U.S. Report Foreign reserve potential interests Battle Mountain

To bolster depleting North American reserves, Battle Mountain Gold (NYSE) is making a commitment to developing reserves in South America and the Austral Pacific region. The 1989 annual report stresses the company’s strategy to be in the vanguard of what it sees as an internationalization of the North American gold industry.

With reserves at Battle Mountain’s Fortitude mine in Nevada and the Pajingo in Australia expected to be exhausted in 1994, the company has been aggressively seeking replacements. The two mines currently produce about 85% of the company’s gold production.

During 1989 and early 1990 Battle Mountain made two major acquisitions; a 51% interest in Inti Raymi for US$35.65 million plus 750,000 common shares of the company, and a 51% interest in Niugini Mining for US$165 million.

Inti Raymi owns the Kori Kollo heap leach gold mine near Oruro, Bolivia. Battle Mountain’s interest in the project stems from the property’s potential for sulphide mineralization below the oxide reserves, currently being mined at a rate of about 48,000 oz. gold per year.

After drilling more than 100 holes in 1989, initial estimates put reserves in the range of 25-35 million tons grading between 0.07 and 0.075 oz. gold per ton. Assuming a positive feasibility, Battle Mountain estimates the project could be producing from the sulphide ore in 1993, although no production estimates were given.

Niugini Mining, the other acquisition, owns 20% of the Lihir gold property in Papua New Guinea with the balance held by RTZ Corp. Total geological reserves are estimated to be as much as 40 million oz. of gold. Under the current timetable, production of oxide ore is expected to begin in late 1992, with production of the sulphide ore beginning in late 1993 at 675,000 oz. per year. Cash production cost is estimated at US$192 per oz. of gold.

Working against the company is the investment community’s less than positive view of companies with operations in third world countries.

This is particularly true of Papua New Guinea where the mining industry has undergone some turbulent times over the past year. The Bougainville copper-gold mine was closed during 1989 due to a series of sabotage incidents while the Ok Tedi mine, another major copper and gold producer, had to suspend temporarily operations during the year.

The final decision to place the property into production may hinge on RTZ’s ability to finance the project on a non-recourse basis, since the company may not be willing to finance it directly.

Whatever the future may hold, a snapshot of the company as at Dec. 31 reveals a healthy company. Gold and silver production totalled 322,000 oz. and 538,000 oz. respectively with an average operating cost of US$183 per equivalent ounce of gold.

The company estimates that production for 1990 will total 679,000 oz. of gold and 679,000 oz. of silver at an average cost of US$217 per equivalent oz. of gold.

Battle Mountain notes that it does not hedge gold production with forward sales quoting an old saying: “You don’t hedge a hedge.” This gives the investor a pure play on the price of gold.

Cash flow for 1989 was US$57 million or about US$0.87 per share while the balance sheet showed working capital of about US$46.5 million and long-term debt of US$50 million. Total assets are stated at about US$350 million.