Getchell seeks Turquoise Ridge financing

Getchell Gold (GGO-X) is looking to the market for the funding necessary to complete construction of the Turquoise Ridge gold mine in northern Nevada.

Now that the Canadian Imperial Bank of Commerce (CIBC) has decided against providing a US$25-million revolving line of credit to Getchell, the Colorado-based gold producer is hoping to raise the money through equity financing.

News of CIBC’s decision sent the company’s stock to a 12-month low of just under US$18 per share, because Getchell said it would not be able to complete Turquoise Ridge without the line of credit. It has already spent US$56 million to build the mine and needs another US$36 million. At year-end, Getchell had only US$34.2 million in cash and cash equivalents.

Determined not to let this setback put the mine in jeopardy, the company announced a plan to raise US$60 million through an offering of 3 million shares at US$20 per share. Getchell said Nesbitt Burns Securities, Smith Barney, Scotia Capital Markets and First Marathon will underwrite the offering.

Chief Financial Officer Donald Robson said US$20 million of the funds will be earmarked for Turquoise Ridge, US$25 million will go to a future capital project that will increase mill capacity, while the remainder will cover exploration and corporate expenses.

The offering would increase Getchell’s 26.8 million outstanding shares by 10-12%, and is expected to close in early March.

Meanwhile, Getchell is experiencing delays in getting production under way at Turquoise Ridge. The company is currently pulling out small amounts of development ore, but contractors have been slow to complete a rock-transfer borehole that will drop ore from the 900 and 1250 levels down to the 1550 level for hoisting to the surface. The net effect of the delay means that Getchell has pushed back development of the 900 level for three months. The company expects to compensate for the delay by escalating development of the 1250 and 1550 levels.

The borehole should be completed by the end of March and ready for development ore from the 900 level by the beginning of April, said David Russell, vice president of operations.

Once the company begins processing development ore, it anticipates offsetting needed capital costs for construction with revenue from the development ore. But this revenue, Robson notes, wouldn’t be enough to finance the completion of construction.

Commercial production at Turquoise Ridge is expected no earlier than the third quarter of the year. Between Turquoise Ridge and the nearby Getchell underground mine, the company’s total production will reach 290,000 oz. gold in 1998, and jump to 450,000 oz. in 1999. Cash costs, once commercial production is achieved, are anticipated to be in the range of US$230 per oz.

A bright spot for the company this year has been a 36% boost in proven and probable reserves, including 16.1 million tons grading 0.38 oz. gold per ton from underground deposits. Surface reserves add only a fraction, bringing the total to 6.18 million oz. gold. Reverses were calculated using a gold price of US$350 per oz., though even using a gold price as low as US$300 per oz., the company loses only a few ounces, said Robson.

In financial news, Getchell posted a net loss of US$19.4 million (or 73cents per share) for the year compared with a net loss of US$14 million (54cents per share) for 1996.

Revenue for the year was down to US$64.8 million, from US$67.9 million in 1996, despite higher gold production in 1997. The company sold 179,676 oz.

gold at an average price of US$361 per oz., compared with 171,343 oz. at US$396 for the previous year.

Getchell produced 178,360 oz. of gold in 1997, up from 160,872 oz. in 1996.

Cash costs were high during 1997 at US$418 per oz., up from US$402 per oz.

in 1996.