Royal Oak to reopen Hope Brook with government loans,

The recent acquisition of the Hope Brook gold mine in southwestern Newfoundland means Peggy Witte will probably end 1992 with more frequent flyer miles than any other Canadian mining executive.

The hands-on president of Royal Oak Mines (TSE) travels regularly from the head office in Vancouver, B.C., to the company’s existing operations in Timmins, Ont., and Yellowknife, N.W.T., which together produce about 200,000 oz. gold annually.

Late last year, Royal Oak signed a letter of intent agreement with a unit of BP Canada (TSE) to acquire the Hope Brook mine and related assets for 5.5 million Royal Oak common shares and other considerations.

But before the $9.9-million deal closed April 30, Witte had negotiated a new union contract and a $20-million financial assistance package which she expects will result in a significant decrease in the cost of production at Hope Brook during the next six years.

“We’re ecstatic about the deal,” Witte told The Northern Miner. Royal Oak has already developed an operating plan to re-open Hope Brook which was closed by BP in 1991 because of environmental and operating problems and because the low-grade mine was not profitable on a sustained basis.

The company hopes to begin operations in July, and produce 50,000 oz. gold this year at a cash operating cost of about US$300 per oz. The acquisition is expected to boost Royal Oak’s annual gold production by 60%, to about 320,000 oz.

The financial assistance package includes a $6-million repayable grant from the federal government’s Atlantic Canada Opportunities Agency (50% repayable at gold prices at or above US$400 per oz. and 100% repayable at or above US$425 per oz.).

Royal Oak also negotiated partial relief from retail sales taxes during the initial years and a provincial grant to cover on-site medical services, and it secured funds from a federal-provincial program to assist in infrastructure modifications primarily involving construction of an airstrip. One of the biggest changes is that the Hope Brook camp will be turned into a fly-in, fly-out operation, with only supplies coming in by boat. The work force will be reduced to 240, down from 280 under the previous operator. Also in place are a new 5-year labor contract with the United Steelworkers of America, with wage increases tied to the price of gold, and a renegotiated environmental permit which allows the operation to re-start and operate under “acceptable environmental conditions.”

Royal Oak will also assume ongoing responsibility for the remaining $14 million of a federal government loan which is forgivable in each of the next four years if the annual average gold price is less than about US$500 per oz. Hope Brook’s remaining reserves were re-calculated and are now reported as 7.4 million tons grading 0.116 oz. gold per ton (or 865,000 minable oz.), plus a further mineral resource of 3 million tons grading 0.094 oz. gold (or 300,000 oz.).

Witte said Royal Oak’s new operating plan will involve both mining and ore processing changes. As an example, cable bolting will be used for ground support rather than backfilling (ground conditions at Hope Brook are considered excellent). And Royal Oak will be converting the lower sections of the underground mine to block caving from blast-hole stoping. “Besides this major mining change, we will be floating a rougher concentrate on the front end (of the mill circuit) after grinding to remove a large portion of copper before the ore is leached,” Witte said, adding that the copper consumes too much cyanide and creates problems in the tailings dam and with effluent treatment.

The copper concentrate will then be treated for gold recovery and will be handled apart from the bulk of tailings. (Royal Oak is still working with environmental agencies to determine the best location for concentrate tailings.)

As was done when Royal Oak acquired control of its other mines, a top-to-bottom review of all service contracts was carried out which resulted in many agreements being renegotiated on better terms.