Royal Oak plots re-opening of Colomac mine, teams up with

The Colomac gold mine will be re-opened next spring by Royal Oak Mines (TSE), a Canadian gold producer which recently announced plans for its first mineral venture outside North America.

The company produces about 300,000 oz. gold from three mines in the Northwest Territories, Ontario and Newfoundland. The re-opening of Colomac is expected to boost gold production to 400,000 oz. in 1994, and to about 500,000 oz. in 1995. The mine is about 137 miles north of Yellowknife, where Royal Oak operates its Giant mine. Access is by air or winter road. Royal Oak President Margaret (Peggy) Witte said the decision to re-open Colomac is based on a positive feasibility study and a rigorous due diligence review. “Because I was so personally involved in this project in the past, our due diligence was more thorough than for any other project,” Witte said. “We are absolutely sure we will be able to produce gold for less than US$300 per oz. and absolutely sure the mine will be successful.”

Back in the late 1980s, Witte acquired and advanced Colomac through her first junior company, Neptune Resources. She was squeezed out by Northgate Exploration, which went on to place the mine into production, only to close it a year later because of operating and financial problems. Witte said the company is excited about a recent hole which indicated the known deposit has significant down-dip potential. Drill hole 93-04, part of a 5-hole program totaling 6,544 ft., returned an average grade of 0.068 oz. gold per ton over 246.5 ft. The mineralized Colomac dyke was intersected at vertical depths of 900-1,100 ft. below surface, or a depth of more than 500 ft. below the currently planned pit bottom.

Royal Oak estimates the cost of re-opening the mine will be $6.6 million. Work will begin next April with pre-stripping of the open pit. The first gold is expected to be poured in June, and production for the year is expected to total about 70,000 oz. Annual production thereafter is projected to be about 160,000 oz. annually, at an average cash cost of US$295 per oz. (including pre-stripping).

Conventional open-pit mining techniques will be used, beginning in Zone Two, at a rate of 9,300 tons per day. Reserves are reported at 16.3 million tons grading 0.052 oz. gold per ton, or about 847,000 oz. contained gold. While all Royal Oak’s mines are in Canada, that could change now that the company plans to team up with Asia Minerals (ASE) to explore and develop both non-ferrous and precious metal properties in China. (For more information on Asia Minerals, see page 16.)

“Our heart is in Canada,” Witte said. “But we have been beat up so much in this country by the labor and environmental movements that we don’t have any choice but to look elsewhere to expand our horizons.”

She said the company became interested in China because of the industrial revolution taking place there and because of new mining and tax laws meant to attract foreign investment.

“We had a chance to peruse the business and tax implications of the new mining laws and felt we could live with them,” Witte explained, adding that BHP Minerals recently signed a joint venture to explore for zinc in the country. “We also wanted to get in on the ground floor because we don’t want to over-pay for new opportunities, as others are doing in some countries.” The letter-of-intent agreement calls for Royal Oak to buy five million shares of Asia Minerals at 40 centseach (representing about 32% of the issued shares) for a total investment of $2 million.

The agreement also gives Royal Oak board representation and the right of first refusal to operate and acquire at least 50% in all properties,as long as its interest in the junior company does not drop below 20%. These rights will be subject to Royal Oak funding a final feasibility study, and the future exercise of share options. Royal Oak will have options to buy an additional 6.25 million shares over the next five years and the right to participate on a pro-rata basis in further financings. This would bring Royal Oak’s investment in Asia Minerals to 50.1 per cent.