Chelsea transfer of mine interest to Northgate

Caught in a financial squeeze because its Spotted Horse mine near Lewistown, Mont., has not met design criteria, Chelsea Resources (VSE) has transferred a 20% direct interest in the mine to Northgate Exploration (TSE). Northgate has agreed to provide managerial and financial assistance to Chelsea in return for the interest.

In the past six months, the mine has yielded only 1,584 oz gold, mostly because of low ore production and poor recoveries. Development work has fallen behind, materials handling has been affected by limited hoisting capacity and the low grade development muck being processed in the mill has resulted in reduced recoveries.

Because the mine has not reached the specified production levels demanded by Chelsea’s banker, a $1-million line of credit with a major Canadian bank has been cancelled. As a result, Chelsea confirms it is “unable to fund capital expenditures and operating shortfalls at the Spotted Horse mine.”

However, Northgate has agreed to provide Chelsea up to $1.2 million(US) on a secured basis for two years which will be utilized over the next three months to bring the mine up to design specifications. Northgate’s vice-president development, Dr Gerald Harper, has been appointed operations manager for Chelsea on an interim basis. Under its deal with Northgate, Chelsea will have an option to repurchase the 20% interest by Aug 31 upon repayment of all indebtness to Northgate plus an additional $1.5 million. The company will also have the right of first refusal on that interest should it be for sale at a later date.