Downturn offers Equinox opportunity

Under similar conditions a few years ago, the company purchased a 23.6% working interest in the Buckhorn mine, a Nevada heap leach producer operated by Cominco Resources International (TSE). A totally leveraged buyout, Equinox recovered its invested capital of $1.7 million(US) in less than 11 months.

Buckhorn has become a building block for the small but emerging gold producer, one that has allowed it to pursue other acquisitions, including the Macacona mine in Costa Rica. In January, Equinox concluded an option agreement with New York-based United Hearne Resources to purchase the small heap leach operation where production has been averaging a modest 5,000 oz per year from material grading 0.036 oz gold per ton.

Equinox President Ross Beaty has charted out what he thinks is an attainable growth strategy for the company that could see it producing over 30,000 oz gold per annum beginning in 1990. Equinox has until October to exercise the option on Macacona which had an original purchase price of $800,000; but that price was renegotiated down to $260,000 and a 20-30% royalty because existing reserves (2-3 million tons) were found to be mostly sulphide rather than oxide.

Beaty said the “excellent potential of the 24 square kilometre property is now being tested by surface trenching and a 20,000 ft drilling program.” The company’s near- term goal is to expand production which now encompasses a mining rate of 4,000 tons per day of which 1,000 tons is ore.

As a means of reducing the financial risk, Equinox has farmed out a 50% interest in the project to Toronto-based SouthernEra Resources which he described as a “well-financed resource company with strong mining management.” Risk management is a key element in Equinox’s investment strategy and it wants to avoid making any big mistakes; so joint ventures are a means of spreading the risk. Gold production at the mine for March and April totaled 1,025 oz — more than double that of the previous two months — so the project is off to a good start.

Extreme weather conditions adversely affected Buckhorn gold output in the first quarter but Beaty emphasized “production has been restored to normal levels and this should persist.”

Cominco Resources has commenced pre-feasibility work on the sulphide gold reserve which now stands at 1.2 million tons grading 0.11 oz gold. A high grade sulphide discovery made in the West Sinter zone about 18 months ago proved to be a small occurrence, but there are several other deeper targets that will be tested later this year, Beaty said. “We are trying to expand these sulphide reserves to justify the installation of a mill,” he added.

At year-end, the Buckhorn mine had oxide reserves of 1.5 million tons grading 0.05 oz gold and Beaty said they were “replacing reserves faster than we mine them out.”

Permitting is under way for the Zenda mine project in California where construction could begin in the third quarter. Heap leach reserves are 1.1 million tons averaging 0.05 oz gold. The company has a 100% interest in the project which is expected to produce about 15,000 oz gold per annum over its initial 3-4 year mine life. No royalties are payable on production.

In terms of production potential, Beaty ranks the J&L property near Revelstoke, B.C., highest on his list. Equinox can earn a 70% interest in the project from Pan American Minerals (TSE).

Since optioning the property, Equinox has completed a $1.4 million underground exploration program involving 32 diamond drill holes along with a 300-ton bulk sample for metallurgical test purposes. Beaty said the average grade of mineralization in the holes was 0.32 oz gold, 2.4 oz silver, 6% zinc and 3.3% lead. However, the material is highly refractory because of its 5% arsenic content.

Pressure leaching would probably be required and a conceptual plan of operations includes the installation of a sink-flotation plant which would allow the company to mine 500 tons per day but mill 250 tons. Saleable lead and zinc concentrates would be produced and dore bullion from the pressure leaching of arsenopyrite. Bio- leaching has been looked at but it’s not “bankable,” Beaty said. Reserves consist of 721,000 tons (proven and probable) grading 0.2 oz gold, 2 oz silver, 2.6% lead and 5.4% zinc.

Equinox’s current budget of $600,000 will be spent on base line studies for production permitting, additional metallurgical studies — including a pilot plant test, and the refinement of capital and operating costs. A preliminary figure suggests a capital cost of $30 million.

Another phase of underground development is planned after the program near a hole drilled earlier this year which returned 1.2 oz gold, 4.1 oz silver and 18.9% combined lead/zinc over an 8.9-ft true width. Ground conditions are good and reserves appear amenable to shrinkage stope or bulk mining methods. High grade areas could generate a rapid payback, Beaty emphasized, adding the reserve potential in the sulphide system is probably about 13.1 million tons.

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