Eskay deal makes Placer builder, Corona operator

Former rivals International Corona (TSE) and Placer Dome (TSE) have reached an agreement for the joint development of the Eskay Creek gold project north of Stewart, B.C., with a view to bringing the project into production as early as 1994.

A year ago, the two majors were vying for control of the high-grade deposit owned equally by Prime Resources Group (VSE) and Stikine Resources. Corona emerged with the larger stake by way of a 49.8% interest in Prime and a 40.9% interest in Stikine, while Placer ended up with a 44% interest in Stikine. After about a year of on-again, off-again talks, the companies hammered out an agreement that envisions a joint venture where each would have 50% of the project. Placer would fund all exploration, development and construction costs up to a total of $240 million in order to bring its interest to 50%. (That includes the effective interest it holds through Stikine.) Costs over $240 million would be funded 50-50 by the joint venture.

“I think it’s an excellent deal, and a fair deal for all parties concerned,” said Murray Pezim, the Vancouver promoter who played a key role in financing exploration on the property. “I’m tickled pink and congratulate both companies.”

Most mining analysts also view the deal as good for both companies, and speculate that Placer’s healthy cash reserve was probably its main bargaining tool during the recent negotiations. Corona, on the other hand, is still continuing a program aimed at reducing debt and strengthening its financial position.

Don Poirier, an analyst with Brink, Hudson & Lefever, views the deal as particularly good for Corona because it will share equally in revenue from the project from first production.

But Placer spokesman Hugh Leggatt said the company was “pleased” with the agreement because it ended up with what it had hoped to secure through last summer’s takeover bid for Stikine — a 50% interest in Eskay Creek. Corona’s desire to operate the proposed mine wasn’t an issue, Leggatt said, although he added that Placer did want to design and build the mine-mill complex in light of the metallurgical complexity of Eskay Creek reserves. These reserves currently stand at 5.2 million tons grading 0.67 oz. gold and 24.13 oz. silver per ton at a cutoff grade of 0.1 oz. gold. The deposit also contains base metal values.

Leggatt cautioned that a definitive joint venture agreement would have to await an engineering due diligence review to be completed by mid-December of this year, as well as tax rulings and regulatory approvals.

After the review stage, Placer can elect to proceed to the exploration stage which continues through to feasibility. If a production decision is then made, Placer will exchange its Stikine shares for a direct interest in the property, which will be increased to 50% for having funded exploration and the feasibility study.

Corona President Peter Steen said he was pleased with the agreement as the company would be operator once mine construction is completed. “We wouldn’t have made a deal without that provision,” he said. But Steen said he welcomed Placer’s considerable expertise and experience in operating metallurgically complex gold mines. These would include the Campbell mine in Ontario, Porgera in Papua New Guinea, and Cortez in Nevada. Under the proposed joint venture, Placer would manage the completion of the exploration stage and the feasibility study, as well as build the mine and processing plant.

In the meantime, road construction to the proposed mine site will continue into next summer. The provincial government is providing financial assistance for the 22-mile road from Highway 37 to Volcano Creek, while the remaining 18 miles to the mine site would be funded by mining companies.

An underground program began at Eskay Creek last summer aimed at confirming surface drilling results from the 21B zone, evaluating mining conditions and obtaining bulk samples for metallurgical testing. The program was completed in May, and involved 6,653 ft. of underground development, including three crosscuts through the main zone, and about 8,202 ft. of drilling. “We’re happy with what we’ve seen underground,” said Steen. “Ground conditions are better than expected and mining won’t be a problem.” work to date indicates that 20-25% of the gold can be recovered through a gravity process. Corona said the flotation process, which concentrates gold-bearing sulphides, has not yielded a salable product primarily because of antimony and mercury in the concentrates. Alternative methods are being investigated. But Corona said pressure leaching using autoclaves appears to be the preferred alternative.

Environmental studies to obtain government approvals are also continuing. The costs for exploration, underground development, engineering and environmental studies are estimated at $13.8 million for 1991.

In a separate agreement, Placer agreed to purchase from Corona $100 million, 9.75% convertible redeemable first preference shares of Corona. The shares would be convertible into Corona after non-gold assets are spun off into Dundee Bancorp. That reorganization is expected to become effective in late October.

Leggatt said the loan facility does not represent the start of a creeping takeover of Corona.