Single permit final hurdle to restarting Hope Brook

A Newfoundland gold mine with a troubled past has been given a new lease on life after being closed last year because of environmental problems.

Officials at Royal Oak Mines (TSE) confirmed recently that they are ready to sign a $9.9-million deal to buy all the assets of Hope Brook Gold Inc., a wholly owned subsidiary of BP Canada (TSE).

Officials with both Royal Oak and Newfoundland’s department of mines say they are confident that all of the environmental problems have now been fixed. However, one of the last details holding up the official signing of the deal was that the provincial government still hadn’t issued a new environmental permit for the mine. Government officials said it was forthcoming. If the deal is finalized as expected, production should resume by July, said Graham Eacott, Royal Oak’s manager of investor relations. Fewer than 300 people will be employed at the site, he said.

Hope Brook owns a gold mine on the Chetwynd properties in southwestern Newfoundland which was closed last May when high levels of effluents built up in one of the mine’s holding ponds.

That development was the latest occurrence in a long series of problems in the mine’s effluent treatment system. BP Canada announced at the time that it was suing the supplier of the treatment plant, which was built in 1988. “It had a bad history, but I think that is going to be behind it,” Newfoundland’s minister of mines, Rex Gibbons, said of the mine’s environmental problems. “Hope Brook itself has pretty well cleaned up the place, and they knew how to address the problems they were having by the end of last year. So that will not be an issue as I see it.”

When the mine opened in 1987, it had estimated and proven reserves of about 11 million tons and was expected to produce 120,000-140,000 oz. gold annually. However, because of environmental and other problems, the mine never did reach that quota by the time it closed last year.

The closest it came was in 1990 when it produced 110,460 oz., but still lost money. The year before, the mine produced 84,324 oz. of gold from 810,795 tons of ore, but it was forced to close for five weeks after its effluent treatment system failed to keep hazardous compounds being released from the mill to below regulatory limits.

The same year (1989), Hope Brook was fined $10,000 for a cyanide spill which killed hundreds of young salmon in the Cinq Cerf River.

Gibbons estimated that there are still 7-8 million tons of ore left in the ground at Hope Brook. “So with today’s proven tonnage, it should still be able to go for six or seven years,” he said. “And I personally am optimistic that they can find more tonnage there.”

The deal will involve Royal Oak transferring 5.5 million of its shares to Hope Brook in exchange for full ownership of the mine’s assets. Royal Oak shares were trading at about $1.80 each on the Toronto Stock Exchange last week, making the deal worth about $9.9 million.

Federal and provincial monies are also involved in the purchase, the exact amount yet to be revealed.

In February, Royal Oak reached a deal with the union representing miners at Hope Brook contingent on the mine’s re-opening. The agreement ties any future wage increases for the miners to increases in the price of gold. Resumption of operations at Hope Brook will give Royal Oak three producing gold mines. The company also has operations at Yellowknife, N.W.T., and Timmins, Ont., which together produce about 200,000 oz. of gold annually. Royal Oak was created in July last year through an amalgamation of what was then Royal Oak Resources with the Pamour group of companies including Giant Yellowknife Resources.

A re-opening of Hope Brook would be welcomed in Newfoundland where the mining industry has taken a terrible beating. In the last several years, the province’s only zinc, asbestos, fluorspar and phosphorus mines have all closed permanently.

“I think personally we’ve bottomed out on mining,” said an optimistic sounding Gibbons. “That’s my personal feeling.”