Crude will take Eagle River to production `with or without’ Hemlo

The Eagle River gold deposit in the Mishibishu Lake area of northern Ontario will enter production “with or without” the help of 60% owner Hemlo Gold Mines (TSE), says Richard Nemis, president of Central Crude (TSE).

Convinced of Eagle River’s viability and eager for cash flow, Nemis says Crude will bring the gold deposit to production in exchange for a share of Hemlo’s interest in the project. Crude currently holds a 40% stake in Eagle River.

Under an agreement between the two companies, Hemlo is expected to provide financing for Central Crude if a production decision on the property is approved.

Earlier this year, Hemlo recommended that production be deferred until gold prices improve and/or costs can be reduced. A feasibility study concluded that, at US$375 gold and a mine-only capital cost of $21 million, the deposit would provide an 18% return on capital.

“That left Central Crude in a very ticklish position,” Nemis told shareholders at a recent annual meeting.

“Eagle River doesn’t mean an awful lot to Hemlo’s bottom line, but we need that cash flow.”

Crude’s production plans signal a possible parting of the ways among Crude, Hemlo and Hemlo’s parent, Noranda (TSE). While Hemlo holds a 43% stake in Crude, Nemis says several other seniors have expressed an interest in investing in Crude’s property portfolio. Four of those companies are conducting due diligence surveys on the package.

“There may be a divorce,” Nemis told The Northern Miner.

If a senior was to form a joint venture with Crude, responsibility for operating the junior’s other major project, Moss Lake, would likely be taken out of the hands of current contractor Noranda. The property is estimated to contain 82.2 million tons of reserves grading 0.031 oz. gold per ton.

Eagle River hosts proven, probable and possible reserves of 2.87 million tons averaging 0.25 oz., cut and fully diluted. Uncut and undiluted reserves total 2.24 million tons grading 0.48 oz. In 1989, the partners completed a 3,615-ft. ramp and opened the deposit on three levels.

Nemis is proposing a combination of debt and equity financing to raise the required capital for production. He said Crude would start with a convertible debenture and follow with a share offering.

“I think we can do it for less than $21 million,” Nemis told shareholders. Under a current proposal, the mine would enter production at a rate of 500 tons per day, gradually increasing to 800 tons per day.

With the infrastructure already in place, Nemis believes Eagle River could be producing its first ore within five months of a production decision.

Although several mills in the area would be available for contract milling, Crude has not ruled out the possibility of building its own on-site mill.

“This (an on-site mill) may be by far the very best way we can go about it,” Nemis said.

Hemlo President John Harvey expressed his support for the Crude initiative when contacted by The Northern Miner.

“We’ll listen to anything,” he said. “We’ll make a deal . . . if the price is right. Eventually we want to get back the money we’ve put into it.”

At least $20 million has been spent at Eagle River to date.