U.S. REPORT Galactic likely to close Summitville mine

Low volumes of gold production and high mine operating costs were cited by Galactic Resources (TSE) as the reasons why it is unlikely to resume mining operations in 1991 at its wholly owned Summitville mine in Colorado. The company said it may forego the remaining year of mine life, although heap leaching and processing will continue into 1991 from ore currently on the leach pad. The company is studying potential methods to accelerate the recovery of about 40,000 oz. gold in inventory in the pad.

At the same time, a comprehensive mine closure and reclamation plan for Summitville is in progress under the advisement of consultants and in consultation with regulatory authorities.

Galactic opened the Summitville mine in 1986 as a seasonal, heap leach producer. The open pit mine failed to live up to lofty production expectations, however, and its carrying value was subsequently written down. The company expects to record another writedown, as of Dec. 31, 1990, of part or all of its remaining investment in Summitville. The amount is to be determined once financial analyses are completed.

In June, 1990, after a decade as the driving force behind Galactic, Robert Friedland stepped aside as president and chief executive officer to turn over the helm of the company to a new management team headed by Peter Guest. Friedland is no longer a director of the company. He stepped down in late 1990 to devote his energies to Ivanhoe Capital, his wholly owned mining venture capital company.

Galactic’s new management team is continuing an ongoing internal evaluation of assets, and a refocusing of the company’s strategic direction. This includes an evaluation of its portfolio of investments in other mining properties and companies.

Guest said the company will continue to concentrate on the exploration and development of its primary precious metal properties.

“Precious metals are what we know best,” he said, adding that the company may decide to liquidate some of its secondary assets, or write down certain assets to more accurately reflect their current market value. “Other things like nickel and copper are really outside our expertise as a company and are a little too divergent.”

Besides Ridgeway, Galactic has gold production from the successful Ridgeway mine in South Carolina which is operated by an indirect subsidiary of the RTZ Corp. Besides its 48% interest in Ridgeway, an open pit operation with a 15,000-ton-per-day mill capacity, Galactic has a 50% interest in the newly opened Ivanhoe gold mine in Nevada held with joint venture partner, Cornucopia Resources (TSE).

Galactic intends to proceed with a proposed merger with Cornucopia which would give it a 100% interest in the Ivanhoe project, now in its first phase of operations. However, the looming writedowns for Summitville and other assets will likely require the completion of a new fairness opinion to evaluate the proposed business transaction between the two companies.

Galactic also says it will sell its remaining 10% shareholding in Far Southeast Gold Resources to a unit of CRA Ltd. for US$5.6 million, to result in an expected after-tax gain of US$2.4 million.

CRA previously bought a 30% shareholding from Galactic for US$14.7 million. Far Southeast Gold is developing a major, underground copper-gold mine and mill complex in the Philippines.

Galactic said the divestiture of its remaining interest in the project would help fund its strategic growth plan.