U.S. REPORT (December 09, 1991)

The Securities and Exchange Commission in Washington, D.C., approved proposals this year advanced by the National Association of Securities Dealers (NASD) to raise the basic listing requirements and maintenance standards for the NASDAQ (over-the-counter) stock market.

Joseph Hardiman, president of the association, said the new requirements were crafted to reflect minimum levels of company size and investor interest. For the initial listing, a company will be required to have a minimum of US$4 million in total assets and US$2 million in capital and surplus, compared with current requirements of US$2 million and US$1 million respectively. In addition, a market value of a float minimum of US$1 million has been added to the existing 100,000-share float requirement.

A minimum bid price of US$3 per share has also been established; currently, there is no minimum bid test. The current entry requirement of two market makers remains unchanged.

The proposals also include new maintenance standards, the most significant of which is a minimum bid price of US$1. A company failing this test can continue to qualify for listing on NASDAQ if it meets two other maintenance requirements which have also been raised: a minimum of US$2 mil- lion in equity (up from US$375,000) and a public float of US$1 million (up from US$200,000).

Less than a year ago, Wisconsin was receiving a lot of attention from Canadian mining companies looking for new prospective ground. Noranda (TSE) had just made a big discovery in Oneida Cty., Kennecott had been granted permission to develop the Flambeau copper deposit and the state appeared to be relaxing its traditional anti-mining stance.

But the party was short-lived. Not long after Noranda hit spectacular zinc values at the Lynne prospect, both native and environmental groups gathered at the site to protest against further exploration. In the midst of development at Flambeau, Kennecott was ordered to complete an unprecedented supplementary environmental review. At the same time, Canadian junior NDU Resources (TSE) fled the state, leaving behind its stake in the Jump River joint venture.

Since then, Asarco (NYSE) and Cyprus Minerals (NYSE), two American majors, have taken over Jump River. Other companies currently active along the Rhinelander-Ladysmith greenstone belt include Phelps Dodge (NYSE), which recently opened an office in Rhinelander, BHP-Utah Mines and Cominco (TSE). The untapped mineral potential of the state is once again the domain of senior companies with deep pockets.

“I think this is an extremely positive development,” Tom Evans, manager of the mineral resources sector of the Wisconsin Geological Survey, said of the Jump River ownership change. “I’ve never felt comfortable with a junior in that role; it just takes so much money.”

But try telling that to WisCan Resources (TSE). Currently financing a drill program on Noranda Exploration’s collection of gold and base metal properties, Toronto-based WisCan is determined to stick it out in Wisconsin’s high-risk exploration game. In order to earn a 50% interest in a large portion of Noranda’s portfolio, WisCan must spend $7.5 million before Oct. 25, 1995.

Wiscan’s results from the Enterprise project are encouraging. The first five holes all intersected sulphides grading up to 0.7% zinc and 0.23% copper, suggesting that the junior is on the edge of one of the massive sulphide deposits, including Lynne, that dot the Rhinelander-Ladysmith greenstone belt from east to west. On behalf of WisCan, which has $175,000 left in the kitty, Noranda will continue drilling into the new year.

Meanwhile, the senior company will try to secure permits for an open pit operation at its 6-million-ton Lynne deposit. But even before the 3-4 year permitting process has begun, the zinc deposit’s proximity to a “navigable lake” is raising some questions about what jurisdiction the project falls under.

Because the navigable lake is actually “a bog that you could walk across,” Evans thinks Lynne will inadvertently stir up a jurisdictional debate that could have state-wide repercussions. “Noranda may be the entity that has to carry that ball,” he says.

Noranda’s fragile position is further jeopardized by an injunction to stop development at Kennecott’s nearby Flambeau copper deposit.

After environmentalists raised concerns about the threat to claims in the Flambeau River, the Department of Natural Resources suspended development, pending a supplementary environmental impact statement. The project, which was given full approval just months ago, will be delayed by about five months by the injunction, said Larry Mercando, president of Flambeau Mining, a unit of Kennecott.

Although there is every indication that results of the supplementary review will be positive for Flambeau, the company’s 4-year battle shows just how difficult it can be to get a deposit into production in the state.

Strict regulations and stiff competition for available land make South Carolina a difficult state for resource companies to operate in, says Walter Nash, director of U.S. exploration at Toronto-based Noranda (TSE).

Because of heavy rainfall and a high water table, resident mine operators such as Galactic Resources (TSE) and Piedmont Mining (NASDAQ) must observe strict guidelines when installing leach pads and tailings impoundment areas. As well as being insulated from the local bedrock by a synthetic liner and 12 inches of clay, tailings ponds must be fitted with leak detection systems to prevent contaminants from seeping into the agricultural lands. State regulatory bodies don’t differentiate between types of cyanide when measuring discharge levels, according to Craig Kennedy, assistant director at the South Carolina Land Resources Commission’s mining and reclamation division. He attributes the regulatory environment to South Carolina’s dependence on forestry and agriculture and to the fact that only 2,600 are employed in direct mineral extraction.

Nevertheless, gold has been mined in South Carolina since before the California gold rush of 1849, and is still being sought by active exploration companies such as Hemlo Gold (TSE), a Noranda affiliate, and Amax Gold (TSE). The state’s four gold mines sit on the Carolina Slate Belt, a geological system stretching west along state midlands for about 150 miles, from Chesterfield towards the state of Georgia.

The biggest of those mines is the Ridgeway Kennecott, 12 miles northeast of Columbia. It is a 15,000-ton-per-day, open-pit operation owned 48% by Galactic and 52% by British mining conglomerate Rio Tinto Zinc. Using carbon-in-leach processing, the joint venture extracted 171,974 oz. of the yellow metal last year at a cost of US$174 per oz.

In preparation for processing harder ores found in the lower depths of the North Pit deposit, the two companies are spending $9.6 million to expand the grinding circuit by adding a second ball mill.

The other three gold producers in South Carolina are heap-leach operations. The Barite Hill mine of Consolidated Nevada Goldfields (TSE) is situated on 1,618 acres in McCormick Cty. Despite suffering startup problems associated with a leach pad, Barite Hill is expected to produce 20,000 oz. annually. The Brewer gold mine in Jefferson Cty. is operated by the U.S. subsidiary of British company Costaine Holdings and is designed to produce 40-50,000 oz. annually. Because of a tailings pond failure last October, the mine was out of commission until June and production will be well below 40,000 oz. this year.

Oxide ore at Piedmont Mining’s Haile mine at Kershaw is almost exhausted and the future of the operation clearly depends on whether Amax Gold can find enough deep sulphide mineralization to justify a resumption of mining. Amax Gold has signed a letter of intent to earn 60% of the project in consideration for one million shares, $1.75 million cash and the completion of about 100,000 ft. of diamond drilling before next May.

In a bid to delineate about one million oz., Amax has completed about 80,000 ft. of drilling. But Amax spokesman Gina Wilson said there is no guarantee the target amount can be found.

No stranger to the state of Maine, Black Hawk Mining (TSE) acquired the Knox nickel-copper-cobalt property in 1990. It has a 100% interest in the property, subject to a net smelter return royalty which varies with the price of nickel.

Previously, Black Hawk was a 40% partner in the joint venture which operated the Blue Hill mine in Maine from late 1972 until October, 1977. Kerr Addison (TSE) was the majority partner through its wholly owned subsidiary, Kerramerican. This operation mined 989,000 tons grading 6.8% zinc and 1% copper but came on stream during a period of lacklustre metal prices. The Knox property was drilled by Hanna Mining during 1966-74, but the option was dropped and the property reverted to China First Capital, its original owners. Additional drilling was carried out in 1989 and in 1990 Black Hawk absorbed China First via a share swap and cancellation of outstanding indebtness.

Minable reserves per consultant Fluor Daniel Wright’s feasibility amount to 2.55 million tons grading 1.39% nickel and 0.63% copper after allowing for open pit dilution of 15% and underground dilution of 20%. Half of the reserve will be amenable to open pit mining at a waste-to-ore ratio of 0.9-to-1. Metallurgical test work carried out by Lakefield Research demonstrated that a bulk concentrate assaying 12% nickel and 8% copper can be produced with metal recoveries of 68% and 90%, respectively.

Of particular note, and quoting Garry Hughes, Black Hawk president, is the high cobalt content of the ore which has a nickel-to-cobalt ratio of 12-to-1. At the quoted minable grade of 1.39% nickel, the cobalt content will be 0.12%. Metallurgical recoveries of cobalt are the same as those of the nickel to which it is mineralogically bonded.

Political problems in Zaire have seen the price of cobalt jump to almost US$30 per lb. from US$11. Zaire is the world’s principal supplier of this essential metal.

Black Hawk is currently carrying out base-line environmental studies. Final data is awaited from Fluor; however, capital costs in the US$40-50-million range are anticipated for a plant capable of handling 400,000 tons material per year.

When the rest of the world was mining gold from narrow veins and reefs, companies in the Alaska panhandle were bulk mining gold and operating some of the most efficient underground mines anywhere. Echo Bay (TSE) and partners may soon be repeating the process.

The Kensington mine hosts proven and probable reserves of 12.6 million tons grading 0.148 oz. gold per ton after dilution. Echo Bay and 50% partner Coeur d’Alene (NYSE) anticipate permitting procedures will be completed by early 1992, after which construction will begin. Facilities for milling 4,000 tons-per-day will be completed in 24 months. The capital cost is estimated to be US$170-180 million.

Six steeply dipping ore zones have been located but most underground development work has been concentrated on the Kensington zone where widths are in the 50-60 ft. range. (Apart from desultory near-surface mining in the early 1900s, this is an entirely new development and the potential for expanding reserves is considered excellent).

Consultant Davy McKee estimates a cash cost of US$225 per oz. in its feasibility study, with the mine producing 200,000 oz. per year. The property is three miles from tidewater and 45 miles north of Juneau, the state capital. Echo Bay’s other Alaskan venture is the old Alaska-Juneau (A-J) mine, three miles south of Juneau.

This A-J mine, in operation from 1901 until 1943, was closed because of shortages induced by the Second World War. More than three million oz. gold were produced during this period from a low-grade but remarkably large orebody.

Echo Bay is 85% owner of the project. The other 15% is held by an affiliate of Watts, Griffis and McOuat of Toronto.

Proven and probable reserves are 63.6 million tons grading 0.052 oz., with an additional possible reserve of 42 million at 0.05 oz. The orebody is essentially a mineralized shatter zone in a complex of schists and slates intruded by innumerable gabbro dykes. Widths range from 50-600 ft. and favorable geology has been traced for three miles.

Echo Bay intends to mine at the rate of 22,500 tons per day to produce 365,000 oz. gold per year. The former operators discarded 45% of mine production by hand picking prior to milling and Echo Bay is assessing the various options for duplicating the process with modern optical-electronic or pebble rejection technology.

Capital costs are estimated at US$275 million with initial cash production costs of $225 per oz. As with the Kensington project, completion of permitting is expected in early 1992; construction will take about 30 months. Echo Bay has also drilled a number of deep exploratory holes at the Alaska Treadwell mine which operated during 1882-1917. Three holes came up blank but a third intersected 186 ft. grading 0.10 oz. The earlier operators produced more than 3 million oz. In their efforts to recover as much ore as possible, they stripped too many stope pillars, collapsing the workings in the process and allowing the sea to flood the mine. The mine is located across the fjord, about a mile from the A-J.

Headquartered in Val d’Or, Que., gold producer Cambior (TSE) is active on the international scene. Its U.S. interests include a placer gold operation in Alaska and a base metal exploration play in Arizona.

The Valdez Creek placer project in Alaska, set to produce about 65,000 oz. gold this year, came into the Cambior fold several years ago through a corporate acquisition. Cambior has a 75% interest in the operation, which sits between Fairbanks and Anchorage. (Valdez Gold (ASE) owns the remaining 25%.)

Cash costs at Valdez Creek, reported to be Alaska’s largest open pit placer mine, are expected to average about US$265 per oz. this year, securities firm Richardson Greenshields wrote in a recent report. Reserves total at least five million cubic yards of gravel grading 0.1 oz. gold per cubic yard. In Arizona, Cambior, through an American subsidiary, paid US$10 million in August to purchase Westmont Mining, whose property interests include the Carlota copper project. An additional US$5 million will be paid by Cambior when the project enters commercial production.

Proven and probable reserves from four copper-oxide deposits at Carlota are estimated to total 55.7 million tons averaging 0.45% copper. A heap-leach operation is envisaged for the project involving solvent extraction and electrowinning.

A mining rate of five million tons per year is indicated, with an average waste-to-ore ratio of 2.35-to-1. Output of 38 million lb. cathode copper per year is projected.

The estimated capital cost is US$45 million (not including permitting, feasibility study and other costs), with a cash operating cost of US61 cents per lb. Production could begin in 1995.

The move into base metals is a new direction for Cambior, which will produce an estimated 315,000 oz. gold in 1991 from seven properties in which it has interests. That total includes the company’s 50% stake in the Doyon mine west of Val d’Or, which should yield Cambior about 125,000 oz. this year. Other than Valdez Creek, Cambior’s gold-producing properties are in Quebec. In Guyana, South America, Cambior is the lead partner in the developing Omai gold project, which could be in production in 1993. By arranging the financing of about US$151 million (and an additional working capital of US$10 million), Cambior may earn a 60% interest (and possibly a 70% interest) in the project. Golden Star Resources (TSE) and the government of Guyana have 35% and 5% positions, respectively, in Omai.

A proven and probable reserve base of 44.8 million tons grading 0.05 oz. gold per ton is estimated currently for Omai. An open pit operation using conventional milling is envisaged, with output during the first three years averaging 255,000 oz. Richardson said a mine life of more than nine years is projected, with cash operating costs averaging US$199 per oz.

With a share price virtually halved to the 55 cents level from a high of $1.12 earlier this year, RFC Finance (TSE) is reluctant to re-finance its treasury by issuing more stock and diluting its capital.

Ray Dujardin, a director of the company, said RFC needs about $3 million to bring its Pend Oreille zinc-lead project in northeastern Washington state to feasibility. RFC also owes about $2 million to Kerr Addison Mines (TSE), a major shareholder with about 44% of the company’s 10.5 million outstanding shares.

Dujardin, who also works for Kerr Addison, pointed out that Kerr is not putting any pressure on the company to pay back the loan. He added that RFC has been approached by a number of companies interested in forming a joint venture to develop the Pend Oreille project.

RFC completed a $1-million program on the property during the summer, with preliminary estimates putting reserves at about 3.9 million tons grading 10.4% zinc and 1.7% lead.

Dujardin said the company essentially has two options for the development of the property; either to expand reserves, or develop current reserves to a proven-minable category. He noted that the second option was the most likely, since the current reserve is probably sufficient to support a mining operation.

Reserves are located in three connected zones, with the Northeast zone the largest, containing an estimated 2.2 million tons grading 11.04% zinc and 1.2% lead. The gently dipping zone averages about 13 ft. in thickness, 400 ft. in width and has been traced over a downdip extent of about 2,000 ft. Dujardin said RFC will have to extend the current workings about 2,000 ft. to reach the zone and allow for infill drilling.

Drilling to date was done from old workings in the Josephine horizon, about 1,000 ft. above the Northeast zone. Previous mining operations on the Josephine extracted in the order of 15 million tons grading 4-5% zinc and 1% lead until the mine was forced to close in 1977 due to low metal prices. The former operator had discovered mineralization on the Yellowhead horizon which hosts the current reserves. A decline was driven down to the Yellowhead horizon to an area to the south of the current reserve. A limited amount of mining proved unsuccessful.

Dujardin said he hoped to complete a funding arrangement within the next few months and get back to work on the property as soon as possible.

Continued losses from its gold mining operations have prompted Atlas (NYSE) to freeze salaries and reduce personnel by 20%.

The company reported a loss of US$266,000 for the first quarter ended Sept. 30 on revenue of US$7.4 million. This compares with a loss of US$688,000 on revenues of US$6 million for the same period last year.

Gold production from the company’s Gold Ridge South deposit in Nevada totalled 19,967 oz. compared with 14,342 oz. in the first quarter of fiscal 1991. The average gold price realized during the quarter was US$370 per oz., down from an average of US$383 per oz. last year.

Atlas produces about 80,000 oz. per year from its Gold Bar/Gold Ridge operations in Nevada, and expects to add 100,000 oz. of production per year when its Grassy Mountain deposit in Oregon is brought into production in 1993.