Gays River changing hands one more time

Officials at Dundee-Palliser Resources (TSE) are attempting to put together a $5 million financing package after signing a letter of intent to buy the Gays River lead-zinc mine in Nova Scotia from Westminer Canada Ltd.

Gays River is part of a basket of assets picked up by Westminer’s Australian parent Western Mining back in 1987 when it spent $92 million ($8.50 a share) to acquire Seabright Resources. The acquisition proved controversial because Westminer didn’t make a sight visit before the deal was announced and it later sued Seabright’s directors for allegedly exaggerating the extent of reserves on its properties.

An option agreement gives Dundee-Palliser six months to raise the funds needed to purchase the mothballed Gays River mine property, and related infrastructure including port facilities and a 1,500 tonne-per-day concentrator.

But having retained Toronto-based IBK Capital as its financial advisor, Dundee President Richard Brissenden says he is confident that the 6-month option period gives him enough time to put the funding together. A 50% owned affiliate of Ian McAvity’s MVP Capital (TSE), Dundee-Palliser has agreed, subject to due diligence, to pay Westminer $5 million and a 1.5%-7% sliding scale royalty. In addition, payments of up to $300,000 (deductible from the purchase price), must be made to Westminer if the deal doesn’t close before the end of the 6-month option period.

If everything goes according to plan, Dundee-Palliser will begin recommissioning the former 800 tonne-per-day lead-zinc producer which was shut down last May because of water in-flow problems.

Minable underground reserves of 1.4 million tonnes, grading 9.81% zinc and 5.28% lead, are sufficient to justify an expansion to 1,300 tonnes-per-day if an additional 800,000 tonnes of open pitable material averaging 2% zinc are developed, Brissenden says.

“The key to a successful operation is getting the water away from the main workings,” added vice-president Douglas MacKenzie. He estimates that work completed since mining stopped will enable his company to keep the working stopes dry by pumping out water at a rate of 4,000-6,000 gallons per minute. After converting the Gays River mill to treat base metals instead of gold, Westminer extracted 12,622 tonnes of zinc and 6,079 tonnes of lead during an 18-month period ended May 1991. A Westminer spokesman said the operation is being sold because it is considered “too small” by parent Western Mining. By contrast, Brissenden sees the project as an opportunity to turn Dundee-Palliser into a producing mining company with positive cash flow. Its other chief asset is a 50% stake in the Vezza Twp. gold project in Quebec.