Miramar Mining merges with Hope Bay Gold

In a move long-anticipated by the market, Miramar Mining (MAE-T) and joint-venture partner Hope Bay Gold (HGC-T) have agreed, in principle, to merge and thereby consolidate their ownership of the prospective Hope Bay project in Nunavut. The deposit has a gold resource estimated at 4.3 million contained ounces.

Hope Bay shareholders will receive 0.263 of a Miramar share for each share held. After completing the amalgamation, the new Miramar will have 102.7 million shares outstanding.

“The combination of Miramar and Hope Bay Gold is a strategic step that creates a larger, more liquid gold mining and exploration company focused on the Canadian North,” says Miramar President Anthony Walsh. “Our Yellowknife operations should continue to generate cash flow, which, combined with our balance sheet, will support the continued advancement of the Hope Bay greenstone belt. We also expect the combined company to realize significant reductions in administrative costs through the transaction.”

Miramar’s Con and Giant gold mines in Yellowknife produced 129,607 oz. in 2001 at a cash cost of US$256 per oz. Cash flow from operations increased Miramar’s cash position by almost $2 million during the fourth quarter, enabling the company to end the year at $13.5 million. The outlook for 2002 is for similar levels of production but with a further reduction in cash costs to under US$240 per oz., enhancing cash flow from operations.

On completion of the proposed merger, Miramar’s board of directors will comprise five nominees of Miramar and four nominees of Hope Bay Gold. Walsh and Anthony Petrina, Miramar’s non-executive chairman, will remain in their current positions, while Hope Bay Chairman David Fennell assumes the role of vice-chairman of Miramar.

Miramar has locked-up the support of certain shareholders and management of Hope Bay holding 41% of the shares. The deal is subject to due-diligence reviews by both parties and only requires the approval of Hope Bay shareholders (who are scheduled to vote on April 28), as well as regulatory and court approvals. Fairness opinions will be provided by Canaccord Capital (on behalf of Miramar) and Griffiths, McBurney & Partners (on behalf of Hope Bay).

A break-up fee of $1.5 million plus costs will be payable to Miramar in the event of a competing offer or if less than 55% of shareholders vote in favour of the merger.

Miramar is providing Hope Bay Gold with a $2-million line of credit so that it can meet its financial obligations until the deal is completed.

Miramar and Hope Bay are 50-50 joint-venture partners in a land position covering almost the entire 80-km-long Archean Hope Bay greenstone belt in Nunavut, 685 km north of Yellowknife.

Last year’s discovery of the Naartok and Suluk deposits in the Madrid area of the belt helped boost property-wide mineral resources to 4.3 million oz., up 30% over year-end 2000 estimates.

Measured and indicated resources contained in the Boston, Doris and Madrid areas totalled 3.4 million tonnes grading 15.4 grams gold per tonne, equivalent to 1.7 million oz. Another 2.6 million oz. of inferred resources are contained in 6.7 million tonnes grading 12.3 grams.

A scoping study prepared by SRK Consulting, in conjunction with Bateman Engineering and Nuna Logistics, outlined a positive stand alone development plan for the high-grade Doris Hinge zone. The study calls for a small open pit followed by ramp access and underground contract mining, by room-and-pillar methods, of most of the Doris Hinge resource, plus limited amounts of the Central and Lakeshore veins in the limbs of the Doris Hinge zone.

Gravity recovery

The ore would be delivered to a crusher set up beside the portal. The crusher would feed a modular mill at the daily rate of 600 tonnes. The mill would utilize conventional crushing and grinding, with an integrated gravity recovery circuit followed by flotation and cyanidation to produce 271,724 oz. over 2.1 years, based on a 97% recovery. A minable resource of 471,600 tonnes averaging a grade of 18.5 grams, includes 9,000 tonnes of higher-grade material stockpiled at the Boston deposit in the southern end of the belt. The Boston camp, along with the stockpile, would be moved to the Doris site.

The tailings would be deposited under water in a small lake east of the Doris Hinge zone.

The capital cost is pegged at $26.7 million. Cash costs are expected to come in at US$114 per oz., with a total cost projected at US$177.

Assuming a gold price of US$260 per oz., the project has a payback period of 15 months, which falls to 12 months at a gold price of US$300 per oz. The mill and facilities will be designed for a 10-year life, allowing Miramar to develop other deposits in the belt.

An $8-million budget has been approved for 2002, which would allow for the completion of a feasibility study of the Doris Hinge zone and the exploration of new targets — all part of a strategy to continue the systematic evaluation of the Hope Bay belt. Based on the positive outcome of the scoping study, the Hope Bay joint venture plans to advance the Doris Hinge to the production stage as soon as possible. The 2002 budget will cover the costs of delineation drilling (to upgrade the Doris Hinge zone to feasibility standards), new resource estimates, a feasibility study, and permitting costs. The development drilling component will consist of 100 holes totalling 8,900 metres targeting the Doris Hinge zone, limited stepout drilling on the zone’s northern extension, and condemnation drilling. This work is expected to begin this month.

In addition, several recently developed exploration targets will be tested with 4,000 metres of core drilling and 2,800 metres of reverse-circulation work throughout March and April.

Private placement

A portion of the 2002 program will be funded by way of a brokered private placement of 2.7 million flow-through shares priced at $1.50, for gross proceeds of $4 million.

The French Guiana assets of Hope Bay are excluded from the proposed merger with Miramar. Hope Bay will form a new company called Ariane Gold to hold its interests in six existing French Guiana properties in South America. Shares of Ariane will be distributed to current Hope bay shareholders prior to the completion of the merger. Ariane will then proceed with a rights offering.

Hope Bay recently struck a deal to buy Grupo Mexico subsidiary, Asarco’s wholly owned French Guiana unit, which owns the 2-million-oz. Camp Caiman gold project, as well as two exploration permits.

Asarco Guyane Francaise (AGF) has spent more than US$15 million on Camp Caiman, conducting extensive drilling, metallurgical testing, environmental monitoring, permitting and initial prefeasibility work. A measured and indicated resource, using a 1 gram cutoff, stands at 18 million tonnes grading 3.3 grams, equivalent to 1.9 million contained ounces. Saprolite material accounts for 723,700 of the ounces, with the remainder held in hard rock or sulphide material.

Hope Bay has agreed to pay Asarco US$16.4 million in instalments, subject to due diligence, completion of a financing by Ariane and transfer approval by the French authorities.

“The purchase of Camp Caiman, when added to our existing properties in French Guiana, will create a company with an advanced development project and significant exploration potential,” says Fennell.