Julietta mine to start up in fourth quarter

Only months after low gold prices forced the closure of its high-cost Refugio mine in Chile, Bema Gold (BGO-T) has announced a fourth-quarter startup for its 79%-owned, fully-financed Julietta gold-silver project in far eastern Russia.

Julietta is a high-grade underground project that is expected to make money even in today’s weak metal markets, the company reports. The project is in the final stages of construction and running well ahead of schedule.

“Things are going real well,” says Bema Chairman Clive Johnson. “We hope to be in production sooner than Nov. 15 [the original target].” Construction is already about 95% complete.

Julietta is 250 km north of the port city of Magadan and 600 km south of Kinross Gold‘s (K-T) 54.7%-owned Kubaka gold mine. The project comprises 225 sq. km of mineral licences and is accessible year-round by paved and gravel road. Bema acquired a 79% ownership in the project in June 1998 through a merger with Arian Resources. The remainder is owned by a Russian group headed by the geologist who first discovered the deposit in 1989.

Johnson says his company has had good support from the Russian government, at both the local and federal levels.

Julietta is a low-sulphidation epithermal vein deposit. The steeply dipping veins vary in width from 10 cm to 7 metres, for an average of 1-1.5 metres. The current resource comprises 14 quartz veins in an area measuring 1 by 2 km.

Proven and probable reserves stand at 538,446 tonnes grading 24.7 grams gold and 407 grams silver, equivalent to 426,700 contained ounces gold and 7.1 million contained ounces silver. Additional inferred resources are estimated at 492,000 tonnes grading 19.5 grams gold and 342 grams silver, equal to 309,000 oz. gold and 5.4 million oz. silver. Upgrading the inferred component into the proven and probable categories would extend the mine life beyond nine years.

Bema says there is excellent potential for expanding resources, as several veins remain open along strike and to depth. In addition, several high-grade surface showings warrant testing.

At Julietta, Bema employs its own mining team, which was put together by George Johnson, senior vice-president of operations.

Says Clive Johnson: “We’re really happy with the Russian workforce that we have. It’s been strong and capable.”

Bema has completed more than 2,088 metres for underground development drifting. There has been some stockpiling of ore. The main ore zones will be accessed by a series of inclined and declined ramps via a main adit.

A development plan, completed in June 1999, recommended Julietta be mined by mechanized cut-and fill methods. The proposed daily operating rate is 350 tonnes. Bema has opted to use conventional flotation concentration, cyanide leach and standard Merrill-Crowe precipitation to produce dor bars. The metallurgy of the deposit is said to be straightforward, with projected recoveries of 94% for gold and 85% for silver.

Bema hired Orocon of North Vancouver as the general contractor to build the camp and mill facilities, based on their experience with such operations as the Snip mine in northern British Columbia and the Golden Patricia mine in Ontario. “They are ahead of schedule and under budget,” says Johnson.

Capital costs were estimated at US$45 million. Bema was able to arrange a US$25-million project loan from Hypo-Vereinsbank and Standard Bank, as well as a US$10-million loan from International Finance Corp., a division of the World Bank. In addition, Bema secured US$5-million cost overrun facility with Hypo-Vereinsbank and Standard Bank. Bema, itself, is contributing US$10 million toward construction.

Julietta is forecast to produce 87,000 oz. gold and 1.3 million oz. silver annually, or 113,000 oz. gold-equivalent, during the first five years. Total cash costs, including taxes and royalties, are expected to come in under US$100 per oz. gold-equivalent. As part of the project financing, Bema was required to hedge Julietta’s production. For the first four years, Bema will realize a minimum average price of US$303 per oz. gold, based on a spot price of US$270 per oz.

The company is revising its mine plan to boost production. Bema has done some playing with the mining sequencing of the veins in order to gain access to some of the higher-grade material at an earlier stage. “The objective is to pay your banks back as fast as you can,” Johnson states.

For the first six months of 2001, the company posted a loss of US$5.1 million (or 3 per share) on revenue of US$14.9 million, versus a loss of US$8.2 million (6 per share) on sales of US$16.6 million in the first half of 2000. Cash flow from operations was US$1.4 million, against US$700,000 in the corresponding period last year.

Mining ceased at Bema’s 50%-owned Refugio gold mine (Kinross owns the other half) in northern Chile at the end of May. Residual leaching will continue for the remainder of the year. Refugio produced 45,449 oz. in the second quarter ended June 30, 2001, at a total cash cost of US$229 per oz., compared with 51,521 oz. at US$230 per oz. in the first quarter.

Bema has 166 million shares outstanding, or 180 million fully diluted.