Juniors give former Echo Bay assets a second look

Vancouver — Strong metal prices have prompted several junior companies to take a second look at some Nevada properties previously mined or partially developed by Echo Bay Mines, a major gold-silver producer acquired by Kinross Gold (K-T, KGN-N) in 2003.

Victoria Resource (VIT-V, VTSRF-O) inked a preliminary deal to lease a portion of the Cove-McCoy mine project from a unit of Newmont Mining (NMC-T, NEM-N) for escalating work commitments totalling US$8.5 million over seven years, subject to conditional back-in rights. At least US$1 million must be spent within a 2-year period after a formal agreement is executed.

The Cove-McCoy property has produced more than 3.5 million oz. gold and 115 million oz. silver from both open-pit and underground mining operations. Heap-leach production from oxide ore began in 1986, and by 1997, the mine was producing at an annual rate of almost 100,000 oz. gold at total costs of US$240 per oz.

In 1989, Echo Bay announced plans to triple production by building a new 7,500-ton-per-day mill to process mineralization from deep sulphide zones at the Cove mine. The 14-year mine plan got off to a good start, with production peaking in 1993 at a record 395,000 oz. gold and 12.4 million oz. silver, at total costs of US$293 per oz. Production declined in subsequent years, reflecting lower grades and recoveries from the sulphide ores. Mining ceased in 2004, once low-grade stockpiles were depleted.

Victoria Resource, a 30%-owned affiliate of Bema Gold (BGO-T, BGO-X) believes the property offers exploration potential in several areas that were previously only partially tested. The company has identified a number of gold-silver targets, including two within structural zones situated northwest of the old Cove pit.

The priority targets are believed to have potential for high-grade, structurally controlled deposits. Previous drilling at the NW Cove target returned 14.91 grams gold per tonne over 18.3 metres, starting at surface, while previous drilling at the Windy Point target returned 11.06 grams gold over 6.1 metres, starting at a depth of about 400 metres.

The area covered by the proposed lease includes all of the Cove open-pit and underground areas, and nearby ground covering favourable host rocks and targets identified by the company. Reclamation has already been completed in this area. Victoria has a “first right of opportunity” to acquire additional ground in the reclamation stage.

The company’s proposed initial work program at the Cove-McCoy mine property will include structural analysis and geological mapping, followed by diamond drilling.

Newmont has a one-time back-in right to a 51% interest once Victoria completes a positive feasibility study based on a gold resource of at least 500,000 oz. The senior company would have to spend 2.5 times as much as Victoria to secure the 51% controlling interest.

In a separate development, Nuinsco Resources (NWI-T, NUIRF-O) obtained a permit for the dewatering of underground workings at its Cameron Lake gold project in northwestern Ontario.

The project was explored and partially developed by joint-venture partner Echo Bay in the late 1980s, but the erratic nature of gold distribution made it difficult to prove up sufficient resources to meet the major company’s threshold. An independent prefeasibility study conducted at the time concluded that the project was uneconomic at a gold price below US$550 per oz.

More than $24 million has been spent on underground development at Cameron Lake, and in light of much-improved metal prices, Nuinsco believes the previous work will reduce project capital costs and the time usually required to bring a project to the feasibility stage.

Nuinsco also sees potential to expand existing resources at depth. Cameron Lake hosts total measured and indicated resources of 572,000 tonnes grading 6.51 grams gold per tonne, plus a further 1 million tonnes at 5.22 grams gold in the inferred category.