Golden Shield acquires old Kerr Addison Mine

Old gold mines never die, they just get taken over by ambitious junior exploration companies with fresh insights into the old operation’s hidden ore reserves.

At least that’s how it looks after VSE-listed Golden Shield Resources, entered into an agreement with Kerr Addison Mines to buy the old Kerr Addison Mine and mill complex at Virginiatown, Ont., for approximately $38 million.

One of Canada’s best known mines, Kerr Addison has been operating since 1938 and last year it produced more than 43,414 oz of gold.

Under the agreement, Golden Shield has also purchased a 42% interest in the Larder Lake project located west of Kerr Addison mine and 50% of Kerr Addison’s interest in the Dassarat Properties on the Larder Lake break to the east of the mine in Quebec.

While recent drilling at Larder Lake has indicated potential reserves, it is the Kerr Addison mine which has attracted Golden Shield President Ray Mongeau.

“I think we have got ourselves a real baby,” said Mr Mongeau who expects production from both the Kerr Addison and Mirado gold mines to reach 61,750 oz by the close of fiscal 1988.

“We feel there is potentially enough ore to keep the Kerr Addison mine going for at least another 10 years,” he told The Northern Miner.

Scheduled to be completed on June 30, he said the deal reflects Golden Shield’s desire to grow though selected acquisitions.

Under the agreement, Kerr Addison will receive $15 million cash, a $5-million 10% debenture secured by the purchased assets convertible into common shares at $4.50 per share for five years.

The $38-million fee also includes five million treasury common shares of Golden Shield and an option on three million shares at $5.00 per share exercisable for five years.

When the agreement is complete, Kerr Addison Mines will have a 30% interest in Golden Shield, while a 20% interest in the company also goes to Cons. TVX Mining Corp. Mr Mongeau said his company has retained a 10% block.

An international mining company with gold mining operations in Brazil, TVX is a partner in Golden Shield’s portfolio of Canadian exploration proje cts. They include the Mirado gold project near Kirkland Lake, Ont., where drilling has indicated initial reserve estimates of 345,000 tons of proven ore grading 0.35 oz gold per ton.

Bulk samples are currently being sent to the McBean Mill in Kirkland Lake and full production is expected to begin next year. TVX currently owns approximately two million Golden Shield shares.

The Kerr Addison acquisition will be financed in part by the sale of a minimum of 1.5 million and a maximum of two million units at $3.60 per unit to Gordon Capital Corp. Over 50% of those units will go to TVX, said Mr Mongeau.

Each unit will consist of one common share and 1/2 warrant entitling the holder to buy one common share at $5.00 for three years.

Although more than 10 million oz of gold has been produced from the Kerr Addison mine since 1938, Mr Mongeau is confident there are as-yet untapped reserves on three carbonate zones south of the Kerr Addison zone.

According to a recent report, by mining Engineer L. J. Cunningham, “it is obvious that exploration and geology have been minimized and down graded for a long period — possibly 25 years.”

“While it is recognized that the potential for new ore in the Kerr Addison zone is low, a major increase in underground exploration ($2 million annually) would assure and probably extend the life of the mine from the Kerr Addison zone at the current rate of 1,000 tons per day to and beyond 10 years. According to the report, a $2-million expenditure would also permit rapid exploration and development of the Town, Mill and Lake zones where the potential for new ore is very high.

Located 500, 800 and 1,300 ft respectively south of No 3 shaft on the 1,000-ft level, they have been largely ignored by Kerr Addison Mines.

For example, five surface drill holes on the as yet untested Town zone returned values varying from 0.04 oz over 52 ft to 0.09 oz over 28 ft.

“Considering their potential, they have received very limited” investigation,” said the report.

With production from the new zones it is not unreasonable to aim for four million tons of new ore, grading 0.18 oz within three to five years, it said.

Regardless of as yet untapped reserves, Mr Mongeau expects cash flow from operations at both Mirado and Kerr Addison to reach $2.25 million or 11 cents per share for the six months ending Dec 31, 1987, and rise to $4.37 million or 22 cents per share in fiscal 1988. His projections are based on a gold price of $450(US).

Golden Shield shares were trading recently on the Vancouver Stock Exchange at $3.65 but Mr Mongeau expects his company to be listed on the Toronto Stock Exchange within five weeks.