In November 1998, voters passed a bill banning the use of cyanide in any new mining project. Canyon contends it should be compensated for the loss of its property rights.
Franco agreed to provide the funds in exchange for a 4% net smelter return royalty on any production, or one-third of any damages received.
The financing consists of US$3 million in cash plus a US$500,000 committment to maintain property rights at the property, 12 miles west of Lincoln.
To arrange the financing,
Canyon needed to rework the purchase agreement with Phelps Dodge. In September 1997, the company bought Phelps Dodge’s 72.25% interest in the joint venture by paying US$5 million in cash and agreeing to pay no less than US$100 million if and when Canyon receives all permits necessary for construction.
Under the new agreement, Canyon will pay US$10 million when it receives all permits or grant Phelps Dodge a third of any proceeds from the lawsuit.
The McDonald project contains at estimated 6.3 million oz. gold in 251 million tons grading 0.25 oz. per ton, based on a gold price of US$300 per oz.
Over a mine life of 12 years, the heap-leach operation is expected to produce more than 400,000 oz. per year. Cash operating costs are pegged at US$150 per oz., whereas construction costs are expected to top US$200 million.
Meanwhile, two other lawsuits have been filed in federal court by parties contesting the validity of the new anti-cyanide law.
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