Talks aimed at nuptials in Nunavut

Partnered at the Hope Bay Gold project in Nunavut since late 1999, Miramar Mining (MAE-T) and Hope Bay Gold have begun talks aimed at combining the two companies via a share-swap deal.

The two propose a combination based on a share exchange ratio of 0.263 of a Miramar share for one Hope Bay Gold share. The proposal also suggests that the board of directors of the newly combined company would comprise five nominees from Miramar and four from Hope Bay Gold.

Miramar’s chairman, Tony Petrina would continue as non-executive chairman. Hope bay’s CEO David Fennell would be appointed as Vice Chairman, and Miramar’s management team would continue as currently structured.

Canaccord Capital will provide fairness opinion of the deal to Miramar; Griffiths, McBurney & Partners will do the same for Hope Bay.

The two companies bought the Hope Bay project from Australian-based BHP in late 1999 for US$18.5 million. BHP had spent about $85 million on the project between 1991 and 1996, outlining a resource of 4.3 million ounces in three separate deposits: Boston, Doris and Madrid. The decision to sell the project came after BHP deemed gold a non-core asset and pulled out of the gold business worldwide.

In mid-January, with results from drilling in 2001 in hand, Miramar and Hope Bay updated the resource estimate at the Hope Bay project. The new resource figure for the project’s three deposits — Boston, Doris, and Madrid — is 10 million tonnes grading 13.3 grams gold per tonne. (T.N.M. Jan. 21-27/02)

The partners have also announced positive results of a scoping study that outlines a proposed initial development plan for the high grade Doris Hinge Zone at the Hope Bay project.

The study contemplates a stand-alone, 600-tonne-per day operation running on the Hinge zone for about 2 years to produce 271,724 oz. of gold in all. Capital costs are estimated at $26.7 million.

Initially, mining would take place via a small open pit followed by ramp access and underground mining of the majority of the zone’s resources plus material from four blocks from the Central and Lakeshore veins on the limbs of the Hinge zone. Another 9,000 tonnes of higher-grade stockpile material from the Boston deposit would be hauled to the mill for processing. The recovery rate is estimated at 97%.

Underground mining would be contractor-operated, room-and-pillar mining. The plan is to crush ore in a crusher adjacent to the portal; the material would then move on to a modular mill pre-constructed off site. Gold dor would be produced onsite following conventional crushing and grinding with an integrated gravity gold recovery circuit followed by flotation and cyanidation.

The near surface Hinge zone sports an indicated resource of 215,000 tonnes at 29 grams gold per tonne and additional inferred resources of 79,000 tonnes grading 37 grams.

At an assumed gold price of US$260 per oz., the study pegs the small-scale project’s net present value, at a 5% discount rate, at $29.8 million. Net pre-tax cash flow would be $36.4 million and the pre-tax rate of return about 69%. The payback period would be 15 months.

When a gold price of US$300 per oz. is used, the project’s net present value climbs to $44,6 million; the cash flow before taxes increases to $53.2 million; and payback takes just 12 months. In all, the project would provide a 101.9% return on investment.

Of the tonnage of material considered by the study, about 75% is indicated, the remainder is in the inferred category. The study also takes into account an assumed 1.8% royalty, the minimum payable to the NTI, an Inuit corporation.

Waste rock from the operation would be used to build an access road to a barge off-loading area 3.7 km to the north, an airstrip, and for tailings dam construction. Tailings would be deposited sub-aqueously in a small lake to the east of the Hinge zone.

The operation would employ about 96 people on a fly-in-fly-out basis.

Looking ahead, the partners say that there are possible extensions to the Hinge zone to the north. Development and mining of resources in the Doris’ Connector and Central areas could further add to the mine life. The companies are looking at sinking an exploration decline from the Hinge zone portal south to Doris Central to allow detailed underground drilling.

Planning is under way for the 2002 work program, with an eye toward the completion of a feasibility study of the Hinge zone.

Walsh said in a prepared statement, “The development of a relatively small scale operation at Hope Bay could allow expedited production at a capital cost potentially within reach of the joint venture’s financial resources and could generate significant cash flow at current gold prices to continue the exploration and development of the Hope Bay belt.”

News of the talks sent Miramar’s shares down a dime or more than 7% to $1.35 in late-morning traded on the Toronto Stock Exchange. Hope Bay’s shares were off 4 or more than 10% at 35.