EXPLORATION 1997 — Arauco shifts focus from Chile to George Lake and Back River in N.W.T.

Toronto-based Arauco Resources (ARU-V) is abandoning its grassroots properties in Chile for an advanced gold project in Canada’s Far North.

Arauco, which raised $23.6 million recently, has agreed to buy a 100% interest in the George Lake and Back River properties in the Northwest Territories from Homestake Canada, Kerr-McGee Corp. and the MacLab group of companies for $20 million in cash and 6 million common shares. The properties host a geological resource of 5 million tons grading 0.397 oz. gold per ton.

The deal signals a change of direction for Arauco, which is selling its Chilean properties to Cambridge Minerals (CMB-A) to focus on developing a mine out of the six high-grade deposits at George Lake.

Arauco made its about-face last year, “when the directors decided they weren’t getting anywhere in Chile and should refocus the company somewhere else,” says Kerry Knoll, vice-president of corporate affairs.

Knoll was hired to manage the restructuring and, soon afterwards, made a bid on the Homestake properties. One of the competing bids came from John Zigarlick, former president of Echo Bay Mines (ECO-T), well-known in mining circles for his part in building the Northwest Territories’ Lupin gold mine.

After Arauco won the bid and secured a letter-of-intent to purchase the advanced gold deposits, Zigarlick stepped in as chairman of the company.

Robert Gilmoy, former mine manager at Lupin, took the helm as president and chief operating officer.

Lawsuit

Zigarlick’s marriage with Arauco is now the subject of a lawsuit against Arauco, and two of its directors, by an individual who alleges he and Zigarlick had an agreement on the George Lake property. Arauco is attempting to have the suit dismissed by the Supreme Court of British Columbia.

Homestake, which spent about $37 million and completed more than 420,000 ft.

of drilling on George Lake, says it put the deposits on the block after determining that the resources did not meet its criteria for development.

“There is an operational risk associated with something so remote,” says Carl Edmunds, regional exploration manager for Homestake Canada. “We didn’t feel there were enough resources to justify those hurdles.”

But Arauco is banking on the northern experience of its management and technical staff to overcome the hurdles. Zigarlick has spent most of his career in the north, most recently as president of Nuna Logistics, a major mining contractor in the Territories. Gilroy, along with some of Arauco’s technical staff, has several years of experience at the Lupin mine. Grenville Thomas, founder and chairman of diamond explorer Aber Resources (ARU-V), sits on the board of directors.

Like the Lupin orebody, 160 miles to the west, the George Lake deposits are hosted by steeply dipping iron formation. Several of the deposits are open at strike and at depth. Arauco has identified 14 high-priority targets in the 138,000-acre land package, including Hammer Lake, where a previous hole returned 0.32 oz. gold over 33 ft.

Based on a prefeasibility study, Arauco estimates it can mine the George Lake and Back River deposits at a rate of 170,000 oz. per year. The cash cost is estimated at US$240-250 per oz., assuming the ore is trucked to the Lupin mine.

Depending on the results of exploration, Arauco may also consider building its own mill on site. Knoll says about half of this summer’s 66,000-ft. drill program will be devoted to exploration, while the remainder will focus on definition work on the known deposits.