U.S. REPORT (August 26, 1991)

Halifax-based NovaGold Resources (TSE) will begin exploration on 55 claims contiguous to its Sawtooth property in Nevada, following an agreement with the WX syndicate, a group consisting of Westfield Minerals (TSE), Dublin-based Ennex International, and Whim Creek Consolidated.

The property, which lies seven miles northeast of LAC Minerals’ Rosebud project, has traditionally been explored for low-grade disseminated gold deposits.

Using a different strategy, NovaGold will search for high-grade quartz breccia veins similar to those found on the Sawtooth property. Recent drilling on Sawtooth has established that the veins have a potential strike lengths of more than 2,000 ft. and true widths of up to 40 ft. Results from one hole drilled on the WX ground include a 12-ft. intersection grading 0.18 oz. gold per ton.

NovaGold can earn a 51% interest in the WX ground by spending US$200,000 over the next three years and making a final cash payment of US$20,000. The junior also has the option to purchase a 100% interest in the claims for US$1 million.

Six-month results for gold producer Piedmont Mining (NYSE) slipped into the red. The company reported a loss of US$660,000 for the six months ended June 30, compared with earnings of US$642,000 in the first six months of last year. Revenue for the period dropped to US$2.8 million from US$4.3 million in 1990.

Piedmont reported a loss of US$266,000 for the second quarter on revenues of US$1.4 million, compared to earnings of US$235,000 on revenues of US$2 million for the second quarter of 1990.

The average realized price of gold dropped to US$365 per oz. in the second quarter of 1991 from US$370 in the first quarter. This compares with an average price of US$363 per oz. in the second quarter of 1990. During the first half of the year Piedmont also received option payments from Amax Gold totalling US$1.27 million which were not including as income. Working capital as at June 30, was US$1.6 million, up from US$790,000 at the same time last year, while notes payable dropped to US$1.7 million from US$2.4 million.

Mining and stacking at the company’s Haile mine in South Carolina ceased in the first week of August with leaching and gold recovery expected to continue into 1992.

Six drill rigs are currently working on the property under an agreement which gives Amax Gold the right to earn a 62.5% interest by paying Piedmont US$1.75 million, issuing one million shares, and funding exploration costs. The companies anticipate a jump in reserves as a result of the drilling program but have not released any figures.

It has been some time since exploration drilling was carried out at the Castle Mountain gold project in San Bernardino Cty., Calif.

Viceroy Resources (TSE), 75% owner of the project, directed most of its resources to permitting and engineering the mine project since announcing a positive feasibility in 1987.

With all permitting finally in hand, and mine construction on schedule for an early 1992 startup, Viceroy and 25% partner MK Gold initiated a US$1.25-million drilling program designed to expand and upgrade current reserves.

Recent drilling returned a number of good intersections including 110 ft. grading 0.23 oz. gold per ton in the Hart Tunnel area located adjacent and to the south of the Oro Belle deposit.

Preliminary estimates of reserves on the Hart Tunnel deposit prior to the recent drilling put reserves at about 3.4 million tons grading 0.055 oz. gold. Although Ross Fitzpatrick, president of Viceroy, appears very encouraged by the recent drilling results, he said it is too early to determine if reserves will be increased at Hart Tunnel. He did note, however, that 22 holes drilled in the Oro Belle deposit indicate reserve tonnage there will be increased. Proven and probable reserves in the Oro Belle deposit were last estimated at about seven million tons grading 0.044 oz. gold.

Fitzpatrick added that the proximity of the Hart Tunnel deposit to the Oro Belle deposit indicates the two could be mined at the same time. Total proven and probable reserves at the Castle Mountain project were last reported at 24.6 million tons grading 0.052 oz. gold (uncut), or 0.047 oz. gold (cut). The figure is based on a cutoff grade of 0.015 oz. gold and has an overall strip ratio of 2.17-to-1.

Fitzpatrick said the company will study the possibility of lowering the cutoff grade once the operation is brought on stream. He noted that a drop in the cutoff grade would have a dramatic effect on reserve tonnage. Current mine plans call for an operating rate of 8,000 tons per day for a total yearly production of about 100,000 oz. gold over the mine’s 9-year life. Cash operating costs are estimated at US$180-212 per oz. depending on which average grade is used (cut or uncut).

Capital cost of the project is expected to total US$50 million. Viceroy arranged funding earlier this year partially through the sale of a 25% interest in the project to MK Gold for US$17.5 million, US$15 million of which was ear-marked for capital expenditures.

The balance was provided by a US$35-million gold loan. The loan is for 95,000 oz. gold and carries an interest rate of 0.985% plus 2% until the project attains certain economic criteria and drops to 0.985% plus 1.5% thereafter. Drilling on the Castle Mountain project is continuing with 40 out of a planned 100 holes complete.

On completion of this program a second drilling program budgeted at US$1.8 million has been approved to test a number of exploration targets. Results from the eight holes completed to date to upgrade Hart Tunnel reserves are as follows:

Hole Interval Length Gold

(ft.) (ft.) (oz./ton)

556 360-460 100 0.032

558 645-690 45 0.068

559 10-95 85 0.024

300-320 20 0.16

405-450 45 0.036

561 190-535 345 0.037

562 0-100 100 0.024

335-555 220 0.043

563 125-240 115 0.034

310-445 135 0.027

571 440-570 130 0.025

572 345-455 110 0.23

Despite weak financial markets and depressed gold prices, Minerex Resources (TSE) is managing to strengthen its financial position and increase the value of its main asset, the Aurora Partnership gold mine in Nevada.

John Devitt, president, told shareholders attending the company’s seventh annual meeting that gold production at the open pit mine was 14% better than plan during the past fiscal year, totalling 33,401 oz. He attributed the production increase to higher than anticipated grades and improved operating efficiencies.

Minerex operates and owns 50% of the heap leach mine which began production in June, 1988. Electra Northwest Resources (VSE) holds the remaining interest. The operation is forecast to produce 33,800 oz. in the next fiscal year. Planned cash operating costs are US$275 per oz., but first-quarter costs of US$267 per oz. to May 31 were below plan, and this trend is expected to continue.

During its recent first quarter, Minerex generated over $500,000 in cash from the mine operation, and reported net earnings of $91,083 or one cent per share.

Having repaid its outstanding debt balance of $1.49 million during the past fiscal year, the debt-free company now expects to use cash flows from the mine to seek expansion and acquisition opportunities.

But the immediate focus of the company will be to strengthen its current asset base by consolidating the land position and increasing reserves at the Aurora Partnership mine.

At the start of 1991, the land position covered only the current pit and the upper 400 ft. of land to the west of the mine known as the Humboldt West group. Rights to the lower elevations of Humboldt West have since been acquired, and a successful drill program was completed in June. Devitt told shareholders that this work identified a preliminary geological inventory of about 900,000 tons grading 0.10 oz. gold per ton. This would be over and above open pit minable reserves on the original mine property of more than 600,000 tons grading 0.13 oz. gold, as reported at the end of 1990. “Mining plans are currently being formulated to ascertain the economic feasibility of the extension of the pit to west,” Devitt added. Land to the east of the mine was more recently acquired, and a drilling program is planned for later this year to test the eastern extension of the Humboldt vein where drill intersections indicate the continuance of the structure to the east.

“The end result of all this activity could extend the Aurora Partnership mine life by three to four years,” Devitt said.

Over the longer term, Minerex intends to seek open pit, heap leach gold deposits in the Great Basin of the western U.S., although it is not excluding mineral opportunities elsewhere.

Devitt said the target size is 20,000-50,000 oz. per year of gold production. But he also added that the projects must have minimal risk, clearly identified reserves, be readily “permittable” and have potential to be placed into production quickly at a low capital cost.

“We feel there are excellent opportunities at this time to acquire small to intermediate gold reserves,” Devitt added. “Larger companies have tended to overlook them, and smaller companies have lacked adequate funding to develop them.”

In the meantime, Minerex plans to drill test its recently acquired Tuttle project, 12 miles from its mine. The early stage exploration project is described as having “all the earmarks of a large epithermal gold system.” Minerex is owned 50.4% by Canada Tungsten Mining, which in turn is owned 57% by Amax Inc.

Financial results for Hycroft Resources & Development (TSE) settled deeper into the red for the period ended June 30.

Net loss for the second quarter was $1.7 million compared with a loss of $1.5 million in the year-earlier period. The loss for the first six months of the year totalled $2.6 million, up from a loss of $1.4 million in the first half of 1990.

Despite reporting a loss, cash flow from operating activities before changes in working capital did show an improvement. The company reported cash flow of $4.4 million in the first half compared with $4.1 million in the same period in 1990.

Hycroft achieved record gold production of 48,387 oz. for the 6-month period at a cash production cost of US$288 per oz.

Denver-based Canyon Resources (NASDAQ) reported net earnings of US$206,100 for the quarter ended June 30, its first quarter of operating profitability in five years as a public company.

During the comparable period in 1990, Canyon reported a loss of US$1.3 million. This year’s improved performance is largely attributed to gold production from the Kendall mine in Montana which achieved a quarterly record of 18,868 oz., an increase of 134% over the 8,078 oz. produced in the 1990 second quarter.

Revenues and production from the Kendall mine are anticipated to continue at record levels for the second half of this year. The mine is now expected to produce more than 53,00 oz., compared with earlier projections of 43,000 oz. Profits for the balance of the year are also expected to be higher, which has the company projecting that 1991 will be its first year of operating profitability.

Because of the seasonal nature of gold production at Kendall, Canyon reported a net loss of US$987,900 during the 1991 first half, compared with a net loss of US$2.4 million during the same period in 1990.

A net loss of US$798,000 was reported by Coeur d’Alene Mines (NYSE) for its 1991 second quarter ended June 30, compared with net earnings of US$707,000 in the 1990 second quarter.

The Idaho-based company said the results reflect lower metal prices for both gold and silver, and higher costs at mine operations.

The company’s 1991 first-half results show a net loss of US$1.27 million, or 11 cents per share, on revenues of US$27.54 million. This compares with net earnings of US$3.14 million, or 32 cents per share, on revenues of US$27.47 million for the first six months of 1990.

Gold production for the first six months of this year amounted to 27,515 oz., compared with 27,593 oz. produced in the 1990 first half. Silver production reached 2.68 million oz. for the 1991 first half, compared with 2.48 million oz. silver produced during the same period in 1990.