U.S. REPORT (September 23, 1991)

Miners at a Mississippi Chemical Corp. potash operation at Carlsbad, New Mexico, and at the Fletcher mine and mill operation of lead producer Doe Run of Missouri were recently named winners of 1990 Sentinels of Safety awards.

The Mississippi Chemical employees won in the “underground non-metal” division by working 281,373 employee-hours without a single lost-time injury during the calendar year. The Doe Run workers won in the “underground metal” division for completing 110,704 hours without an injury that caused any employee to lose a day’s work.

The safety awards competition, which dates back to 1925, is co-sponsored by the U.S. Department of Labor Mine Safety and Health Administration and the American Mining Congress. Awards for 1990 Sentinels of Safety winners were also announced in four other divisions: surface coal, underground coal, open pit and quarry.

The search for a buyer for the Fort Knox gold property near Fairbanks, Alaska, appears to be over, following a takeover offer by Amax Gold (NYSE) for all the outstanding shares of Fairbanks Gold (TSE).

Fairbanks, 51% owner of the property, has been soliciting offers since November, 1990, when it appointed Yorkton Securities as its fiscal agent. Amax is offering one common share of Amax Gold for every two shares of Fairbanks Gold plus one Amax Gold warrant for every four shares of Fairbanks. The warrants will have a term of four years and will entitle the holder to purchase one share of Amax Gold for US$21.

At Amax’s current price of about $12.50 per share, the offer is worth $6.50 per Fairbanks share plus a quarter of the value of the warrant. Eric Friedland, chairman and chief executive officer of Fairbanks, estimated the warrant would trade at the $2 level given the current price of Amax Gold, making the deal worth a total of about $7 per Fairbanks share. Although less than the trading level of Fairbanks at about $7.50 per share prior to the offer, Friedland is pleased with the deal noting that the price of Amax Gold has been under pressure from falling bullion prices. Since negotiations started, he said Amax’s stock price has fallen from the US$14 level.

The market reacted poorly to the news, promptly slashing over $2 from Fairbanks’ stock price to leave it at the $5 level. Prior to the announcement of the offer, street rumors had the price pegged at the $9 level, likely contributing to investor disappointment.

The Amax offer is contingent on Fairbanks shareholders tendering a minimum of 90% as well as the approval of the shareholders of Amax Gold and the U.S. and Canadian regulatory authorities.

Ivanhoe Capital and its sole shareholder, Robert Friedland, have signed a lockup agreement with Amax Gold committing their 35% interest to the offer. Eric Friedland owns about 5% of Fairbanks’ outstanding shares and said he currently supports the takeover offer. He added that approval from U.S. authorities for the takeover should be received by November and the deal could be completed by the end of November.

Gilmore Gold, which owns the remaining 49% interest in the property, has agreed to merge with a wholly owned subsidiary of Amax Gold. Gilmore, owned by Ventures Trident II limited partnership and the Fort Knox limited partnership, will receive 6.3 million shares of Amax Gold plus 630,000 warrants on the same terms as Fairbanks Gold shareholders. Fairbanks has conducted extensive work on the property outlining a minable reserve of 220 million tons grading 0.024 oz. gold per ton at a strip ratio of 0.82-to-1.

Timothy Haddon, president and chief executive officer of Amax Gold, stated that the acquisition represents an integral part of the company’s long-term growth strategy. He added that initial studies indicate the property is capable of sustaining production of 300,000-350,000 oz. gold per year, the equivalent of Amax’s current yearly production.

The latest hole drilled by Kennecott on the Lockwood property near Everett, Wa., intersected 59 ft. of polymetallic massive sulphides.

More importantly, the recent drill program confirms a widening at depth of the Hole 8 zone discovered on the property last year by Island-Arc Resources (VSE).

The road-accessible Lockwood property is owned 65% by Island-Arc and 35% by Formosa Resources (VSE). In June of this year the two juniors granted Kennecott the right to earn a 51% interest, subject to the terms and conditions of a mining venture agreement.

Current drilling is testing the Hole 8 zone discovery which is considered to be spatially distinct from the Main zone 300 ft. to the east. The new zone was detected with geophysics under glacial till and was not located in outcrop.

The zone was named after hole 8 in last year’s program which intersected a thin layer of massive sulphide mineralization. The next hole, 90-9, returned a 16-ft. true-width intersection at a depth of 65 ft. which assayed 3.37% copper, 3.3% zinc and 0.073 oz. gold and 2.65 oz. silver per ton. Hole 91-13, drilled by Kennecott to further test the Hole 8 zone in this year’s program, intersected an impressive 58.6 ft. grading 2.15% copper, 3.44% zinc, 0.047 oz. gold and 1.39 oz. silver from 201-259.6 ft. The true width is estimated at about 32 ft.

This intersection includes 37.1 ft. of 2.61% copper, 5.14% zinc, 0.063 oz. gold and 1.90 oz. silver from 201-238.1 ft., and a higher grade 6-ft. interval of 2.64% copper, 17.76% zinc, 0.049 oz. gold and 1.4 oz. silver. Hole 13 was vertical and drilled from the same setup as hole 91-11 which intersected 25.25 ft. grading 2.93% copper, 1.88% zinc, 0.045 oz. gold and 1.07 oz. silver from 162.1-187.35 ft. The true width of this intersection is estimated at about 20 ft.

The 25.25-ft. intersection from hole 11 also includes several higher grade intervals, such as 14.19 ft. grading 3.88% copper, 2.19% zinc, 0.046 oz. gold and 1.21 oz. silver.

Both the Hole 8 and Main zones are reported to dip at about 45 degrees to the southwest.

Assays are awaited for hole 91-10 (from the same drill setup as holes 11 and 13) which intersected a 1-ft. band of polymetallic mineralization at 185 ft., or 90 ft. vertically sub-surface.

Island-Arc said this hole, when combined with a hole drilled in 1990 that intersected a 0.35-ft. layer of polymetallic mineralization at 38 ft., indicates that the Hole 8 zone is narrow at moderate depths. But the company is clearly encouraged by recent drilling, particularly holes 11 and 13, which indicates the zone is widening substantially at greater depth. “That’s the nature of these type of deposits,” said Law-rence Barr, president of Island-Arc Resources. “They can suddenly blossom out from a narrow layer of mineralization to better thicknesses. The Hole 8 zone is also steepening a bit with depth, which will make for easier mining down the road.” Barr said Kennecott appears to be happy with results to date, and more drilling and geophysics are planned for the property.

The Commodity Exchange of New York (Comex) recently began trading new 5-day options on a gold contract. The contract, which expires in five business days, is the shortest-term option listed on any U.S. exchange.

The new options will be cash-settled at expiration and will be non-exercisable by the purchaser, allowing investors to exit profitable positions automatically, without concerns over futures exercise or the cost of liquidating an options position, the exchange said.

Comex, the largest precious metals market in the world, has been trading longer-dated, conventional gold options since 1982.

Interest in the Fairbanks gold district is expected to pick up steam once a major company acquires and begins work to develop a mine at the Fort Knox gold project near Fairbanks, Alaska. The project’s owners are currently involved in negotiations with Amax Gold (NYSE) relating to the possible sale of the advanced project.

At least one Vancouver-based junior, Freegold Recovery (VSE), appears to be ahead of the game with the recent acquisition of the Golden Summit property located about 20 miles from Fairbanks and adjacent to Fort Knox. Freegold can earn a 51% interest by spending US$1.79 million on exploration over seven years, and an additional 9% interest by securing production financing or by issuing one million of its shares to a private Alaskan company.

Harry Barr, president, views the acquisition as an important one for the company as the property has preliminary reserves and is considered prospective for both high-grade, moderate tonnage, underground gold deposits as well as lower-grade, large tonnage, surface minable targets. Barr said the Fairbanks district has produced more than 8 million oz. gold (placer) since 1902, including some 5 million oz. from streams draining the Golden Summit project. In addition, he said the district has produced more than 375,000 oz. gold (lode), of which at least 300,000 oz. was produced from high-grade zones on the Golden Summit project.

The claim block is large, covering about 49 square miles, and is accessible by a paved highway. Because of its size, the project has been broken into three geographical regions.

Freegold is currently focusing its efforts on the central portion of the property where the highest priority targets have been outlined. Work by several previous operators on four main targets resulted in a preliminary reserve totalling 5.2 million tons grading 0.062 oz. per ton gold equivalent. This reserve is considered amenable to open-pit mining techniques. It should be noted that silver makes up a small proportion of the total grade and more work is planned to determine actual gold and silver grades for the zones making up this reserve. Also, more drilling and exploration will be required to upgrade these reserves to proven, minable status. The zones are open along strike and down dip. Freegold views the property as having potential for expansion of reserves because previous estimates were based on mineralization extending from surface to a depth of only 50 ft. The company is optimistic tonnage can be increased because additional mineralization is known based on previous drilling to a depth of at least 350 ft. (including several holes that bottomed in “potentially economic” mineralization).

The four main target areas are reported to be hosted by metavolcanic and metasedimentary rocks of the Cleary sequence which have been cut by multi-phase shear zones.

Based on previous work on the Golden Summit property, Freegold plans to explore an area where surface trenches and drill intercepts indicated the presence of an intrusive mass which may host gold mineralization similar to Fort Knox.

The property is also considered to have potential for a large massive sulphide system. Work by a previous operator led to the discovery of a massive sulphide target which returned grades of 0.05 oz. gold, 12-15 oz. silver and 10-20% combined lead-zinc over a true thickness of 10 ft. Freegold is currently compiling data on a number of higher-grade precious metal targets on the property, and expects to announce results from this work in the near future. The property is currently estimated to have subsurface preliminary reserves of at least 205,839 tons grading 0.66 oz. gold. The company’s 1992 exploration program for the Golden Summit property will involve trenching and reverse circulation drilling (about 40,000 ft.) in two phases.