Chelsea lays out new plan at troubled Spotted Horse

After gaining control of the company, Chairman Fernando Nuflo- Moya is also confident that a series of development problems are now behind him. As the company attempted to come to terms with erratic grades and insufficient development, output fell last year to 4,234 oz (grading 0.33 oz gold per ton) from an anticipated 10,000 oz (grading 1.0 oz).

“At least 90% of the recent operating problems have been overcome,” said Nuflo-Moya who expects production to increase to 16,000 oz in 1989.

Mill head grades still vary from 0.2 to 2.0 oz but the 50-ton-per-day mill is working at full capacity and achieving 90% recoveries, according to figures released by the company.

When a new hoist and head frame are complete, Chelsea says it will be in a position to increase its mining rate to 500 tons per day while reducing production costs from $250(US) per oz to $220.

Just two months after Northgate Exploration (TSE) sold its 19.6% stake in Chelsea for $1 million, Chelsea has also announced a significant reserve increase.

Northgate elected to sell its interest because it felt that the mine lacked the potential to justify the time and money which was being devoted to it, according to Gerald Harper, Northgate vice-president development.

Based on drifting and drilling figures which haven’t been released, proven and probable reserves at the Spotted Horse now stand at 112,590 tons grading 0.84 oz gold per ton (94,236 oz) to a depth of 250 ft.

In September, reserves stood at 56,363 tons grading 1.25 oz (71,000 oz).

While admitting that most of the recent problems were due to lack of development and low grade of ore, Nuflo-Moya credits his more optimistic outlook to stable management and an ultimatum delivered during a visit to the mine site in December.

“I told the miners to start producing or I will sell the mine,” said Nuflo-Moya who has trimmed the workforce from 80 to about 45. “I felt that the productivity wasn’t there and that there were too many people working at the project.”

With a $2-million revolving line of credit, a $500,000-convertible debenture and about $3 million in projected cash flow to work with, Chelsea is planning to double the milling capacity to 100 tons per day this summer.

An as yet undetermined amount of stockpiled ore will be placed on a newly installed leach pad when the facility is completed later this year. If Nuflo-Moya’s projections are correct, the mine will be capable of producing 36,000 oz gold in 1990.

That would represent a significant turnaround for a mine which the company admits was brought to production much too quickly. If the Spotted Horse fails to generate the necessary cash flow, the Chelsea chairman says he will use the contacts he developed while acting as director of Banco Central of Canada (the Canadian wing of Spain’s largest bank) to arrange additional financing.

Lufer Corp., a private company owned by family interests of Nuflo- Moya has granted Chelsea an option to acquire a 20% direct interest in the Spotted Horse mine by March 31 for $1.5 million. The amount will be paid by way of 2,143,000 treasury shares at 70 cents per share.

Meanwhile, most of the ore at Spotted Horse is being mined from five stopes located between levels six and eight. The company is also attempting to connect the mine to a couple of adjacent former gold producers called the Maginnis and Kentucky Favorite properties.

Under a recent agreement Chelsea, and 50% joint venture partner Beardmore Resources (VSE) will embark on a $1.25-million exploration program on the adjacent Gold Hill project in March.

Vancouver-based Beardmore earned its 50% interest in the Gold Hill joint venture by paying Chelsea $1 million.

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