Goldstream back in operation thanks to Japanese financing

Arranging financing appears to have been the trickiest part of bringing the Goldstream underground copper-zinc mine back into production after a 7-year hiatus. Joint owners Bethlehem Resources (TSE) and Goldnev Resources (VSE) searched for over a year before funding was secured through Japanese firms, Nippon Mining and Sumitomo Corp. With engineering and feasibility work essentially done, full-scale rehabilitation of the mine was completed in nine short weeks, three weeks ahead of schedule for a mid-May startup. The mine and mill are currently running at about 1,270 tons per day producing in the order of 98,000 lb. copper in concentrate per day. Concentrate haulage is contracted to Arrow Transportation Systems. Arrow averages about four 44-ton trucks per day to the CP Rail load-out in Revelstoke. CP has 30 cars assigned to Goldstream concentrates which are hauled to Vancouver Wharves for shipment to a Nippon smelter in Japan. The Goldstream mine and mill were built in the early 1980s by Noranda which spent over $70 million on their development. The mine operated for a short time in 1984 before low metal prices and poor zinc recoveries forced its closure. Despite a jump in copper prices in the late 1980s, the mine sat dormant until Bethlehem and Goldnev purchased the property in early 1989 for $5.75 million. Wright Engineers re-worked a feasibility study on the project, primarily by increasing the mining cutoff grade and altering the mining method. Prior to closing, Noranda reported total reserves at the mine at 4.3 million tons grading 3.69% copper, 2.63% zinc, and 0.51 oz. silver per ton at a cutoff grade of 2% copper. Upping the cutoff grade to 3% copper resulted in a drop in reserves to 2.05 million tons grading 4.81% copper and 3.06% zinc. The reserves include a 30% mining dilution. Based on current reserves, the mine can operate for about five years although recent drilling has intersected ore-grade values about 800 ft. down-plunge from existing reserves. This could add an additional two years to the mine life. During the fiscal year ending Jan. 31, 1992, Bethlehem expects to produce about 22.2 million lb. copper. The company declined to estimate zinc production since the circuit was not yet in operation. Bethlehem has not released a final capital cost for the project although the joint venture has drawn down its full allotment of $6.25 million under the financing agreement. Terms of the loan agreement call for the joint venture to pay back the funds from 70% of the project’s cash flow. Further capital expenditures will be required between years two and five, including a ramp deepening estimated at about $6 million and a tailings dam extension valued at about $1.6 million. At a cash cost excluding financing charges of $93.60 per ton, the mine is expected to produce a cash operating profit of $14.09 per ton or about $5.6 million per year. Revenue projections are based on an average head grade of 4.8% copper, 3.0% zinc, recoveries of 91% for copper, 30% for zinc, a copper price of US$1 per lb. and a zinc price of US50 cents per lb. Based on the estimates, Bethlehem would have a yearly cash flow before financing charges of 18 cents per share (using 15.5 million shares outstanding) while Goldnev’s cash flow would amount to about 27 cents per share (using 10.3 million shares outstanding). A US10-cent move in the price of copper has a 3- to 4-cent effect on Bethlehem’s cash flow per share and roughly a 5-cent effect on Goldnev’s cash flow per share. Bethlehem last traded at the 50-cent level while Goldnev is sitting at the 60-cent level. Shareholders of Goldnev recently received an offer for all their stock from Prime Equities (VSE) on the basis of five Prime shares in return for four Goldnev shares.