Aur gets Duck Pond base metal project

In a deal valued at $6 million, Aur Resources (AUR-T) is taking over the Duck Pond base metal project in Newfoundland from partners Thundermin Resources (THR-T) and Queenston Mining (QMI-T).

Duck Pond, 30 km southeast of Buchans, has a 5.2-million-tonne reserve grading 3.3% copper, 5.8% zinc and 0.9% lead, plus 59 grams silver and 0.8 gram gold per tonne. A feasibility study commissioned by Thundermin and Queenston concluded a 1,500-tonne-per-day underground mine would be profitable.

Queenston receives $3 million in cash, and Thundermin $2.1 million; Aur also will return the 11.2 million shares of Thundermin it now holds for cancellation. The shares represented a 28.3% stake in the company, a holding valued at $900,000. In July, Aur had converted $728,557 of debt into 4.3 million Thundermin shares.

The two companies had put about $4 million into exploration and development work at Duck Pond since Thundermin optioned the property in September 1998.

Aur also assumes the obligations of the underlying property deal with Noranda (NRD-T), which discovered Duck Pond in the mid-1980s. Noranda is owed $500,000 at the end of June 2003, when Aur is required to make a production decision.

Once commercial production starts, Noranda gets a further $3 million and retains a 2% net smelter return royalty. There is a deadline at the end of June 2006 for the start of commercial production, but the option deal allows Aur to buy extensions to both deadlines.

For Aur, Duck Pond provides a project to replace the Louvicourt mine, in which the company holds a 30% stake. Aur operates Duck Pond for a joint venture that includes Novicourt (NOV-T) and Teck Cominco (TEK-T). Louvicourt, which mines 1.5 million tonnes annually, had 5.6 million tonnes in reserves and a global resource (including reserves) of 7.5 million tonnes, making for a 4-to-5-year mine life.

Duck Pond would have a mine life of just over 10 years, based on the 1,500-tonne daily mining rate. Annually, it would produce 14,500 tonnes copper, 27,000 tonnes zinc, 400,000 oz. silver and 2,100 oz. gold.

The feasibility study estimated a $79.6-million capital cost to bring Duck Pond into production. The construction period is expected to last 18-20 months, during which time a 15-km road upgrade and a 60-km power transmission line would be completed. An environmental impact statement was filed in August and accepted by the Newfoundland government.

The Boundary deposit, a small near-surface massive sulphide with a reserve of 530,000 tonnes grading 3.4% copper, 2.7% zinc, 0.4% lead, 22 grams silver and 0.3 gram gold, would be mined first from an open pit. The mine plan then calls for an underground ramp to the main Duck Pond deposit to exploit a reserve of 4.7 million tonnes grading 3.3% copper, 6.2% zinc, 1% lead, 63 grams silver and 0.9 gram gold. Development costs of $11.3 million above the estimated capital expenditures, to open up workings on the main Duck Pond zones, would be paid out of cash flow from Boundary’s production.

The three known lenses of the main Duck Pond mineralization — Upper Duck, Lower Duck and Sleeper — are all shallow-dipping bodies that require drift-and-fill mining.

Metallurgical tests indicate 83% recovery of copper and 84% recovery of zinc in standard milling. Separate copper and zinc concentrates would be produced, with most of the precious metals reporting to the copper concentrate. Concentrates would be trucked to the seaport at Botwood, Nfld., and shipped out for smelting. Cash operating costs have been estimated at $42 per tonne of ore, and after byproduct credits, the estimated cash cost of production is US$700 per tonne of copper.

The deal would allow Thundermin to repay a $1.5-million loan from Queenston, which had been due for repayment at the end of November. As part of the Duck Pond deal, Queenston agreed to extend the loan until the sale closes. Queenston had previously extended the term of the loan from an earlier maturity of Sept. 30.

Because the sale involves tendering shares, it will need the approval of the Toronto Stock Exchange, the Ontario Securities Commission and Thundermin’s other shareholders. Thundermin expects to schedule a shareholders meeting in late February or early March to present the deal for a vote. Aur’s offer expires April 1, 2002.

The parties also need Noranda’s approval to assign the option agreement to Aur, and Queenston must get an independent opinion on the fairness of the transaction. In the meantime, both Thundermin and Queenston can look at other offers for Duck Pond. Thundermin has a first right of refusal on Queenston’s interest, and requires Queenston’s approval to sell its interest. The deal only permits Thundermin to sell for $3.1 million or more.

Thundermin, which had a working capital deficit of $10,300 and cash of $435,499 at the end of September, found it impossible to raise more money to pay off the Queenston loan and fund further work on Duck Pond, where it is the project operator. Following the sale, Thundermin expects to have just over $1.6 million in working capital, which includes a 3-million-share stake in Queenston. Thundermin and Aur hold a package of 38 properties covering 765 sq. km in northwestern Manitoba and northeastern Saskatchewan; Aur, which holds 70% and is operator of the projects, has exploration programs planned for the 2002 field season.

Queenston would have working capital of around $9 million, which it plans to employ on properties in the Kirkland Lake and Lake Abitibi areas of northeastern Ontario. Its Kirkland Lake properties are held in joint venture with Franco-Nevada Mining (FN-T).