Golden Bear cost doubles putting project at risk

The report is signed by Robert Hunter, chairman, and Jack Thompson, president. Thompson is also president of Homestake International Minerals. Homestake’s view of the situation, presented in the report, is somewhat less optimistic than Hunter’s, who is one of the subsidiary’s original shareholders and promoters.

In 1987, North American Metals estimated capital costs for the project at about $36 million, about half the $65-$70 million figure projected recently which the report says “reflects the more advanced engineering and the actual costs to date.”

The higher capital cost estimate didn’t come as much of a surprise to senior companies familiar with mine development in northern British Columbia nor has the revised operating cost which now stands at $210-$240(US) per oz or $360-$400(US) with capital costs included. Homestake is a relatively high cost U.S. gold producer (largely because of its aging Homestake mine at Lead, S.D.) and its decision to take over North American Metals was, in part, an attempt to leverage those costs down. Ironically though, the net effect might be to drive those costs higher. Before it was taken over by Homestake, North American Metals forecasted cash operating costs of $136 per oz which it said was “one of the lowest in the industry.”

The annual report cites a number of factors that contributed to the over-run including a doubling of road costs to $19 million, a 121% rise in the cost of tailings disposal, and tight sulphur emission standards which increased cleaning costs. “But in the simplest of terms, the original feasibility study significantly underestimated costs,” the report states.

Both Chevron and North American Metals are examining alternatives to the current development and construction program including alternative flow sheets, modified construction schedules and methods, utilization of used equipment, and the “advisability of further exploration and/or suspension of project construction,” the report adds.

In any event, engineering for the project is 70% complete and procurement of equipment and supplies is under way. Rough grading and some foundation work were completed last year before adverse weather curtailed construction. By year-end a total of $28 million had been spent by the joint venture on the project. Based on their current construction schedule, commercial operations are scheduled to begin in the last quarter but alternate plans could delay construction 8-12 months.

Hunter said he “wouldn’t be surprised to see Homestake take over Chevron’s part (50%) of the project.” Indeed, Chevron has been attempting to sell that interest for at least a year but Homestake apparently balked at the price. He emphasized that Homestake “is backing the whole bloody project” and he predicted “they will carry this thing right through.”

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