Ketza start up problems put Pacific Trans in bind

Start-up problems at the Ketza River gold project near Ross River, Yukon have put Pacific Trans Ocean Resources (TSE) in a financial bind.

As holder of a 50% interest in the joint venture, Pacific Trans Ocean owes equal partner Canamax Resources (TSE) $1.2 million in capital and operating costs. At press time, the Edmonton-based company was also in arrears on the initial payment of a gold loan to principal lender Lloyds Bank.

Pacific Trans Ocean has blamed higher than expected development costs and excessive ore dilution for its current working capital problems. Trading of Pacific Trans- Ocean shares on the Toronto Stock Exchange was halted Sept 6 to allow the company to issue a press release. After trading resumed the following day, it dropped from $2.65 to $1.50 before being halted again.

While a spokesman for Canamax said that Pacific Trans-Ocean wasn’t financially prepared for the teething problems which are common in new mines, the latter company said it is the victim of substantial cost over-runs.

Operator Canamax Resources spent $27.2 million — $6 million above the amount specified in the feasibility study — to bring the Ketza project to a startup phase. It is expected to produce 50,000 oz gold annually at an operating cost of $219(US) per oz.

While admitting that the Ketza joint venture is experiencing more dilution than they had anticipated, Peter Tredger, Canamax’s vice- president finance, said it is too early to start pushing the panic button.

Average grades since July 1 have been calculated at 0.30 oz gold, well below the 0.4 oz level anticipated by the Ketza feasibility report.

Considered to be the riskiest venture in Canamax’s portfolio of new gold mines, the Ketza property contains an oxide gold deposit which is considered unique in North American gold mining.

“We recognized that since this is a unique experiment in mining, we could have to try different methods,” said Tredger. As a result, he said the partners agreed to spend an additional $6 million on an underground development program.

“We decided to be more aggressive in the pre-production phase than we had indicated in the feasibility study,” Tredger told The Northern Miner. “Unfortunately our partner had no contingency funds available to offer a safety net if the world failed to unfold like the feasibility study said it would,” he said.

Under the joint venture agreement, Canamax is financing the project while Pacific Trans-Ocean reimburses the Toronto company for its monthly expenditures. But even through Canamax agreed to extend the date of payment to Sept 7, Tredger wasn’t concerned about Pacific Trans-Ocean’s failure to pay. “We have the right to take the money owed to us by Pacific Trans- Ocean from gold produced out of the Ketza mine,” he said. “They will have a bigger problem with their bankers.”

The Edmonton company financed its participation in the Ketza joint venture through a 20,000 oz gold loan from Lloyds Bank. Under a hedging program in which Pacific Trans-Ocean is committed to deliver 45,000 oz at specified periods over 3 1/2 years, the company was scheduled to put up the first 2,000 oz by Aug 30. The deadline was recently extended to Sept 7.

In a bid to meet its financial obligations, the company recently arranged for an interim financing agreement for $3 million with an unnamed Canadian lender.

At press time, James Greenough, Pacific Trans-Ocean’s vice-president finance was still awaiting approval from Lloyds Bank before going ahead with the transaction.

However, in a telephone conversation with The Northern Miner he claimed to be optimistic about his company’s chances of overcoming its current difficulties. “Once everyone is in accord, we will drive on,” he said.