Writedowns take toll on Northern Orion

Northern Orion Explorations (NNO-T), further in the red following a series of writedowns attributed to its Mantua gold operation in Cuba, has arranged a refinancing with parent Miramar Mining (MAE-T).

Under the agreement, Miramar trades a debt of $18.5 million for a 2.5% net smelter return on production from Mantua, and a cash-flow royalty equivalent to a 2.5% NSR in furture production from any of Northern Orion’s other properties.

A further $4.5 million of Northern Orion’s debt to Miramar will be converted to 15 million shares, bringing Miramar’s holding to 66% of Northern Orion.

Northern Orion also issues a note for $2 million to Miramar, and Miramar advances $2.6 million in cash to Northern Orion.

The financing comes at a critical time for Orion, which is burdened with losses from its Mantua gold mine in Cuba. During the first nine months of the year, the company incurred a loss of $13.1 million (or 18 per share) on revenue of $2.9 million, compared with a loss of $4.8 million (6 per share) on revenue of $2.6 million in the corresponding period of 1998.

Included in the loss for the recent period are writedowns valued at US$7.7 million.

Third-quarter results were just as bleak, amounting to a loss of $7.6 million (10 per share), compared with a loss of $2.1 million (3 per share) a year ago. The loss is attributed to lower-than-expected production at Mantua, as well as writedowns on mineral properties, equipment and marketable securities.

The Mantua project is a 50-50 joint venture with Geominera, a Cuban state-owned company. During the first nine months of the year, the mine produced 14,764 oz. gold, of which Northern Orion’s share was 7,382 oz. Cash operating costs prior to writedowns and inventory adjustments were about US$244 per oz.

At the end of the third quarter, the company had realized a gold selling price of US$297 per oz. versus an average spot price of US$273 per oz. Gold mining operations were halted in September when it was determined that leaching was no longer uneconomic.

The company’s new strategy is to develop Mantua as a copper deposit. Toward that end, it has completed a prefeasibilty study that indicates a minable resource of 7.5 million tonnes containing 450 million lbs. of recoverable copper.

Meanwhile, work at the Agua Rica copper-gold porphyry project in Argentina’s Catamarca province is continuing. Over the first nine months of 1999, the joint-venture project bulk sampling, as well as pilot-scale metallurgical tests.

Auga Rica is owned equally by Northern Orion, with 30%, and BHP Copper, a unit of Broken Hill Proprietary (BHP-N), with 70%. The minable resource is estimated at 681 million tonnes grading 0.59% copper and 0.03% molybdenum, plus 0.25 gram gold and 3.61 grams silver per tonne — equivalent to a contained resource of 8.9 billion lbs. copper, 496 million lbs. molybdenum, 5.5 million oz. gold and 79.1 million oz. silver. The overall stripping ratio is 1.8-to-1.