Golden Band solves financing and tailings issues

Golden Band Resources (GBN-V) is targeting the fourth quarter for production startup at its La Ronge gold project in Saskatchewan after more than one delay along the way.

Tailings management and financing have been the two main hurdles over the last few years at the project, which includes 12 gold deposits, five past-producing mines, and a licensed gold mill on a 750-sq.-km land package in north-central Saskatchewan.

“We had initially wanted to get going last year but had difficulty securing financing due to the economic climate and decided to delay it to this year,” says Gary Haywood, Golden Band’s chief operating officer.

Currently, Golden Band has a four-year project plan that includes four months of pre-production, but doesn’t include resource development along the way. During the first year, the company expects to produce 45,000-50,000 oz. gold, ramping up to 65,000- 70,000 oz. gold in the following years.

The company will begin mining its Bingo gold underground mine, and then, using the cash flow, will develop the EP deposit into a small open-pit mine, which will be followed by mining the Komis underground deposit.

Ore is already being stockpiled for the Jolu 400-tonne-per-day mill and brush is being cut to make way for a 25-kilovolt grid powerline to be installed by SaskPower this summer.

Haywood says part of the problem with securing financing has been the company’s production strategy of having just a few years of reserves.

According to a prefeasibility study released in early 2009, proven and probable reserves for Bingo stand at 127,000 tonnes grading 14.43 grams gold per tonne for 58,900 oz. gold.

Resources at Bingo were updated in May 2009, though a new reserve based on these new numbers has not yet been issued. Measured and indicated resources for Bingo are 175,000 tonnes grading 13.14 grams gold for almost 74,000 oz. gold.

EP has probable reserves of 51,000 tonnes grading 5.51 grams gold totaling 9,000 oz. gold. Measured and indicated resources at EP are 102,000 tonnes grading 3.81 grams gold for about 12,000 oz. gold, while at Komis resources are 192,000 tonnes grading 7.85 grams gold for about 48,000 oz. gold.

“It’s not our intent to drill off ten years of reserves,” Haywood says.

Instead the company plans to fund resource development with cash flow from mining, which is quite common. Although it’s not unheard of in the gold mining business, Haywood notes that some of the larger institutional lenders prefer to finance projects with longer project lives. “Some of the more traditional lenders run away in fear of that,” he says.

Recently, Golden Band bought back an 8% participating interest in the Bingo, Alimak/Decade, and RKN properties from Virginia Energy Resources (VAE-V), formerly Santoy Resources, for $750,000 and $3 million in shares, which should help Golden Band get financing.

Golden Band says that capital costs for the project should total $18.6 million.

Haywood says the company is seeking short-term debt to move the project forward. “If we take on debt we want to get rid of it quickly,” he says.

Golden Band’s production timeline has been stunted because of the company’s tailings situation. Golden Band bought the Jolu mill in 2004, but when the company starts production next fall, it won’t be using the original tailings pond. The Saskatchewan government has given Golden Band approval to build another tailings facility with a three-year capacity.

The original tailings pond is currently undergoing a federal environmental permitting process that’s being led by the Department of Fisheries and Oceans. The DFO has signed off on a screening report and the project is now entering a public consultation phase. Haywood expects the old tailings pond will be permitted by early 2011 if all goes to plan.

The tailings pond was originally a lake that was drained in the late ’80s, after the fish were removed.

“The mines have come and gone but the tailings pond has endured and we’ve always kept the provincial licence up to date,” Haywood says.

However, while doing some baseline environmental studies, it was found that fish had returned to the lake (it’s hypothesized that they returned after a beaver dam was destroyed to control water levels). The DFO reclassified the tailings pond as a natural water body and a fish habitat although the Saskatchewan government still considers it a tailings pond.

The fish and the water are contaminated though, so now the company has to ensure that the fish don’t leave the tailings facility. If the federal permits are approved, Golden Band will dispose of the fish before using it as a tailings pond again.

“We don’t want to relocate the fish because they could contaminate fish in other lakes,” Haywood says.

This issue has made it difficult for the company to sell its story with investors because it can only guarantee a three-year timeline.

“When the company purchased the mill we weren’t sure if it would be a liability or an asset,” Haywood says.

But in the end, he says that having the mill has been a huge advantage in project licensing and cost cutting.

“If we had to go out and spend $50 million in constructing a brand new mill, it would have made it difficult to get this project up and running because we don’t have a large deposit to fund the capital investment.”