Canyon seeks partner for McDonald project

Low gold prices have forced Canyon Resources (CAU-X) to seek a joint-venture partner for the McDonald gold project in Montana, says President Richard De Voto.

After gaining sole ownership of the project last year, the company was unable to raise the needed funds to take it to a production decision alone.

In September 1997, Canyon signed an agreement with Phelps Dodge (PD-N) to acquire its 72% interest in McDonald. Canyon secured the stake through a US$5-million cash payment, with the remainder of the US$100 million to US$150 million due when construction begins.

However, during the fourth quarter of 1997 Canyon raised only US$5 million of the US$25 million needed to complete the engineering and permitting. De Voto blamed the collapsing gold price for the shortfall. He says Canyon is currently in negotiations with several companies and may be in a position to announce a joint-venture deal by mid-May.

McDonald, situated on the Blackfoot River near Lincoln, Mont., is a low-grade, bulk-tonnage project that has been in the permitting process for the past three years. De Voto remains confident that a draft environmental impact statement could be ready by the fall of this year, with the final version ready by the second quarter of 1999. However, he admits those opposing the mine will likely challenge the document.

Resources for the project stand at 187 million tons grading 0.036 oz. per ton, for 6.8 million contained ounces of gold, using a cutoff of 0.016 oz.

In 1997, Canyon recorded a US$5-million loss (or 13 cents per share), compared with a loss of US$7.1 million (21 cents per share) for 1996.

Earnings were adversely affected by a one-time charge of US$2.6 million related to reclamation at the Kendall gold-silver mine in Montana, which is in the process of being closed. Poor performance at the company’s Briggs gold mine in California also contributed to the loss.

Canyon experienced problems with tertiary crushers at Briggs, which led to a drop in gold production. Three vertical shaft impact crushers were replaced by cone crushers in January of this year, and the company reports improvements in crushing costs and gold production as a result.

Canyon produced a total of 67,402 oz. gold in 1997, the highest volume in company history.

The mine is expected to crank out as much as 88,000 oz. gold during 1998 at a cash cost of US$250 per oz., down from last year’s cash cost of US$290 per oz.