Hemlo, Crude differences cloud Eagle River project

The immediate future of the Eagle River gold project at Mishibishu Lake, Ont., has been clouded by the differing aspirations of owners Hemlo Gold Mines (TSE) and Central Crude (TSE).

Having written down a substantial portion of its 44% stake in Central Crude, Hemlo wants to leave its 60% owned deposit in the ground until gold rises closer to US$400 per oz. from its recent US$355.50 trading level. At current prices, Hemlo President Ian Bayer considers the 18% return on investment too low to make development worthwhile even though proven, probable reserves stand at 2.87 million tons grading 0.25 oz. gold per ton. But unlike Hemlo, Central Crude doesn’t have production revenues from a world-class mine, and President Richard Nemis wants to get the 40% owned project up and running as soon as possible.

In an interview with The Northern Miner, Nemis said he believes Eagle River could be developed for $11 million, or about half the capital cost envisaged by a Hemlo Gold feasibility study. He says studies indicate that costs can be reduced by trucking ore the short distance to the Magnacon mill rather than to the mill at Hemlo’s Golden Giant mine.

While analysts doubt that the junior could raise so much money when its shares are trading at around $1.20, Nemis has already attempted to elicit support from the Ontario Ministry of Northern Development and Mines. At a recent meeting in Sudbury, Nemis says a ministry official told him that the government may provide support for the upgrading of a 12-mile bush road connecting the property to the 700-ton-per-day Magnacon mill. With an option to acquire the mothballed facility from owners Flanagan McAdam Resources (TSE) and Muscocho Explorations (TSE), Nemis says he plans to apply for Ontario Heritage Fund support to allow him to upgrade the mill. He said an engineering firm (which he declined to name) is also prepared to lend his company $2 million for further development of underground facilities at Eagle River. “Once we put this one into production, we will control the Mishibishu belt,” says Nemis who believes there are other orebodies such as Granges’ (TSE) Mishi deposit that are waiting to be developed.

However, Nemis’s enthusiasm isn’t shared by Bayer and when the two executives get together in the coming weeks, the Hemlo president will attempt to dissuade him from going ahead with such plans.

Hemlo recently declared its intention to take a $26-million (27 cents a share) fourth-quarter writedown on the carrying value of investments, including Central Crude, and on the sale of its interest in Viceroy Resources (TSE).

While Nemis considers himself free to finance Eagle River alone now that the writedown has been declared, Bayer claims the facts have been misrepresented and he says there are two possibilities open to his company at the moment. “If someone comes in with a cash offer we couldn’t refuse, we would sell the property,” said Bayer. “Otherwise we would prefer to hold on to it.”