Anglo ups stake at Boyongan

Vancouver – Saddled with a US$14-million debt on its soon-to-be-closed Bulawan gold mine, Philex Gold (PGI-V) has inked a deal to sell a 10% equity stake in the promising Boyongan copper-gold project and surrounding ground in the Surigao del Norte province of the Philippines.

The junior’s joint venture partner, Anglo-American (AAUK-Q) picked-up the additional stake at a price of US$20 million. Additional payments of up to US$5 million will be required should the metal content of the deposit or from any other discovery within the surrounding claims contain more than 7.96 billion lbs of copper equivalent. The additional payments will be computed by applying US2.51 cents per lb copper equivalent to 10% of the metal content above 7.96 billion lbs copper equivalent, multiplied by a factor of 0.5.

The deal is expected to close early in the new year, at which point Philex and Anglo American will each hold a 50% stake in the project. The major can then earn an additional 30% interest by completing a bankable feasbility study.

In September, Anglo American cut 0.81% copper and 1.90 grams gold per tonne gold over 365 metres at the Boyongan deposit, which is part of Philex’s North property. The initial 10,000 metres of diamond drilling planned for this year have been increased to 13,000 metres. Next year, Philex expects to complete 15,000 metres of definition drilling, along with 3,000 metres of reconnaissance drilling on the surrounding properties.

Philex will use the funds to repay the US$14 million that it owes to Philippine banks and to fund closure costs associated with the Bulawan mine on the island of Negros.

“The situation at the Bulawan mine makes it important for us to raise the necessary funds to pay our liabilities and move ahead,” says Philex’s Chief Executive Officer, Gerard Brimo. “The terms of the agreement are reasonable given the early stage of the exploration and project definition, while our current low share price precludes other acceptable alternatives.”

The Bulawan mine has been running in the red over the past two years as low gold prices took its toll on the operation. At the end of the third quarter, Philex finally elected to through in the towel and take a US$40-million writedown, which will be charged in the fourth quarter.

“We have struggled for some time with the mine, which has been marginal, especially in relation to a gold price that stubbornly refuses to increase,” said Brimo. “While the decision is disappointing, it will ensure no further deterioration of our financial condition and allow us to focus on the important joint venture with Anglo American.”

In the quarter ended Sept. 30, the junior incurred a loss of US$3.8 million (or 10 per share), compared with a loss of US$2.1 million (5 per share) in the corresponding period of the previous year. Cash flow from the Bulawan mine was negative US$1.4 million (4 per share), compared with a year-ago deficit of US$2.1 million (5 per share). The company poured 14,392 oz. gold at a cash operating cost of US$198 per oz., significantly more than the 6,257 oz. produced at US$245 per oz. in the third quarter of 2000. For the first nine months of the year, the company posted a loss of US$6.7 million (17 per share), compared with a loss of US$8 million (20 per share) in the year-earlier period.