U.S.REPORT (March 23, 1992)

Joint venture partners Texas Star Resources (VSE) and Harrison Western Mining recently signed a deal with a subsidiary of Cyprus Minerals (NYSE) to fund a bankable feasibility for the Keystone project in Pennington Cty., S.D.

Cyprus can earn a 50% interest in the project by funding exploration and development to complete the feasibility at an estimated cost of about US$6.4 million over a projected 32 months.

Cyprus’ initial program will follow Texas Star’s original exploration plan. Budgeted at about US$370,000, the program includes the rehabilitation of one of the Bullion mine’s existing portals and the cutting of three underground drill stations.

Cyprus plans to drill a total of 7,000 ft. in 14 holes to test three oreshoots; two in the old Keystone mine and one in the Bullion, all between the 500-ft. and 1,000-ft. levels.

The Keystone and Bullion group mines operated from the late 1800s to 1940 producing about 92,000 oz. gold from about 290,000 tons of ore. A 1940 U.S. Bureau of Mines report estimated reserves in the mine at the time of closure at about 1.4 million tons grading 0.31 oz. gold.

If the initial program is successful, a second-stage program budgeted at about US$2.2 million will test for a continuation of reserves below the 1,000-ft. level.

William Tonking, president of Texas Star, said this would include sinking a shaft to a depth of 500 ft. and completing sufficient development to drill-test the extension of oreshoots below the 1,000-ft. level. Tonking noted that the prospects of oreshoots continuing to depth is excellent considering the famous Homestake mine, about 35 miles to the northeast, is mining gold at depths in excess of 7,000 ft. He added that the geology of the Keystone district is similar to that of the Homestake mine. Tonking said he expects Cyprus to be drilling at the first station within six weeks.

Six months after a bankable feasibility study is presented to Texas Star and Harrison, the companies must reimburse Cyprus for 50% of all funds expended except the first US$1.025 million.

The agreement also allows Cyprus to increase its interest to 60% after the first 350,000 oz. gold is produced by making certain gold payments to the two companies.

Texas Star and Harrison formed their original joint venture late last year and signed lease agreements on the Bullion and Keystone. The companies can buy out the Bullion lease by paying the vendor a total of US$500,000 over a 2-year period.

The lease on the Keystone calls for advance royalty payments on a 5% net smelter return. The advances are set at US$3,500 per month increasing to US$10,000 per month in April.

Texas Star has about six million shares outstanding plus an additional 1.6 million warrants exercisable at 31 cents to April 25.