Shareholders OK Falco Gold plan

After a lengthy delay caused by the regulatory approval process, Falconbridge Gold’s (TSE) minority shareholders have given the go-ahead to purchase from controlling shareholder Falconbridge Ltd. its African and Canadian gold properties.

At the shareholders’ meeting, chief executive Brian Ferguson criticized the time-consuming regulatory approval process. “It cost us $1 million, of which $700,000 was a direct cost to the company. That’s nearly five cents a share,” he said.

Both the Ontario Securities Commission and the Securities and Exchange Commission in the U.S. were involved. The transaction was first proposed in October, 1990. When approvals finally did come through, minority shareholders gave it their blessing June 3, 1991.

With the transaction behind it, Falconbridge Gold adds to its asset portfolio two small producing gold mines in Zimbabwe and Botswana and a raft of Canadian gold exploration properties. In return, the parent firm receives $11 million in an equity-debt package.

Ferguson said he has set two priorities. The first is to double African production, currently 29,000 oz. per year, by spending $27 million (mainly from cash flow) over the next five years.

Finding new mines in North America is the second thrust. With Falco Gold’s Hoyle Pond mine near Timmins, Ont., approaching depletion, it needs new mines. Hoyle Pond’s reserves will last a minimum three years, but probably 5-6 years, Ferguson told shareholders.

Acquisitions of later-stage projects, rather than greenfields exploration plays, is the strategy proposed by the Falco Gold executive. The main geographic areas will be the western U.S. and the area around Val d’Or, Que. Val d’Or plays such a prominent role because many of the parent firm’s exploration projects were in the area.

In the western U.S., Falco Gold has had one disappointment already. After spending about US$875,000 to acquire an option on, and explore, the Royal Mountain King property in Calaveros, Cty., Calif., the gold company dropped the option. At the annual meeting, Ferguson blamed the failure on falling gold prices earlier this year, rather than poor drill results.

Royal Mountain King was an open pit mine. The project was especially attractive because its cyanide plant had passed through all the state’s environmental hoops.

In its own backyard, Falco Gold has an environmental problem at the mined-out Owl Creek open pit, a Timmins area mine. The Owl Creek waste dump generates acid, a serious ecological concern. The company must spend about $4 million ($2 million of which will come from parent Falconbridge) to stop the acid-generating flow.

In resolving the condition, Falco Gold is dealing with four Ontario ministries — the ministries of the environment, labor, natural resources, and northern development and mines.

Ferguson emphasized in the annual report and at the meeting that “the question of potential environmental liability (with regard to exploration properties) will be closely scrutinized.”

In the first quarter of this year, the company lost $92,000. Ferguson expects African gold production will lead to an overall profit by year-end.