Echo Bay selling Kensington stake

Toronto-listed Echo Bay Mines will sell its half interest in the Kensington gold project in Alaska to joint-venture partner Coeur d’Alene (NYSE), thereby ending a dispute between the two companies.

The dispute was prompted by claims by Coeur d’Alene that its wholly owned subsidiary, Coeur Alaska, had become mine operator.

Echo Bay disagreed and filed a temporary restraining order

blocking any attempt at a takeover.

Coeur d’Alene offered to buy out Echo Bay’s interest in an effort to resolve the disagreement. The net book value of Echo Bay’s interest was estimated at US$30 million.

The actual sale price includes US$32.5 million and a scaled

royalty on 1 million oz. of future production.

Royalty payments to Echo Bay will begin only after Coeur d’Alene recoups the cost of acquiring the former’s interest and the

remaining cost of putting the mine into production. The royalty ranges from 1% at US$400 per oz. gold to a maximum of 2.5% at prices above US$475 per oz.

A definitive agreement is expected to be signed by the end of May.

The Kensington project hosts 13.6 million tons (proven and

probable) grading 0.143 oz. per ton, or almost 2 million

contained ounces. The mine should take two years to construct, with annual production projected at 200,000 oz. Full ownership in the proposed underground mine translates into a 25% boost in reserves for Coeur d’Alene.

Coeur d’Alene reported a net loss of US$3.2 million (or 20 cents per share) in the first quarter, compared with a loss of US$2.6 million (or 17 cents per share) for the same period in 1994. Gold production rose 14% to 36,571 oz., silver production was slightly up at 1.5 million oz., and revenue stayed steady at US$23.5

million.

By selling its stake in Kensington, Echo Bay will be free to focus on developing its wholly owned Alaska-Juneau gold property.

The company is working with the Environmental Protection Agency (EPA) to ensure that solutions are found to certain permitting problems. In late 1994, the EPA issued a technical assistance report which concluded the project would likely violate water quality standards.

In an effort to comply with environmental standards, the company is considering eliminating certain chemical processes. Rather than produce gold bullion, it is proposed that the mine would produce a concentrate which would be shipped off-site for

processing.

Also, the EPA is reviewing the possibility of disposing tailings into the Gastineau Channel. A land disposal site at Sheep Creek is no longer available, so an alternative must be found.

Echo Bay recorded a first-quarter loss of US$11.7 million (or 10 cents per share), compared with earnings of US$11.5 million (or 10 cents per share) for the same period in 1994. Sales dropped by 20% between the two quarters, to US$84.2 million from US$103 million. Most of this decrease is attributable to lower gold production.

Exploration and development expenses rose sharply to US$14.4 million, partly as a result of work carried out at Echo Bay’s Alaskan properties.