Lepanto venture Philippine gold lures Galactic

One of mining’s biggest and best kept secrets was revealed to the world this week by Galactic Resources (TSE) of Vancouver and its Philippines-based partner Lepanto Consolidated Mining.

After a detailed feasibility study, the joint venture partners say they are about to develop a huge polymetallic deposit which will eventually become of one of the world’s lowest-cost gold producers.

At a cash-cost of about $86(US) per oz, the huge Far South East gold-copper porphyry project will be capable of churning out at least 250,000 oz gold and 70.5 million lb copper when phase 1 of an 11-year operation begins about five years from now, the study says.

Located in the Pine forests of the Philippines Benquet province, the deposit was discovered in 1979 by Lepanto Consolidated while the company was drifting on the 2,200- ft level of its nearby Lepanto copper mine.

One of the Philippines’ largest mining concerns, Lepanto has been operating in Benquet for about 50 years.

However, the latest discovery remained a tightly held secret until ex-President Ferdinand Marcos was succeeded by Corazon Aquino in 1986.

Now that word is out, Galactic Chairman Robert Friedland will spend the next six months attempting to raise his company’s share of the $169 million (US) needed to bring the massive deposit to a production mode. Far South

About eight months after the Vancouver company got involved, Lepanto and Galactic have already agreed to incorporate their respective 60% and 40% interests in the project into a company called Far South East Gold Resources I nc. The new company has been set up to operate a project which a feasibility study conducted by J. S. Redpath Corp. and Kilborn Engineering says will be profitable at a gold price of $350 per oz and 70 cents per lb for copper.

With about 300,000 ft of drilling now complete, Lepanto has blocked out approximately 292,200,000 tons grading 0.41 oz gold per ton and 0.77% copper, using a 1.3% copper equivalent cut off.

But Friedland said Lepanto has literally been scratching the surface. “The deposit is very large and it is getting wider at depth,” he said.

Given its dimensions and the low cost of labor in the Philippines, Friedland doesn’t anticipate any financing problems. He says he has already been approached by a number of international banking concerns which are attracted by the opportunity to offload a considerable amount of long-term debt. “It is the debt situation in the Philippines that makes the project financible,” Friedland told The Northern Miner.

The Bank of America, for example, is owed around $500 million by a country which is carrying a debt load of approximately $30 billion. Yorkton Securities

While a couple of Toronto analysts have no reservations about the Galactic chairman’s financing capabilities, they remain luke-warm to the project.

According to Yorkton Securities’ precious metals analyst Michael Steeves, Galactic’s track record will detract from the impact which the Lepanto may have had on other Canadian gold producers.

“Galactic’s Summitville mine in Colorado and Crone Hill property in Oregon haven’t turned out as well as expected,” said Steeves. He was referring to a production shortfall at Summitville in 1986 and a recent decision to delay production at Crone Hill where Galactic is in a joint venture with Quartz Mountain Gold (VSE).

“They (Galactic and Lepanto) will be tieing up a lot of money in an extremely unstable part of the world,” said a prominent Toronto mining analyst who was also concerned about the fact that Galactic won’t see any cash flow from Far South East for at least 4 1/2 years.

Nevertheless, the Vancouver company remains optimistic. “The only drawback is the lead time needed to sink three 5,000-ft shafts and build a 12,500-ton-per-day milling facility,” said Charles Russell, Galactic’s vice-president administration. Development phase

Since the deep seated 800×300 m deposit is hosted about 2,000 to 4,800 ft below surface in volcaniclastics and intrusive quartz diorite, it will take around five years to complete the development phase.

During that period, Far South East Resources will construct three circular concrete-lined shafts and a conveyor adit complete with interconnecting drifts, ramps and raises. Construction of a plant capable of processing 13,775 tons of ore daily, is also planned.

The availability of two landing strips, hospitals and an experienced work force are a number of factors which the partners hope will boost their 5-year production drive.

Allowing for copper byproduct credits, the average cost of gold production is expected to be $86 per oz, ranging from a high of $120 in the first year of production to a low of $58 per oz in year 11.

Future exploration will focus on the eastern and western strike extensions, which are open-ended and on two additional porphyry gold-copper deposits which lie adjacent to the Far South East deposit, said Friedland.