Eskay Creek keeps company primed for profits

Being the owner of one of the highest-grade gold and silver mines in the world, Vancouver-based Prime Resources Group (PRU-T) is in the enviable position of being able to continue to post a profit in these times of depressed gold prices.

Prime earned $5.3 million (or 7cents per share) on revenue of $54 million for the third quarter, compared with earnings of $9 million (12cents per share) on $50.7 million in the similar period in 1996. The company realized a gold price of US$324 per oz., down US$61 per oz. from the third quarter of 1996, while the realized silver price fell 52cents to US$4.53 per oz.

For the first nine months of 1997, Prime’s earnings totalled $21.9 million (29cents per share) on revenue of $154 million, down from $32.4 million (43cents per share) on $151 million during the corresponding period last year.

The company generated cash flow of $23.7 million during the third quarter, and its working capital rose to $155.1 million.

Prime owns and operates the Eskay Creek mine and the smaller, high-grade Snip mine, both of which are underground operations in remote northwestern British Columbia. Eskay Creek ranks as the fifth-largest silver producer in the world.

Prime is 51%-controlled by San Francisco-based Homestake Mining (HM-N).

The company produced 136,543 oz. gold-equivalent in the third quarter at a cash cost of US$174 per oz. gold-equivalent, a 9.8% increase over the comparable period in 1996, when 124,352 oz. were produced at a cash cost of US$172 per oz.

During the first nine months of this year, Prime produced 391,582 oz.

gold-equivalent at a cash cost of US$173 per oz. — an 11.4% increase over the 351,495 oz. produced during the first nine months of 1996 at US$171 per oz.

During the quarter, improved gold grades and increased ore sales contributed to a 20% increase in production at Eskay Creek. Sales totalled 63,149 oz.

gold and 3 million oz. silver, which is equivalent to 105,414 oz. gold.

Increased production and a planned reduction in underground development led to a decrease in the total cash cost to US$163 per oz. gold-equivalent, compared with US$176 per oz. in the third quarter of 1996.

Since startup in 1995, Eskay Creek has operated without a mill, shipping its ore directly from the property to smelters in Quebec, Japan and the U.S.

However, metallurgical testwork on the NEX and 109 zones indicated that the ore was amenable to gravity and flotation processing. Though the zones have lower gold and silver grades than the main 21B zone, they contain significantly lower levels of deleterious elements, such as mercury and antimony.

Consequently, in early July, Prime began constructing a $17-million, 165-ton-per-day gravity-flotation mill at the mine site. The mill will enable the company to process lower-grade ore, while maintaining low cash costs.

Annual production from the mill is projected at 70,000 oz. gold-equivalent at a cash cost of US$175 per oz., resulting in an increase of 30,000 oz.

gold-equivalent from Eskay Creek.

The mill project is on schedule and budget for completion by the end of the year. It has a payback period of one year.

At the start of 1997, Eskay Creek contained a proven and probable reserve of 1.4 million tons grading 1.73 oz. gold and 79.3 oz. silver per ton, equivalent to 2.4 million oz. gold and 110.8 million oz. silver. An additional geological resource is estimated at 278,000 tons grading 0.54 oz.

gold and 31.6 million oz. silver.

A significant portion of the 49,000 ft. of surface exploration drilling completed at Eskay Creek was directed at the 21C zone, an area west of the main 21B zone. While no results have been reported, this area had previously shown potential for lower-grade, millable ore.

A total of 33,000 ft. of underground drilling has also been completed. And as part of an in-mine exploration program, the underground ramp was extended to allow further definition drilling on the NEX zone.

Third-quarter production from the Snip mine, 25 miles west of Eskay Creek, amounted to 31,129 oz. gold at a total cash cost of US$210 per oz., compared with 36,843 oz. at US$163 per oz. in the year-ago period. A lower grade and lower throughput are responsible for a decline in production, and the higher costs are attributed to the mine’s reliance on labor-intensive, narrow-vein mining methods. In addition, the added expense of freight charges lowered the mine’s on-site inventory of concentrates.

In early 1997, the Snip mine was estimated to contain a proven and probable reserve of 369,000 tons grading 0.72 oz. gold, equivalent to 267,000 contained ounces. Only 19,000 tonnes grading 0.56 oz. gold remain categorized as a resource.

Underground exploration drilling continued at Snip, with 93,000 ft. having been completed to date. Results from regional drilling were termed disappointing by Prime, and that program was suspended.

Prime also carried out regional exploration on the Marchand gold property in Quebec, the Heidi properties in the Yukon and the Corey property, 9 miles south of Eskay Creek. Prime can earn up to a 70% interest in a 6,000-ha block of the Corey property from Kenrich Mining (KRC-V).

Prime spent a total of $4.2 million on exploration during the third quarter.