High River will exchange 11.8 million of its own shares for 800,000 Buryatzoloto shares plus 200,000 preferred convertible shares held by the European Bank for Reconstruction & Development.
The deal is valued at $15.9 million, based on High River’s closing price of $1.35 on the Toronto Stock Exchange on Aug. 25.
High River owns a 54.1% equity interest (or 51% on a fully diluted basis) in Buryatzoloto. The latest agreement has yet to be approved by regulators in Russia and Canada.
In mid-June, High River agreed to issue up to 30 million shares to acquire shares in Buryatzoloto at the rate of 11.76 High River shares for each Buryatzoloto share; if all the shares were issued, High River’s stake in the Russian miner would amount to 84% on a fully diluted basis.
Buryatzoloto owns the Zun-Holba and Irokinda underground gold mines in southern Siberia, as well as a small placer operation there.
The amount of gold produced by Buryatzoloto in the first half pf 2004 slipped slightly from a year earlier to 73,011 oz., as total cash costs climbed by 30% to US$236 per oz. The higher costs reflect substantial mine development, the transition to shaft mining using a cut-and-fill method at Zun-Holba, and a stronger Russian ruble. The company realized an average of US$400 for each ounce of gold sold during the period. The company expects to produce 150,000 oz. in 2004.
Earlier this summer, Buryatzoloto initiated a dividend of 21 rubles, 87 kopecs for each of its 413,010 class A shares, and 2 rubles, 60 kopecs for each of 6.8 million common shares to holders on record as of May 17. The dividend payment totals US$920,000, based on a ruble/U.S.-dollar exchange rate of 29.1-to-1. High River’s share of the payment is US$330,000.
For its part, High River’s attributable gold production for the first half fell by about 10% to 54,072 oz., owing to lower production from the 50%-owned New Britannia mine in Manitoba, which is nearing the end of its life. Total cash costs rang in at US$265 per oz., up from US$222 a year earlier.
At the halfway mark, High River’s net income totalled $3.2 million (or 3 per share) on revenue of $51 million. Cash flow from operations before changes in non-cash working capital was $9.9 million. At the end of June, the company had $25.1 million of debt.
Berezitovy
Meanwhile, High River is in talks aimed at selling Buryatzoloto a half-interest in the Berezitovy gold project in the Amur region of southern Siberia. A bankable feasibility there pegs the internal rate of return at 21.9%, based on a gold price of US$400 per oz. At that price, the net present value ranges from US$103.9 million (at a 0% discount) to US$32.9 million (at a 10% discount).
Processing will comprise crushing, grinding in a semi-autogenous mill and secondary ball mill, followed by gravity concentration and carbon-in-pulp gold extraction. Gold will be recovered from the carbon by pressure stripping and electrowinning, then smelted into dor bars on-site. Overall gold recovery is projected at 87%; silver, at 30%.
The company recently acquired a semi-autogenous/ball mill, jaw crusher and overland conveyor system from
The mill was built in 1988 and ran at an average rate of 6,000 tonnes per day until 1998. Plans at Berezitovy call for the processing of 4,800 tonnes daily to produce about 100,000 oz. gold and 175,000 oz. silver per year at a total average cash operating cost of US$171 per oz. The total average cash cost, including a 6% government royalty, is US$192 per oz.
Pending state approval, the equipment will be dismantled and refurbished, then shipped from a west coast port to Vladivostok; it will then travel by rail to within 70 km of the project site, where it will begin the final leg of its journey along an all-weather road.
High River CEO Daniel Vanin says the used equipment will help reduce capital costs. The initial capital cost is estimated at US$59 million, including US$10 million in value-added taxes, which are recoverable from cash flow; sustaining capital is estimated to be US$4.2 million. The company is negotiating debt financing with its banks.
Open-pit mining at Berezitovy will target a reserve of 13.9 million tonnes running 2.3 grams gold and 11.7 grams silver per tonne, based on a gold price of US$350 per oz. and a mining dilution factor of 10%. The average life-of-mine stripping ratio is 6.2-to-1.
Construction of a 101-km power line to connect Berezitovy to the low-cost regional hydroelectric power grid has begun. The mine is expected to hit its commercial stride by 2006; it will operate for nine years.
Meanwhile, in Burkina Faso, West Africa, High River is building the Taparko gold mine, with first production slated for late 2005. The operation is expected to churn out more than 90,000 oz. gold per year over seven years. Financing has been arranged with South Africa’s Absa Bank, subject to due diligence and credit approval.
All told, High River expects its attributable gold production to reach 300,000 oz. per year beginning in 2006.
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