Cominco to sell interest in Snip mine

International Skyline Gold (TSE) has reached a tentative agreement to acquire Cominco’s (TSE) 60% interest in the Snip underground gold mine in northwestern British Columbia. The purchase price is $55 million.

The sale is subject to a right of first offer held by Prime Resources Group (TSE), which owns the remaining 40%. Prime has 30 days during which it may exercise that right.

The mine has been in production since 1991, and reserves currently stand at 529,000 tonnes grading 0.75 oz. gold per ton. In production since 1991, Snip produced 128,274 oz. during 1995 at a cash cost of US$175 per oz.

Prime says the mining methods employed in 1996 will result in an expected 5% decline in tonnage mined and processed, leading to a modest increase in total cash costs.

Cominco’s treasurer, Douglas Margerm, says that, with only three years’ worth of reserves remaining, the mine is no longer a core asset of Cominco.

Skyline decided to buy Cominco’s interest for reasons related to its neighboring Bronson Slope gold-copper deposit. The company intends to develop the porphyry deposit as an open-pit, 12,000-tonne-per-day operation.

Bronson Slope contains a near-surface, high-grade reserve of 17 million tonnes grading 0.72 gram gold, 0.23% copper and 3.1 grams silver, within a resource of 90 million tonnes grading 0.75 gram gold, 0.16% copper and 4.17 grams silver.

For the first five years of operation, annual production is projected at 85,000 oz. gold, 20 million lb. copper, 455,000 oz. silver and 320,000 oz. molybdenum. The capital cost is estimated at $130 million.

The three years of mine life remaining provide Skyline with sufficient time to acquire a mine development certificate for Bronson Slope and make the transition from producing 400 tonnes per day to 12,000 tonnes.

Skyline has arranged a $40-million credit agreement with N.M. Rothschild & Sons and plans to finance the balance of the purchase price by undertaking an equity financing. The company has 22 million shares outstanding.

Skyline intends to create a new company to hold its existing assets, which would include the proposed acquisition of 60% of Snip. Shareholders would receive one share in the new company for each old share held.

The restructuring follows an agreement reached with Mutiara Resource whereby Skyline can acquire varying interests in 13.2 million acres in the Indonesian province of Irian Jaya by issuing 80% of its shares to that company. The deal remains subject to the approval of shareholders, who are scheduled to meet in April.