Cross Lake lines up financing to restart QR

Vancouver — Cross Lake Minerals (CRN-T, CLKMF-O) plans a significant financing, coupled with a share consolidation, to bring its QR gold mine, 70 km southeast of Quesnel, B.C., back into production.

The planned $9.75-million, private-placement financing, brokered through Pacific International Securities, will have the company issuing up to 7.5 million units plus up to 6.5 million flow-through units at 65 and 75 apiece, respectively. Units will be composed of one common share and half a transferable warrant, while flow-through units are to consist of one flow-though share and half a non-transferable warrant. Warrants will be exercisable at $1.00 apiece for two years. Overallotment options will allow issuance of an additional 650,000 of each series of units, with the company also holding the option to issue a further $2 million worth of units on a non-brokered basis.

The financing is priced based on a planned 5-to-1 share consolidation, to be voted on at Cross Lake’s upcoming annual and special general meeting.

The bulk of funds from the planned financing will go toward restarting operations at the QR gold mine in central British Columbia’s Cariboo-Chilcotin region. A recent feasibility study reviews planned development by both underground and open-pit methods.

Cross Lake plans to target easily accessible resources in the Midwest zone by underground mining while the Northwest zone is expected to be developed through an open pit. A combined open pit-underground operation is planned for the West zone. The independent study, conducted by Wardrop Engineering, estimated initial capital requirements of $4.5 million to restart operations.

Using a US$467.50 per oz. gold price, the feasibility study projects positive economics for the first two years of operation. Cash flow summaries indicate net revenue of about $40 million, from the recovery of more than 72,000 oz. gold, with an operating profit of about $11 million.

A further $4 million will be spent on underground development and drilling of the North zone. Road construction, portal development and several hundred metres of workings along with underground drill stations will test the zone with at least 5,000 metres of drilling. The North zone, a faulted extension of the Main zone, sits about 300 to 500 metres beneath the existing mill site and has been delineated over a 1-km strike length; it remains open.

The QR deposit is hosted in an Upper Triassic volcanic sequence containing porphyry-skarn related mineralization. Gold occurs both free and in sulphides (pyrite), primarily in altered, carbonate-rich units but also in the stratigraphically lower units along fractures and in stockworks.

Kinross Gold (K-T, KGC-N) mined the project in the mid-1990s, but placed it on care and maintenance in 1998 due to weak metal prices. The mine produced about 42,000 oz. gold annually for Kinross over its 2.5-year operating life. A pit wall failure and underground mining shortfalls contributed to increasing operating costs, prompting the major to close the mine.

The processing and mill circuit at QR has a capacity of about 1,000 tonnes per day, using a standard crushing circuit followed by a carbon-in-pulp recovery process. On-site diesel generators are expected to be replaced by a 29-km power line extension by B.C. Hydro. Cross Lake anticipates it would take about three months to place the mine back into production.

On a pre-consolidation basis, Cross Lake posts a $16-million market capitalization with 108.9 million shares outstanding and a recent 15-per-share trading price. The company’s shares have traded between 4.5 and 18 over the past year.