Rayrock moves to swallow Minera

Rayrock Yellowknife Resources (RAY-T) is expected to succeed in a bid to take over Minera Rayrock (MRN-T), in which it currently owns a 37.5% interest (19.1 million shares).

Rayrock, a Toronto-based gold and copper producer, has cast its net for all the remaining shares of Minera at US30 cents per share.

Financially, Rayrock is well-positioned for the takeover. The company recently reported 1997 earnings of US$8.4 million (or 46 cents per share) on revenue of US$55.4 million, compared with a loss of $12.5 million (68 cents per share) on US$66.3 million in 1996.

The turnaround is primarily due to the sale of the company’s agricultural minerals unit, Western-Ag Minerals, to IMC Global for US$53 million. In addition, Rayrock sold its holdings in Discovery West, an oil and gas company, to Magin Energy for US$5.8 million in cash and 9.8 million Magin shares.

“The sale of selected assets, combined with our program of realistic writedowns during the past two years, has put us in a unique position,” says David Crombie, outgoing chairman of both Rayrock and Minera. “We have a strong balance sheet and high-quality operating and exploration groups.” Crombie, who served as a director of Rayrock for more than 20 years, resigned for undisclosed reasons following the announcement of the Minera takeover. A replacement has yet to be named.

On a consolidated basis, Rayrock wrote down US$11.2 million in 1997 and US$25.4 million in the previous year. The writedown of the Bellavista gold project in Costa Rica accounted for more than half of the 1996 total.

Bellavista, wholly owned by Minera Rayrock, was acquired by Wheaton River Minerals (WRM-T) last October.

Rayrock’s cash flow from operations in 1997 amounted to US$10.8 million (60 cents per share) — virtually unchanged from the previous year. Gold sales decreased to 99,216 oz., compared with 104,217 oz. in 1996, while average realized price dropped to US$334 from US$399 per oz. On the bright side, cash operating costs fell significantly, to US$262 from US$310 per oz.

In Nevada, the company operates three gold mines — Dee (wholly owned), Marigold (66.7% owned) and Daisy (35% owned); sales from these operations in 1997 amounted to 39,439 oz., 73,640 oz. and 30,524 oz., respectively.

Rayrock expects to close the Dee pit in 1998, but leaching is expected to continue for about three years. Dee’s future lies in its underground potential, the company states. Rayrock will allow Barrick Gold (ABX-T) to earn a 60% interest in the operation by spending up to US$5 million to explore for deeper mineralization.

At Marigold, Rayrock has formulated a mining plan that reflects a low gold price in 1998. Under this plan, the mine is expected to crank out 63,000 oz.

gold.

Last year’s output from the Daisy mine exceeded expectations by more than 1,700 oz. Mining is continuing in the Secret Pass oxide deposit and is about to begin in the Mother Lode deposit.

Minera’s production and revenue are entirely derived from the Ivan copper mine, near Antofagasta in northern Chile. Cathode copper production at Ivan reached 23.7 million lbs. in 1997, compared with 22 million lbs. in the previous year. Cash costs increased to 68 cents from 63 cents per lb. copper.

Production for the current year is projected to climb 4% to 24.7 million lbs.

Cash cost is expected to fall by 13 cents to US55 cents per lb. copper.

The 1996 loss included a writeoff of US$14.1 million.

Minera posted a loss of US$5.6 million (or 11 cents per share), compared with a loss of US$15.4 million (30 cents per share) in the previous year.

“Minera had another year of increased production, primarily due to improved recoveries from our bacterial leaching process,” says Crombie. Operating profit declined to US$6.4 million in 1997, compared with US$10.2 million in 1996, as a result of lower copper prices and higher operating costs.

“By the end of the year, we began to lower our operating costs, but the lower prices continued to have a negative effect,” Crombie adds.

Minera’s strategy for reducing costs involves sustaining leaching improvements, lowering plant costs and decreasing mining costs through a large pillar blast in Ivan’s underground workings.

Ivan is situated in the Atacama Desert at an elevation of 750 metres above sea level. The orebody consists of four known zones: Ivan, Zar, Emperatriz and Catalina. The Ivan zone consists mainly of high-grade copper sulphides, whereas the

others contain oxide ores. Both types of ore are heap-leachable with sulphuric acid. Mixed sulphide- oxide ore is recovered with the aid of bio-oxidation.

Reserves stand at 4 million tonnes grading 2.2% copper, equivalent to 88,000 tonnes of copper.

Exploration in 1997 consisted of surface work near the Catalina deposit and underground drilling in the deeper part of the Ivan cluster of mineralized zones. Additional mineralization was encountered in both programs, and follow-up work is planned for 1998.