Kamloops, B.C., the Samatosum is a joint venture project involving Minnova (70%) and Rea Gold Corp. (TSE) (30%).

As reported (N.M., March 7/88), diamond drilling has established a 660,000-ton deposit grading 1.2% copper, 3.5% zinc, 0.053 oz gold and 1,100 grams silver.

In other news, Kerr Addison recently ended its 50-year association with the gold mine at Virginiatown, Ont., by selling its 28% stake in Golden Shield Resources (TSE) for $12.6 million.

While the interest was sold to DRX Inc., a U.S. company controlled by U.K. institutional interests, Kerr Addison will maintain its joint venture interests with Golden Shield on a number of exploration properties, Bayer said.

They include a joint venture with Golden Shield at the Dasserat Twp. where the partners are investigating the Larder Lake break east of the old Kerr mine.

Net income for the first three months of 1988, was $3.1 million or 18 cents per share down from $4.3 million or 25 cents per share at the same time last year. Working capital increased by $10.2 million, due partly to the start-up of operations at Winston Lake.

The company succeeded in reducing its long-term debt by $10 million to $125 million at the end of the quarter.

Kerr Addison recently announced a dividend of 15 cents per share, payable June 16, to shareholders of record on May 26.