BHP-Utah Mines to earn interest in Snow Lake property

A gold property with known reserves near Snow Lake, Manitoba has caught the interest of BHP-Utah Mines, an indirectly held subsidiary of Broken Hill Proprietary of Australia. Formerly known as Utah Mines, the company operates the producing Island Copper mine near Port Hardy, B.C.

BHP-Utah recently signed a letter of intent with Silver Hart Mines (VSE) and its subsidiary, Snow Lake Mines (VSE), in order to earn a 55% participating interest in the Snow Lake gold property. The company also agreed to acquire one million shares of Silver Hart at $1.30 per share.

Snow Lake Mines presently owns 100% of the project, subject to Silver Hart’s right to acquire a 30% direct interest. Known ore reserves (in all categories) are reported as 807,000 tons at an average grade of 0.266 oz gold per ton, including about 285,000 tons at 0.31 oz gold above the 400-ft level in the No 3 zone.

According to Don Dudek, a senior geologist with Silver Hart, the reserves outlined to date (from surface drilling) are primarily contained in the No 3 and Birch zones. But Dudek said recent geological and geophysical work produced a number of new zones in the immediate vicinity with good potential for expansion of reserves.

Although most of the gold occurrences are found in the more accessible southern portion of the property (about two miles from the town of Snow Lake), Dudek said limited work during the past several seasons also indicated the presence of additional gold-bearing zones in the northern half of the property.

During the company’s 1987 program, a 14-ton bulk sample was taken from the surface exposure of the No 3 zone for preliminary metallurgical tests. Dudek said that although a larger sample would have to be taken from underground in order to get more accurate numbers (due to problems with surface weathering), results indicated a gold recovery of 87.6% using conventional methods.

To earn its interest in the Snow Lake property, BHP-Utah must spend $4 million on exploration work over the next two years and make a series of cash payments totalling $4.4 million over three years to Snow Lake. Although no interest will be earned until all expenditures and payments have been made, BHP-Utah has the right to terminate the agreement at any time after purchase of the Silver Hart shares, payment of $700,000 to Snow Lake and the expenditure of $2 million.

BHP-Utah will be operator of the joint venture, with a management committee having two representatives from each partner. Once a production decision is made, BHP-Utah will on request from Snow Lake, pay the capital costs for production on behalf of Silver Hart and Snow Lake, to be repaid with interest from 70% of future cash flow otherwise due the two companies.

Silver Hart said it will reduce the direct interest it was to have acquired from 30% to 13.5% on terms to be agreed upon by both companies. Assuming the BHP-Utah option to be exercised, Silver Hart would then hold directly and indirectly (through its equity holding in Snow Lake) a combined interest in the property of about 30%. A formal agreement is expected to be signed shortly.