Pegasus options Quartz Mountain gold project

The Vancouver-based company recently granted Pegasus Gold Corp. (TSE) an option to acquire the 50% right-to-earn property interest currently held by Galactic Resources (TSE).

The Quartz Mountain property contains open pit mineralization of two types; disseminated oxide reserves suitable for heap leaching and higher grade oxide and sulphide quartz vein-related mineralization.

At last report, oxide heap leach reserves were 8.6 million tons grading 0.03 oz gold per ton. Vein- related oxide milling reserves are reported at 494,000 tons grading 0.104 oz gold and vein-related sulphide milling reserves are reported as 731,000 tons grading 0.185 oz gold.

The combined reserve total of 9.8 million tons grading 0.045 oz gold does not include the high grade mineralization beneath the Quartz Butte deposit, which Quartz Mountain describes as an important exploration target.

Quartz Mountain recently received a feasibility study from Davy McKee Corp. which concluded that a combined high grade vein milling and low grade heap leaching open pit gold mine “could be economic at current gold prices.” The study examined a combined heap leaching and 500-ton-per-day milling ope ration to yield an average of 50,000 oz gold per year over a projected 7-year mine life.

But David Jennings, president of Quartz Mountain, conceded that if Pegasus did elect to exercise its option, it would most likely carry out its own feasibility study with a much larger mining operation in mind.

“The real romance of this project is the disseminated sulphide gold resource,” Jennings said.

Pegasus is currently reported to be developing bio-oxidation technology for the treatment of non- oxide reserves at its Zortman/ Landusky gold mine in Montana.

To re-acquire Galactic’s property interest, Quartz Mountain paid $1 million(US) and issued 1.5 million of its restricted shares together with an equal amount of warrants exercisable at $1.20 per share. The 2-year option agreement is exercisable by a final $5-million payment.

Quartz Mountain said the shares and warrants issued to Galactic are subject to a voting trust in favor of its current management and to a standstill agreement at 20% of its issued capital.

As initial consideration to acquire the former Galactic interest, Pegasus made a $1-million payment on Quartz Mountain’s behalf and completed a private placement in Quartz Mountain for $500,000. Pegasus will also complete a minimum $1-million work program and make the $5-million payment on Quartz Mountain’s behalf to earn its 50% interest.

During the option period, Pegasus plans a $1.5-million work program including a 150,000-ton test heap and extensive evaluation of the project’s disseminated sulphide resource.

The test heap is expected to provide definitive cost and performance data to optimize a heap leach operation, while the sulphide testing program will assess the viability of a much larger operation that would process most of the combined oxide and sulphide resource.

On exercise of the option, Pegasus will earn a 50% operating property interest and form a joint venture with Quartz Mountain.

Quartz Mountain can elect to have Pegasus provide all pre-production and production financing with repayment from 90% of its share of production. But should Pegasus not exercise its option, Quartz Mountain said it would form a joint venture with Galactic under substantially the same terms.

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