Wharf amalgamation is `essential’ for Dickenson

President of Toronto-based Dickenson Mines (TSE), John Kachmar says the planned amalgamation with Wharf Resources (TSE) is an essential cornerstone of his company’s future.

The Wharf merger and an acquisition earlier this year of Cambior’s minority interest in the Red Lake mine all form part of Kachmar’s strategy to boost Dickenson’s gold production beyond the 100,000 oz per year level.

“The next step for Dickenson is to achieve gold production in the 160,000 oz per year range and move up to the second tier,” Kachmar said in a recent interview with The Northern Miner. He elaborated on two major acquisitions made by Dickenson earlier this year and predicted a bright future for his company.

In June, Dickenson purchased Cambior’s minority interest in the A. W. White Mine at Red Lake, Ont., for $52 million. “This could be considered as the equivalent of buying a one-million-ton orebody grading 0.30 oz gold per ton,” Kachmar said.

Considering that it can take up to five years to bring a gold deposit into production, the acquisition of additional interest in an operating mine was attractive since it offered immediate production potential.

Significant tax advantages for Dickenson were also realized with the purchase of Cambior’s minority interest in the Red Lake mine, Kachmar said.

Dickenson’s Vice-president of exploration, R. E. Van Tassell was excited about the future at the White Mine, and described several new developments he hopes will contribute to achieving the company’s objectives.

“There will be a lot more attention paid to grade control at the mine,” he said, “including more muck sampling, test hole drilling, and waste control within the stopes.”

Dickenson undertook a major geological evaluation of the mine’s ore potential and produced a priority rating of ore zones based on factors such as ease of access, grade and type of mineralization each zone would yield.

“There is no shortage of targets to go after in the mine,” Van Tassell said. “We have analyzed areas within the mine that have any type of hit at all and see tremendous potential.

“Several new complex north- south trending zones have been identified in the lower levels of the mine. These zones contain appreciable visible gold and grade about 0.35 oz gold. The complex zones contain a fair amount of sulphides and may be tougher to mine than the traditional east-west striking quartz- rich.”

Sophisticated computer software known as the Geolog system has been introduced at the White Mine. This technology will provide computer-assisted section and plan plots of ore zones, and aid in achieving better mine planning and grade control, he said.

On the human resources side, he said a new senior mine management team is in place, and the company’s training program for miners has been successful. It has helped alleviate the shortage of skilled miners by providing training to workers drawn from the local Red Lake labor force.

All of these factors should combine to result in better productivity and increased stope flexibility. The company began the year with 22 working stopes and has up to 30 now. “Flexibility in stope availability is coming at Dickens on,” Van Tassell said.

Comparing the White Mine and the Campbell Mine, which is located nearby, Van Tassell said the difference in grade at the two mines is largely a function of geology. He noted that Dickenson doesn’t enjoy an abundance of the quartz- carbonate-type ore which is so prolific and high grade at the Campbell Mine.

“Higher metamorphic grade could account for this difference,” he said.

On the topic of production costs, Kachmar said that since Dickenson’s grades are about half those at the Campbell mine it is not surprising that there is a difference in production costs for the two mines.

Gold production at Dickenson’s 100%-owned Red Lake mine was 18,000 oz during the third quarter of this year. Projected fourth quarter production is 20,000 oz at a cash cost of $305(US) per oz. Next year’s forecast annual production for the White Mine is 80,000 oz at a cost of $305(US).

Regarding the 20,000 acres of ground in Red Lake held by Goldquest Exploration (TSE), Van Tassell said the company is seeking joint venture partners to do drilling. He said a total of 11 companies have looked at the data for the various claim groups owned by Goldquest.

Dickenson’s second major acquisition this year, and a cornerstone of the company’s future growth, was the purchase of a 33%-interest in Wharf Resources (TSE), which operates a heap leach gold mine in South Dakota.

Kachmar said the coming together of these two junior companies to become a second-tier producer will give shareholders of both companies access to increased gold production from two premier mines. He denied that shareholders of Wharf were being treated unfairly in the amalgamation, and stressed that an independent committee set-up to study the merger contained three non-Dickenson members from Wharf.

The independent committee looked at several factors in its evaluation including ounces in the ground for each company, and potential earnings.

The complex document weighing about five pounds, which outlines the details of the amalgamation, was submitted to the U.S. Securities and Exchange Commission in mid-September.

A shareholder vote is still a couple of months away, and Kachmar said speculation that the proposed amalgamation could be blocked by a white knight is not relevant since Dickenson already owns 34% of Wharf. The amalgamation, which is to be passed by special resolution, will require that two-thirds of issued shares be voted in favor.

When the amalgamation of Wharf and Dickenson was announced last July, Dickenson shares were trading at $6.75, while Wharf shares were one dollar lower at $5.75. Recently, however, the situation has been reversed with shares of Wharf trading almost 75% higher than those of Dickenson.

Wharf owns a heap leach gold mining operation in South Dakota where total proven and probable gold reserves are estimated to be 23.9 million tons grading 0.041 oz gold. Since the leach process is used, gold production is limited during November through March. Wharf expects yearly production to top 70,000 oz beginning in 1989.

Recent third quarter results show Wharf had earnings of $2.2 million (US) or 12 per share, compared to $1.9 million, or 10 per share for the year earlier period. Income for the first nine months of 1988 totalled $6.4 million, or 34 per share, versus, $4.6 million or 28 per share in 1987.

High gold production rates were maintained at the South Dakota mining operations during the quarter ended Sept 30. A total of 16,360 oz were produced compared with 12,650 oz during the same quarter last year. Year to date gold production stands at 46,470 oz compared to 32,180 oz in the first nine months of 1987.


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