New Eskay deal for Placer, Corona

The latest round of discussions between a tougher Placer Dome (TSE) and a more-willing-to-compromise International Corona (TSE) culminated in a new deal for development of the Eskay Creek deposit north of Stewart, B.C.

Corona and Placer Dome hold indirect interests in Eskay Creek through equity interests in Stikine Resources, with each holding less than 50% of Stikine’s outstanding shares. Corona also owns about 49% of Prime Resources Group, (VSE) with the remaining interest publicly held. Prime and Stikine each owns 50% of the Eskay Creek property.

Placer and Corona had been involved in lengthy on-again, off-again discussions aimed at working an agreement acceptable to both parties. A staged joint venture agreement was hammered out last fall, but it proved too tough a deal for Placer which elected not to proceed with the project after completing a due diligence review (T.N.M., Dec. 23/91).

The new agreement calls for Placer Dome to convert its approximate 44% interest in Stikine Resources into an approximate 22% direct interest in the highgrade gold and base metal project. The major will also loan Prime and Stikine up to $10 million to finance the costs of completing a feasibility study (with the loan to be secured by the property).

Placer Dome President Tony Petrina said he was pleased with the agreement because it involved the company more directly in the project. “We are as eager as they (Corona) are to have the property developed into a mine, and this should allow more rapid progress,” Petrina said, adding that the agreement signifies “a greater degree of collaboration” between the two companies.

Corona President Peter Steen views the deal as advantageous for all parties. “Placer Dome’s direct participation not only provides additional funding, but also confirms their belief in the property and their full co-operation in seeing Eskay Creek through to production.”

The companies plan to enter into a joint venture under which all parties will be responsible for their pro rata shares of all project costs, including feasibility costs and costs to develop the project into a mine. Corona will be operator for all aspects of the joint venture, including construction of the mine and mill that Placer was to have overseen under the original agreement.

A $100-million preferred share facility offered to Corona by Placer Dome in the previous agreement was cancelled, and the companies do not intend to proceed with plans to merge Prime and Stikine. The joint venture is still subject to regulatory and other approvals.

But Corona intends to privatize Stikine on previously announced terms whereby all shareholders will receive preferred shares of Corona at $70 per share. When all the dust is settled, Corona will end up with an approximate 53% direct interest in Eskay Creek (it will have 100% of Stikine’s remaining 28% interest and 49.8% of Prime’s 50% interest).

Corona intends to proceeds with a feasibility study for the project which is reported to host minable reserves of 1.15 million tons grading 1.86 oz. gold and 74.8 oz. silver per ton in the 21B zone, at a cutoff grade of 0.4 oz. gold equivalent (at a 90-1 conversion ratio). This estimate takes into account allowances for minable recovery and about 27% dilution. The 21B zone also contains base metal values; previously released estimates (1991) show an average grade of 5.4% zinc and 0.7% copper.

The Eskay Creek deposit is metallurgically complex and will require special milling processes and techniques to ensure good recoveries and marketable concentrates. The project will also present some environmental and operating challenges because of the nature of the deposit and its location in a rugged area of northwestern British Columbia.

Late last year, Corona released details of a preliminary study by Kilborn Engineering which estimated capital costs of $210 million for a 400-ton-per-day operation and a production cost of US$150 per oz. gold produced. Annual production was estimated at 250,000 oz. gold and 10 million oz. silver over an 8-year period.