Dakota reorganizes Illinois Creek payments

The Illinois Creek gold mine, in west-central Alaska, was in trouble.

Production was almost at a standstill because there was no water for the heap-leach pad. The contract miners had not been paid, and the operator, Dakota Mining (DKT-X), had defaulted on its project financing loan.

Dakota’s only recourse was to submit to a binding agreement from its creditors to keep the company out of deeper financial troubles and find a way to turn the mine around.

Recently, the company reached an amended credit agreement with its creditor, NM Rothschild & Sons, to resume its loan payments and continue payments to its contract miner at Illinois Creek.

The amended agreement calls for Dakota to liquidate certain hedging contracts (which secured the Rothschild loan) for US$2 million. Those funds have been transferred to D.H. Blattner & Son, contract miner for Illinois Creek, as partial payment for its services.

The company says it has agreed to continue making regular payments to Blattner, which also agreed to continue its services.

Rothschild’s agreement also calls for Dakota to make advance payments of no less than US$2 million of the principal on the loan before the end of the year.

Dakota says this payment is possible if the project’s production schedule is met.

John Haigh, vice-president of investor relations for Dakota, says things are finally turning around at Illinois Creek. “The mine is operating better than it ever has.”

Additional principal payments will be made according to a revised amortization schedule, in which 65% of the US$20.5-million balance is to be paid by the end of 1998.

Rothschild stipulates that the company must continue to make its regular interest payments.

Proceeds from the mine are placed in a special account, to which Dakota cannot have access (other than for direct project costs and US$55,000 per month for overhead not directly related to the project) until all principal and interest payments on the loan are paid to Rothschild.

The Illinois Creek mine is a seasonal open-pit operation 300 miles east of Fairbanks. It is also the most northern heap-leach mine in the world.

The project has a troubled history. The previous owner, USMX, had planned for production to begin before winter 1996, but that was rendered impossible as a result of problems in the design of the leach pads. The pads were finally laid down, and loading commenced in May 1997.

The operation came under new management after Dakota merged with USMX last winter. Dakota had expected the mine to produce 65,000 to 70,000 oz. gold- equivalent in 1997.

However, dry weather conditions during the spring caused the permitted water supply to dry up, and the lack of water, in turn, prevented initial flooding of the heaps.

These obstacles were overcome, though, even now, the processing plant is operating 10% short of capacity.