Queenstake buys Jerritt Canyon again

The sale of the Jerritt Canyon gold mine in Elko Cty., Nevada, is on again after owners AngloGold (AU-N) and Meridian Gold (MNG-T) agreed to take shares as partial payment from buyer Queenstake Resources (QRL-T).

Denver-based Queenstake will issue 32 million shares and pay US$1.25 million in cash to the vendors on closing, and delivers a non-refundable US$250,000 on signing the agreement. Queenstake pays out a further US$6 million, in quarterly $1-million instalments, between June 2005 and September 2006, or earlier if project debt is paid off ahead of time. AngloGold and Meridian retain a royalty capped at US$4 million.

The deal, scheduled to close on June 25, requires regulatory approval for Queenstake’s share issue. It is also conditional on Queenstake’s successful float of a financing to cover the cash element of the purchase price and a US$31.75-million insurance policy to replace existing reclamation surety bonds. Queenstake assumes the reclamation liabilities for the operation.

Queenstake is looking for a loan of US$20 million to US$25 million with a two-year term, and a brokered equity financing for US$15 million to US$20 million.

Negotiations are now under way between Queenstake and a lender that is prepared to provide a secured loan of up to US$25 million on the conditions that Queenstake can raise a minimum of US$15 million on the equity side and that the operation secures a floor price of US$330 per oz. for production while the loan is in place.

Queenstake also has an investment house setting up a syndicate to underwrite the equity issue. Both financing deals are subject to due-diligence investigations, which are in progress now.

AngloGold, which owns 70% of Jerritt and operates the mine, and Meridian, which owns the remaining 30%, share the proceeds and the net smelter return royalty pro rata. The royalty ranges from 2% to 4% with a floor price of US$320 per oz. Once Queenstake has paid out US$4 million, the royalty converts to a 1% net profits interest, payable to AngloGold.

Queenstake had earlier agreed to buy Jerritt Canyon for US$8 million in cash, plus the US$6 million in deferred payments. The sudden fall of the gold price in March scuttled that deal and the parties agreed to drop it in early April.

Jerritt Canyon has reserves of 2.2 million tonnes grading 8.1 grams gold per tonne and currently produces at a rate of 1.4 million tonnes annually from four underground mines. Additional measured and indicated resources of 4.5 million tonnes grading 8.9 grams gold per tonne, and inferred resources of 3.5 million tonnes grading 9.2 grams, have also been blocked out. Queenstake expects most of the resources to be convertible to reserves.

The company’s plan is to produce at current rates for another two years, then to crank mill feed rates down to a level where the operation would produce about 225,000 oz. gold annually.