Merger of Rea, American to yield 200,000 oz. gold

Shareholders have approved the merger of American Resource (AREE-Q) and Rea Gold (REO-T), paving the way for the creation of a new, mid-tier gold producer.

James Hogan, now chairman (formerly president) of Rea, expects the company to be producing at an annual rate of 200,000 oz. by the end of 1997.

The 200,000-oz. production target for calender 1998 includes 50,000 oz. from the Mt. Hamilton open-pit, heap-leach project in Nevada, 80,000 oz. from the Bissett underground mine in Manitoba and 70,000 oz. from the San Gregorio open-pit mine in Uruguay.

Although Mt. Hamilton poured its first gold in November 1994 and achieved commercial production in February 1995, Rea is still working the bugs out of the system. For the year ended Dec. 31, 1995, Mt. Hamilton produced 30,850 oz. gold and 54,900 oz. silver, generating cash flow of $479,221 and a net loss of $2.9 million for the company.

During the first quarter ended March 31, 1996, Mt. Hamilton produced 7,930 oz. gold, netting the company a loss of $1.2 million. Cash flow, after changes in non-cash working capital items, totalled $105,533.

Prior to entering production, Mt. Hamilton was expected to produce roughly 50,000 oz. gold per year at an average cash cost of US$240 per oz.

Poorer-than-expected results from Mt. Hamilton are attributed to haulage truck failures in 1995 and mine scheduling problems in smaller Seligman pits.

At the end of 1995, minable reserves at Mt. Hamilton were estimated at 10.8 million tons grading 0.038 oz. gold per ton. The company is now projecting annual production of 50,000 oz. (based on a recovery of 75%) at an average cash cost of US$250 per oz. over the remaining 6-year mine life.

At Bissett in Manitoba, Rea is in the midst of a US$37-million capital development program designed to bring the former underground mine back into production.

Minable reserves at Bissett are estimated at 3.2 million tons grading 0.252 oz. gold. And based on recoveries of 94%, annual output is projected at 80,000 oz. at a cash cost of US$238 per oz.

The rehabilitation includes revamping the underground access to eliminate two internal shafts by deepening the primary surface shaft.

In addition, a third internal shaft will be extended to gain access to deeper ore, and the capacity of the existing mill is being doubled to 1,000 from 500 tons.

To date, roughly US$10 million of the capital budget has been spent, and Bissett remains on schedule to start production in the first quarter of 1997.

Development work is also under way at San Gregorio in Uruguay on a US$42-million, 2,500-ton-per-day, open-pit mine and carbon-in-leach mill.

San Gregorio is one of the principal assets brought into Rea by the American Resource merger.

The company hopes to expand minable reserves, which are currently estimated at 5 million tons grading 0.076 oz. gold. In addition to the resource being open on strike and to depth, limited drilling into the footwall of the mineralized zone has returned indications of an untested parallel zone.

Roughly US$20 million of the capital budget has been completed to date, and Rea expects the mine to be in production in early 1997 at an annual rate of 70,000 oz.

Cash operating costs at San Gregorio are projected at US$178 per oz.

According to the terms of the American Resource-Rea merger, each shareholder of American Resource is entitled to 2.2 shares of Rea, boosting the merged company’s outstanding capital to 96 million shares on a fully diluted basis.