Bio-oxidation planned Homestake, U.S. Gold team up to develop

A new partnership between Homestake Mining (NYSE)and U.S. Gold (NASDAQ) will provide for further exploration and development of the Tonkin Springs property in the prospective Battle Mountain-Cortez gold trend in north-central Nevada. Homestake paid US$3.5 million to acquire a 51% interest in the partnership which will be managed by one of its subsidiaries. At the same time, it committed to a US$2-million exploration program to be carried out during the next 16 months. The Tonkin Springs properties cover 42 square miles, and in-clude an oxide and sulphide mineralized resource estimated by U.S. Gold to contain nine million tons with an average grade of 0.05 oz. gold per ton. The project also includes a 1,500-ton-per-day milling facility. It is the first commercial-scale mill built in North America to incorporate bio-oxidation pretreatmentof refractory reserves.

The bio-oxidation process uses a naturally occurring bacterium, thiobacillus ferroxidans, in the pretreatment step to breakdown the iron and sulphur compounds in refractory ores and release the gold for subsequent recovery by conventional cyanidation.

But technical problems, cost overruns, startup difficulties and delays at Tonkin Springs led to financial problems for U.S. Gold, and it was unable to demonstrate the operation’s commercial and economic viability. The mill is now on standby status, pending the results of the proposed exploration program by Homestake which will focus on outlining both oxide and sulphide deposits. Last year, U.S. Gold said only about 10% of the property was explored, and the potential for reserves at depth had not been tested.

Janet Bley, spokesman for Homestake, told The Northern Miner the company has no immediate plans to resume operations at the Tonkin Springs mine and mill, or to immediately begin work to further develop U.S. Gold’s bio-oxidation process.

“The first thing we will address is the exploration of the property,” she said. “But further down the road there could be other operational issues that are addressed,depending on the outcome of the exploration.” Homestake has several operations which currently process re-fractory reserves, and it is one of several senior producers considered likely to gain a competitive edge in the gold mining business through innovative processing methods to treat difficult ores.

Analysts predict that as the world’s supply of easily treatable ore declines (and in view of environmental considerations), therewill be increased incentive to apply methods such as bioleaching technology to refractory ores.

Homestake acquired its interest in U.S. Gold after that company’s creditors agreed to a debt restructuring plan enabling U.S. Goldto avoid bankruptcy.

The agreement with Homestake was an integral part of the plan as the company’s major creditors French American Bank and the holders of US$12.75 million of subordinated debentures agreed to extend the payment dates for monies owed to them.

As part of the agreement with U.S. Gold, Homestake will buy up to US$1.2 million of U.S. Gold’s common stock during the next 12 months. Under certain circumstances, it will also provide U.S. Gold with financing for its share of costs after specified expenditures by Homestake, which could be up to US$7.5 million.

Homestake also has two options to increase its interest in the property to 100%, subject to the approval of U.S. Gold shareholders.