U.S. REPORT Homestake to operate Tonkin Springs

Tonkin Springs, the first commercial scale mill built in North America to incorporate bio-oxidation pretreatment of refractory gold ores, could soon be operated by a new majority owner, Homestake Mining (NYSE). The Nevada gold project was developed by U.S. Gold (NASDAQ) which poured the first gold produced from its bio- technology earlier this year. The newly constructed mill has a capacity of 1,500 tons per day, and was targeted to produce about 50,000 oz. gold each year.

But a variety of technical problems, cost overruns and startup delays financially weakened the company which was not able to demonstrate the operation’s commercial and economic viability. The mine is now on standby status pending the transfer of operator responsibilities to Homestake.

The two companies have an agreement in principle to enter into a joint venture to develop further the bio-technology on a joint basis. The agreement calls for Homestake (as majority owner and operator) to be responsible for funding operations to the point of commercial production.

“All future development in bio- technology made by either party will be co-owned by the other,” said William Reid, president of U.S. Gold. “(This) aspect of the transaction provides a valuable asset as we continue taking advantage of our lead in this important technology for the 1990s.”

The bio-oxidation process uses a naturally occurring bacterium, thiobacillus ferroxidans, in the pretreatment step to break down the iron and sulphur compounds in refractory ores and release the gold for subsequent recovery by conventional cyanidation.

Homestake also agreed to fund an aggressive exploration program on the 37-square-mile Tonkin Springs property which is strategically located on the Battle Mountain-Cortex trend. A U.S. Gold spokesman said only about 10% of the property has been explored, and the potential for reserves at depth has not yet been tested.

Because the project has not yet demonstrated commercial viability, reserves at Tonkin Springs are classed as “minable mineralized material.” The sulphide mill portion of this is reported as 3.9 million tons grading 0.07 oz. gold and the heap leach oxide portion is reported as 5.1 million tons grading 0.035 oz. gold per ton.

The financial details of the agreement between U.S. Gold and Homestake were not revealed but will be disclosed upon finalization of the agreement which is still conditional on certain prerequisites and various approvals.