Majors vie for control of Eskay Creek

The Eskay Creek project north of Stewart, B.C., generated plenty of drama and intrigue during 1990 as it moved from an exploration project to a more advanced development stage. The cast of players involved in the high-grade gold-base metal project also grew to include two powerful, major companies — Placer Dome (TSE) and Corona (TSE) — each vying for control of what is certain to eventually become one of Canada’s most important new mines.

At the start of the year, Eskay Creek was owned equally by junior companies, Calpine Resources and Stikine Resources (VSE). Project operator Calpine finally became a wholly owned subsidiary of Prime Resources Group (VSE), Murray Pezim’s flagship company at the time.

About the same time as the successful but controversial Calpine- Prime merger, British Columbia securities regulators came forward with allegations that Pezim and several associates had engaged in a number of securities violations. They were cleared of the more serious charges (insider trading and breach of fiduciary duty) by the British Columbia Securities Commission, although cited for failing to disclose material information on a timely basis.

Just before Christmas, Pezim, John Ivany and Lawrence Page had their trading rights suspended for one year and were ordered to pay a major portion of the costs of the hearing.

On another legal front, section 35 claim disputes spread like wildfire throughout much of the Eskay Creek region this year, including a challenge to claims hosting the deposit itself. The bulk of these were initiated by Ken McKenzie’s private company, Tagish Resources.

So far Prime and Stikine have successfully fought off Tagish’s challenge to the Eskay Group deposit, although the matter is expected to be appealed to the British Columbia Supreme Court. Other regional claim disputes have yet to be resolved, however, and Tagish’s efforts are now being backed by Lytton Minerals (TSE) and Waterford Resources (VSE).

Despite all these legal hassles, Prime managed to continue an aggressive work program on the Eskay Creek project throughout the past year, even though the hearing hindered Pezim’s financing efforts for less advanced properties in the region.

In April, the first reserve estimate ever was announced for Eskay Creek. Based on a 0.25 oz. gold cutoff grade, total preliminary reserves for the 21B and 21A deposits were reported as 1.55 million tons grading 1.3 oz. gold and 36.2 oz. silver per ton. The bulk of reserves (1.3 million tons) were contained in the 21B zone which graded 1.4 oz. gold, 40.6 oz. silver, 2.2% lead and 5.4% zinc.

Early this spring, two new zones were found by Prime on the Eskay Creek property. One of the holes drilled on the Pumphouse Lake zone returned 114.8 ft. of 0.32 oz. gold and 7.0 oz. silver. Drilling on the 21C zone also returned impressive values, including 65.6 ft. of 0.58 oz. gold and 1.48 oz. silver and 23 ft. of 0.89 oz. gold and 2.83 oz. silver.

Major companies eyeing developments at Eskay Creek were particularly interested in the results from initial metallurgical testwork released in May. It was found that gold and silver recoveries from the high-grade 21B zone could be expected to exceed 90% through a combination of gravity and flotation milling techniques.

This important information confirmed expectations that the 21B gold-base metal zone was more metallurgically favorable than the smaller 21A zone (gold-silver) which contained refractory mineralization.

About this same time, major companies were also fully aware of the economic importance of a decision by the British Columbia government to build a road into the Eskay Creek-Iskut River camps in 1991.

In early June, Placer Dome and Corona engaged in a bidding war to acquire Stikine which had been on the block for many months with no takers. Corona’s initial offer was essentially a share swap while Placer Dome offered $67.50 cash — a state of affairs which prompted local newspapers to label the battle, “Toronto paper versus Vancouver cash.”

But resourceful Corona was able to make a deal with Stikine insiders that enabled it to end up with about a 42% stake in Stikine and control of its board. Placer Dome ended up with a similar holding in Stikine, but no board representation.

Corona then moved to secure control of Prime. Pezim and several associates balked at Corona’s initial share-swap offer which forced Corona to up the ante to secure its approximate 43% diluted interest in Prime. But the relationship between Pezim and Corona Chairman Ned Goodman became publicly acrimonious at this stage, and the two decided to go their separate ways.

Corona’s engineers were on the scene this summer when Prime started its underground program of exploration, bulk sampling and development at Eskay Creek. A new camp was installed and the program began by crews driving an exploration decline to enter the heart of current known reserves. The underground program will also provide information on continuity, rock stability and other engineering aspects.

Exploration continued as well, and by September Prime announced an updated reserve estimate for Eskay Creek. Preliminary reserves for the project are now reported as 2.09 million tons grading 1.43 oz. gold and 54.01 oz. silver at a 0.25 oz. gold cutoff grade. If the cutoff is lowered to 0.10 oz., preliminary reserves increase to 4.36 million tons of 0.77 oz. gold and 29.12 oz. silver.

The underground program is still continuing at Eskay Creek, and underground sampling appears to be confirming with ease the high-grade nature of the deposit. But one question still remains. Which company — Placer Dome or Corona (now both based in Vancouver) — will emerge as operator as the project is brought into production?