Gold Commissioner upholds title to Eskay claims

Ken McKenzie was dealt a major blow in his ongoing bid to challenge title to the TOK 3-6 mineral claims which underlie a strategic portion of the valuable Eskay Creek gold property north of Stewart, B.C. In a recent ruling, British Columbia’s Chief Gold Commissioner issued an order which enables Calpine Resources and Stikine Resources (VSE), the owners of the disputed claims, to retain them in good standing. Calpine is now a wholly owned subsidiary of Prime Resources Group (VSE).

Through his private company, Tagish Resources, McKenzie challenged the validity of the claims hosting the bulk of the Eskay Creek deposit. His complaint was on the grounds that the TOK 3-6 claims are not adjoining or contiguous with other mineral claims, and as a result, the recorded holders forfeited the claims by failing to do assessment work on them in accordance with the Mineral Tenure Act and regulations.

But this argument was rejected by the Chief Gold Commissioner who said he found no evidence that the claimholder knew of the gap between the TOK 3-6 and the remaining claims. The 130-ft. gap was discovered when the claims were surveyed in the summer of 1989, 17 years after they were staked. The Gold Commissioner also said the Act imposes a 1-year limitation period within which this type of complaint can be made.

In his ruling, Denis Lieutard stated: “If someone was allowed to challenge (assessment) work which was recorded by the Gold Commissioner after the expiration of one year, it would result in an extremely insecure form of tenure which could cause financial chaos within the mining industry.”

Although the decision is likely to be appealed by McKenzie and his backers to the British Columbia Supreme Court, it comes as welcome news to Corona (TSE) which controls both Prime and Stikine. Corona holds about a 46% diluted interest in Prime, while Stikine is owned about 42% by Corona (an additional 3% is held by Prime) and about 45% by Placer Dome (TSE).

As part of the decision, Calpine and Stikine are allowed to file an amended statement in order to remedy the problem and provide a clear record of the four claims.

“It was excellent news, not just for us, but also for the mining industry,” said Corona President Peter Steen. “Had it gone the other way it would mean utter chaos . . . every claim group in the province would be suspect and subject to restaking.”

As operator of Eskay Creek, Corona plans to continue work on the project which is currently at the underground exploration stage. The objective of the underground program is to provide bulk samples for metallurgical testing, assess ground conditions and confirm surface drilling results from the 21B zone. This information collected will be used in a feasibility study, expected to be completed by year-end.

The results released to date from underground sampling appear to confirm the high-grade nature of the 21B deposit. Steen said ground conditions are “better than expected,” and his current thinking is that Eskay Creek will likely be an underground operation.

Steen expects metallurgy and plant design to be a challenge because of environmental considerations and the several different mineralization styles contained within the various zones (21B, 21A, 21C, Pumphouse,) that make up the Eskay Creek deposits. The bulk of current preliminary reserve estimate — 4.36 million tons grading 0.77 oz. gold and 29.12 oz. silver — are contained in the 21B zone which is also rich in zinc, lead and copper sulphides.

“The metallurgy is not simple,” Steen said. “It will require ingenuity to design a plant capable of getting good recoveries and capable of producing several marketable products.”

As a result, pilot plant testing of bulk samples will be an important component of the 1991 work program. If all goes as planned, Corona is looking to a construction year in 1992 at Eskay Creek, and the start of production in late 1993 or early 1994. The British Columbia government is expected to start construction of a “user pay” road into the region this summer.

What hasn’t been worked out is what role Placer Dome will play in the project’s future. But the two companies are still talking, even though Corona doesn’t appear to be backing away from its resolve to operate the project.

Steen still sees plenty of exploration potential at Eskay Creek and on surrounding properties in which the company holds primarily indirect interests (though Prime, Stikine, and its holdings in Prime Equities).

Eskay Creek is expected to be a low-cost producer which will over time replace higher-cost production at Corona’s Nickel Plate and Renabie gold mines. But the company’s production cornerstone for at least the next 15 years will continue to be its 50% interest in two of the three gold mines at Hemlo, Ont.

The David Bell and Williams mines produced a total of 674,300 oz. gold in the first nine months of 1990, a 12% increase over the comparable period in 1989. This increase is being attributed to cost- control measures and productivity improvements, particularly at the Williams mine which was awarded to Teck and Corona in 1989 after they won a protracted lawsuit with former owner, LAC Minerals.

In addition to production from the David Bell and Williams mines, Teck and Corona share 50% of the net profits generated from a quarter claim mined by Hemlo Gold. This boosted production from all Hemlo operations shared equally by Teck and Corona to 754,371 oz. gold for the 9-month period.

Having sold forward 80% of its 1990 gold production at US$410- 420, Corona is financially benefiting from the increased production at the low-cost Hemlo operations.

Elsewhere, the company is reporting an improved operating performance at its Nickel Plate gold mine near Hedley, B.C. The mine, which produces 80,000-90,000 oz. gold annually, is expected to be a cash-flow generator this year. But mining has ceased at the profitable joint venture Jolu gold mine in Saskatchewan, although milling operations will continue to produce some gold this year.

Strengthening Corona’s financial position also appears to be an important objective for Steen these days, a mandate which he says is supported by Corona Chairman Ned Goodman.

Steen told The Northern Miner that the company is moving from a period of “intense entrepreneurial growth” into a more conservative phase where the emphasis will be on consolidating and managing its assets.