Lacana boosted by Mascot Gold purchase

Following a banner year in 1986, in which the company recorded net earnings of $9.6 million (80 cents per share) after extraordinary items, Lacana Mining is looking ahead to even better returns this year and in 1988, during which it hopes its share of gold production from various properties will rise to almost 83,000 oz and 120,600 oz, respectively.

Lacana, which rebounded last year from a loss of almost $24 million ($2.10 per share) in 1985, continues its winning ways this year, with first-quarter net earnings, after an extraordinary item and on a fully diluted basis, of $2.6 million (13 cents per share), compared with $1.2 million (10 cents per share) for the same three months in 1986.

The company, active in gold and silver production throughout North America, a mica mining operation in Quebec and oil and gas production in western Canada, is benefiting immensely from the 51% interest it acquired earlier this year in Mascot Gold Mines, whose Nickel Plate open pit gold mine at Hedley, B.C., went into production in April.

Daily production at the mine is 2,700 tons. Drill-proven reserves currently stand at 8.3 million tons grading 0.14 oz gold per ton. Lacana’s share of gold output from Nickel Plate is expected to be 37,000 oz this year and 76,200 oz in 1988.

Lacana’s share of production in 1986 from the various mines in which it has interests totalled approximately 53,000 oz gold and 1.1 million oz silver. Nevada mines

In the United States, Lacana has an interest in three Nevada producing mines: the Dee mine, 29.3%, and the Pinson and Preble mines, 26.25% each. President Gil Leathley told shareholders at the annual meeting that the Dee mine operation became debt free in March of this year.

The production cost during the first five months of this year averaged $178(US) at the Dee mine, the same as at the Pinson and Preble mines. The company does not anticipate increased gold production from the Dee and Preble mines in 1988 compared with this year; production from the Pinson mine is expected to dip slightly.

In Mexico, at the Torres mining complex in which Lacana has a 30% interest, total production in 1986 was 50,000 oz gold and 3.5 million oz silver. Mr Leathley said the mining operation is one of the lowest- cost silver producers in the world; last year its costs averaged $3.49 per oz of silver equivalent. According to Mr Leathley, current ore reserves indicate the mining complex will be in operation for at least 15 years. Lacana shut down its Encantada silver operation in Mexico last year.

In Quebec, Lacana’s Suzorite mica operation sold 13,000 tons of the mineral in 1986 and generated a cash flow of $830,000. The company has been expanding its Boucherville processing plant and is hoping to boost production by 25%. However, a market study has indicated that further expansion may be in order, Mr Leathley said, and the company is looking at designs and costs to evaluate the potential return on investment. Exploration projects

On the exploration front, Lacana is involved in several projects, including in northwestern British Columbia, at the Sulphurets gold- silver property (Lacana is providing 30% of this year’s exploration budget); in northwestern Ontario, at the Musselwhite gold project in the Snoppy Lake area (Lacana’s interest is 17.1%); and in Nevada, at the Santa Fe gold project (100% owned by Lacana), where Mr Leathley said a favorable detailed review of the property could mean a production start-up by mid-1988.

President of subsidiary Lacana Petroleum, J. D. Gunn, told shareholders that “our oil and gas division is healthy.” The division is expected to contribute more than $11 million this year to Lacana’s cash flow, he said. Oil production in 1986 was up 32% over 1985, while natural gas production fell by 14%.

Lacana purchased its 51% interest in Mascot in March of this year for $150 million from Royex Gold Mining, which has a controlling interest in Lacana. The purchase price consisted of $65 million in cash provided by bank borrowing, a $25-million promissory note and $60 million in preferred shares of a wholly-owned subsidiary of Lacana. The preferred shares have since been converted into six million common shares of Lacana and the debt to the bank and Royex has been reduced to about $34 million.

In early April, Lacana sold five million shares at $12 per share in a public offering in Canada and Europe. The net proceeds, amounting to about $57 million, were used to reduce the debt incurred for Lacana’s purchase of the Mascot shares.