Viceroy mine construction could begin in September

Construction work could begin this September on Viceroy Resource Corp.’s Castle Mountain property in California, says D. Ross Fitzpatrick, president. In the meantime, he confirms the “permitting process is going well” and predicts the mine could be producing sometime in the first quarter of 1988.

Viceroy has filled a number of key executive positions and Mr Fitzpatrick says Hemlo Gold Mines President John Ivany has agreed to join the board. His company will also be represented on a production committee overseeing mine development and operations. Next to Mr Fitzpatrick, Hemlo Gold will be Viceroy’s largest shareholder with about 6.7% of the issued capital.

Hemlo Gold has already purchased 300,000 Viceroy shares at $16.78 per share and has agreed to advance Viceroy $10 million through a convertible debenture. Separately, Hemlo also acquired the right to earn a 50% interest in 33 sections for $5 million. The sections have not yet been explored by Viceroy.

The agreement covers a period of five years and $1 million must be spent in the first year. Because of its large land position, Viceroy decided to farm out part of the property to Hemlo Gold, a company Mr Fitzpatrick describes as a “very good organization.” Viceroy’s 100%-owned property covers an area of 10 sq mi whereas the agreement with Hemlo Gold involves about 30 sq mi of “prospective ground” which has never been explored in any detail.

Viceroy has allocated up to $10 million to explore its exclusive land holding where some 24 million tons of reserves grading 0.06 oz gold per ton have been found to date. Three drills are operating at present. One is testing the Mountain Top zone (a new target), a second is infill drilling the Jumbo South deposit, and a third (a diamond drill) is drilling metallurgical test holes on the Lesley Ann deposit. No pilot test

No pilot test program is planned because extensive column testing indicates no significant metallurgical problems, he states. So Viceroy is proceeding with full-scale production permitting. Although initial production is expected to be 2.8 million tons per year, the company is applying for a rate of four million tons which might include a conventional milling operation in conjunction with heap leaching. At the lower rate, gold output would total some 108,000 oz per year.

The higher grade portion of the orebody is located in the centre and it is also deeper. So this portion will not be mined until at least three years after production begins. Constructing a conventional milling operation will be capital intensive which he expects will be partially funded by cash flow from the initial operation.

Capital cost for the heap leach operation is estimated to be $11.2 million(US) which will include contract mining. At a grade of 0.06 oz gold per ton, operating costs would be about $175 per oz, says Mr Fitzpatrick.