High River aims for 2007 startup at Berezitovy

It’s been a long time coming, but Toronto-based High River Gold Mines (HRG-T, HRIVF-O) is finally on the verge of securing project financing that will vault the junior into mid-tier producer status next year when it opens two new gold mines in Africa and Russia.

Construction is ongoing at High River’s Berezitovy project in Russia’s northwest, with over US$47 million, mostly equity, spent to date. A total of US$49 million in loans from the European Bank for Reconstruction and Development (EBRD) and Russia’s Nomos Bank will be drawn down this spring to complete the US$76-million project.

Berezitovy is expected to open in the second quarter of 2007 at a production rate of 120,000 oz. per year, almost doubling High River’s current annual gold production. The company’s 90%-owned Taparko-Bouroum project in Burkina Faso, scheduled to open a few months earlier, will add another 100,000 oz. per year for a total of more than 300,000 oz. of annualized gold production by the end of 2007 and an estimated 365,000 oz. in 2008.

Securing the bank loans for construction at both mines was a slow process, says executive chairman Don Whalen — partly because High River refused to hedge any of its production and partly because the EBRD, being a multilateral institution, demands extremely detailed accounts of the social, environmental and operating aspects of a project before it will approve financing.

On the other hand, EBRD is so heavily vested in Russia (8 billion euros, at Whalen’s estimation) and is taken so seriously by the Russian government, that Whalen considers the bank’s participation in the Berezitovy project a kind of political risk insurance that every junior investing in Russia should have.

High River has been investing passively in Russia for more than a decade, but has recently become a more aggressive player in the country, acquiring Berezitovy in 2002 and increasing its equity interest in OJSC Buryatzoloto, a Russian company that operates two gold mines, to 84.1% from 54.1% last year.

“We’ve been very conservative over that last number of years, methodically going about building and acquiring,” says Whalen, who also co-chairs the Canada-Russia Business Council (CRBC). “We’re now at a point where we can start to build and grow the company at a fairly significant rate.”

Buryatzoloto owns two mines in southern Siberia that together produce about 150,000 oz. per year at a cash cost of about US$280 per oz., a cost that is creeping higher as the mines get deeper. High River intends to spend about US$5 million on the aging Zun-Holba and Irokinda mines this year to find new resources at depth and along strike.

“Our objective is to get our growth not through these two mines, but through additional acquisitions,” says Whalen. But he adds that High River is aiming to extend the lives of the two mines at current production rates for another 10 years through exploration.

High River expects to establish a resource base of 6 million oz. gold by the end of 2006. The company has already identified 3 million oz. at its portfolio of projects in Russia and Africa, expects to identify another 2 million oz. at its Bissa project in Burkina Faso, and plans to add 1 million oz. through acquisitions in Russia.

Strong foundations

“One of the things we have not done well in the past is to capitalize on the excellent foundation we have with Buryatzoloto, partly because of their reluctance to go outside their comfort area,” Whalen says. “We’ve now convinced them that it makes sense (to expand) and we’re looking at a number of potential acquisitions inside Russia.”

A longer-term opportunity for growth is the Novophirsovskoye project, a 53-sq.-km advanced exploration property in the Altay region just north of the Kazakhstan and Mongolia borders. Buryatzoloto, which had been eyeing the property for years but had never been successful in a public auction of properties before, was “shocked” to win the property with a bid of 143.5 million roubles (about US$5.1 million) last year, beating four other bidders.

Previous geophysical and geochemical surveys identified 20 zones containing gold and silver mineralization at Novophirsovskoye. The mineralization is associated with altered volcanogenic and subvolcanic rocks that extend from 400 metres to 3.5 km, with widths ranging from 10 to 500 metres. Grades from limited previous drilling ranged from 3 to 7 grams gold per tonne over lengths of 15 to 41 metres.

High River plans to spend US$1.5 million following up on these results this year. The first exploration pass, including drilling and trenching, is now under way on several high-priority targets.

Meanwhile, construction will continue at Berezitovy for startup in the second quarter of 2007. Most of the infrastructure, including upgraded roads, new bridges and a 101-km power line that connects the site to the country’s low-cost (3 per kilowatt-hour) power grid, is complete. A mill purchased from Newmont Mining (NMC-T, NEM-N) has been relocated to the site from Nevada. Camp facilities, including a recreational room and Russian saunas, will provide accommodation for 400 people.

The project has reserves of 13.9 million tonnes grading 2.32 grams gold and 11.7 grams silver per tonne (or 1 million oz. gold and 5.2 million oz. silver). To produce less waste and lower costs, High River has decided to revise the mine plan to lower tonnage and boost grades, increasing annual production to 120,000 oz. per year from a previous planned output of 100,000 oz. Cash operating costs are estimated at less than US$204 per oz. The change in plan will lower the mine life from nine to about seven years.

Berezitovy is located in the Prishulkino Structural-Metallogenic Zone and is underlain by Proterozoic granites and granodiorites with some gabbro. Gold mineralization occurs in a northwest-trending, steeply dipping zone of brecciated and hydrothermally altered granodiorite. Sulphide mineralization consists predominantly of pyrite, sphalerite and galena.

High River has a 99% stake in the project. The other 1% interest was transferred to the State Property Fund in the Amurskaya Oblast in late 2004.

— The author is a freelance writer specializing in mining issues, and principal of Toronto-based GeoPen Communications (www.geopen.com).