EXPLORATION 1997 — Russian financing a boon to High River

A Russian gold producer whose single largest shareholder is Toronto-based High River Gold (HRG-T) has completed one of the largest foreign financing deals in Russia to date.

Buryatzoloto, which is 22.9%-owned by High River, secured US$30 million to boost annual production at its two gold mines in southeastern Siberia to at least 200,000 oz. by the year 2000. The financing package includes: a US$7.5-million private placement of shares to High River at US$50 per share; a US$17.5-million debt/equity facility with the European Bank for Reconstruction and Development (EBRD); and a US$5-million working capital loan from U.S.-based Gerald Metals.

The deal was signed in London, England, by the principal shareholders of Buryatzoloto, including High River and two major British-based fund management groups. EBRD also becomes a major shareholder (19.6%) through its equity investment in the Russian company.

Buryatzoloto will use the funds to pay off a US$2.5-million gold loan, upgrade and expand underground operations, and construct a carbon-in-pulp processing plant. The investment, the first phase of a 2-phase development strategy, is expected to boost gold production to 75,000-80,000 oz. and reduce operating costs to US$204 oz. per ton by the end of 1998.

The company’s two mines, Zun Holba and Irokinda, are in the remote, mountainous terrain of the Republic of Buryatia. Narrow-gauge railways haul the ore to a nearby mill, where a concentrate is produced and shipped 4,000 km into Russia for refining.

Zun Holba

Zun Holba, which accounts for about 90% of the 55,000 oz. gold currently produced at the mines each year, consists of a series of shear-hosted, pyritic quartz veins within a belt of Proterozoic metasedimentary and metavolcanic rocks.

Proven and probable reserves at the two mines stand at 7.7 million tons grading 0.34 oz. gold per ton, with an additional 11.7 million tons grading 0.3 oz. in the possible category. Although the high-grade Irokinda ore is expected to be exhausted by 2001 (unless Buryatzoloto makes a new discovery), Zun Holba is considered to have lots of upside potential.

“My own feeling is that the potential for a 20-million-oz. gold deposit is in the cards,” says David Mosher, president of High River.

The company became involved in the Russian venture on the advice of an independent director who had done some consulting work on the mines. Although the Toronto-based miner was attracted by the technical aspects of the operation, “the biggest task was getting comfortable with the Russian management,” says Mosher.

High River now has two of seven seats on Buryatzoloto’s board of directors, and advises management on mine technology and financing.

Some of the challenges facing Buryatzoloto include reducing dilution at Zun Holba to 25% from 40% of the ore treated in the plant, reducing operating costs and establishing a gold sales mechanism so that gold can be sold forward. (Currently, 80% of production for the next 2.5 years is hedged at US$370 per oz.)

Buryatzoloto plans to secure a market listing in either Toronto or London, says Mosher. In the meantime, the company will prepare a bankable feasibility study to expand production to 200,000-250,000 oz. and prove up additional reserves at the Zun-Holba property.