Echo Bay pulls in exploration reins to focus on mines

Gold producer Echo Bay Mines (ECO-X) intends to focus its limited exploration budget on North American projects viable at current low prices for the yellow metal.

The strategy is aimed at acquiring early-stage projects with potential for more than a million ounces and low up-front costs.

Echo Bay plans to spend only US$3 million on exploration this year, half of which is already earmarked for areas around its mine sites.

At the same time, the company has closed many of its foreign offices, particularly in South America, and plans to shift its resources to exploration programs in the Great Basin of Nevada and the Timmins region in Ontario.

In addition, it has signed a letter-of-intent with Nevada Pacific Gold (npg-v) to earn a 60% interest in the Moreau property in southwestern Arizona. In return, Echo Bay must spend US$1.75 million on exploration and pay Nevada Pacific US$150,000 over seven years.

The 2,200-acre property contains mineralization associated with a low-angle detachment fault. Mapping by Nevada Pacific indicates the presence of mineralization in flat-lying breccia zones along the detachment and in vertical fault zones crosscutting the detachment.

Nevada Pacific also carried out widely spaced drilling and underground sampling. Drill highlights include 45 ft. of mineralization grading 0.097 oz. gold per ton and 15 ft. of 0.089 oz. gold, which corelate with samples from underground.

Meanwhile, Echo Bay has inked a deal with Fairmile Gold (FLA-A) for a 51% interest in the Double Eagle property, east of Fallon, Nev. In return, the Englewood, Colo.-based company is required to spend US$500,000 over six years.

The 600-acre property, formerly known as Eastgate, contains Midas-type vein mineralization and has been subjected to limited drilling. An exploration program will focus on the potential of the known vein, as well as where it dives under volcanic cover.

In Canada, Echo Bay has entered into two joint ventures — one, with Falconbridge (FL-T) and Cross Lake Minerals (CRN-V) on the Currie-Bowman property, east of Timmins, and another, with Berland Resources (BNL-V) on the Ogden property, west of that city.

Despite its new domestic focus, Echo Bay still has several international projects in the works.

In Burkina Faso, the company and its 50% partner, Ashanti Goldfields (ASL-N), have completed a positive prefeasibility study on the Youga gold project.

The study envisions annual production of 100,000 oz. at a cash operating cost of US$195 per oz. over a mine life of more than six years. This, combined with a resource estimated at 1.2 million oz. (18 million tonnes grading 2 grams per tonne), has prompted the partners to proceed with a bankable feasibility study. Ashanti operates the joint venture.

In Russia, delays in negotiations over a production-sharing agreement have slowed progress at the Kuranakh gold project. Echo Bay, which is earning a half-interest in the operation, will restrict spending on the project pending a resolution.

The company has also had to reconsider some of its other development projects as a result of the extended low gold price. In Mexico, the Paradones Amarillo gold project would require a gold price of US$375 per oz. in order for production to proceed, and the Aquarius gold project in Ontario requires a price of more than US$325. Weak gold prices have already resulted in the closure of the Lupin mine in Nunavut.

Echo Bay reported a loss of US$10.5 million (or 7 cents per share) for the second quarter, compared with a loss of US$1.5 million (1 cents per share) in the corresponding period of 1998. Revenue was US$50.9 million, or 20% lower than a year ago, owing to lower production.

A a result of its hedging activities, the company was able to hold the gold sale price to US$345 per oz., down just US$1 from the corresponding period last year. However, revenue deferrals, required by hedge-accounting rules, lowered the realized price to US$326 per oz., compared with US$338 in the second quarter of last year.

Although Echo Bay sold more ounces of silver during the recent quarter than a year ago, resulting in higher revenues, the company realized a price of only US$5.27 per oz., down from the US$5.59 reported for the second quarter of 1998.

Overall, the company cranked out 125,056 oz. gold and 1.9 million oz. silver during the recent quarter, compared with 140,198 oz. and 2.1 million oz. a year ago. Cash operating costs for gold rose slightly between the two periods, to US$213 from US$208 per oz.

At Nevada’s Round Mountain mine, in which Echo Bay holds a half-interest, production fell to 70,765 from 73,020 oz. between the two second quarters (still 10% above the company’s target). Higher mill production offset lower leach pad production, resulting in cash operating costs of US$195 per oz. — 4% higher than a year ago.

Declining grades were not enough to offset higher throughput at the McCoy-Cove mine, also in Nevada, as production amounted to 29,576 oz. gold and 1.9 million oz. silver, compared with 35,591 oz. and 2.1 million oz. in the second quarter of 1998. The open-pit operation nonetheless reached a milestone of 3 million oz. gold and 85 million oz. silver during the recent 3-month period.

At the Kettle River mine in Washington state, lower production resulted in higher costs. The underground mine produced 24,715 oz. at US$243 per oz., compared with 31,587 oz. at US$225 a year ago. Echo Bay has identified mineralized extensions to the K-2 deposit, though additional work will be required to turn it into ore.

The company has increased its overall production forecast for the year to as high as 500,000 oz. gold, while lowering its cash cost target to US$220 per oz.

For the first six months of 1999, Echo Bay reported a loss of US$18.8 million (13 cents per share), compared with a loss of US$11.7 million (8 cents per share) in the first half of 1998.