U.S. REPORT (November 04, 1991)

Earnings for the first nine months of 1991 remained unchanged from a year earlier for Pegasus Gold (TSE) which reports net income of US$6.3 million for both periods.

Earnings for the 1991 third quarter ended Sept. 30, fell to US$3.1 million from US$3.5 million last year. Revenue for the period was US$46.6 million compared with US$48.8 million in the year-earlier period.

Operating costs dropped to an average of US$225 per oz. in the recent quarter, down from US$245 per oz. in the third quarter of 1990. Average cost for the 9-month period remained level with last year at US$231 per oz. Pegasus notes that a drop in mining costs combined with a lower overall strip ratio and slightly higher ore grade offset a US$19 per oz. drop in byproduct credits. The drop was primarily the result of lower zinc prices. The average price received for gold production during the nine months ended Sept. 30 was US$396, off slightly from last year’s average of US$403 per oz.

When Crown Butte Resources (TSE) took on the New World project four miles from this small town in 1987, exploration work was focused on the McLaren and Como deposits. They were then estimated to have probable reserves of 869,600 tons grading 0.15 oz. gold and 0.7 oz. silver per ton, plus 1.12% copper.

During a recent site visit, Crown Butte President David Rovig said his goal was “to explore and try and make a mine” from these deposits, both former producers located in a historic mining district originally organized in the 1880s.

Midway through the 1987 drilling season, Noranda Exploration became involved by providing technical and financial assistance. By the end of the season, after completing 9,365 ft. of drilling in 44 holes, preliminary reserves were more than doubled to 1.12 million tons grading 0.15 oz. gold, 0.56 oz. silver and 0.88% copper.

At the end of 1988, after a further 25,595 ft. of drilling in 106 holes, reserves were again doubled to 2.3 million tons of similar grade. But along with the delineation drilling of the two known deposits, an exploration program was carried out that resulted in a new discovery called Miller Creek, as well as several other exploration targets.

Some 85,242 ft. of drilling in 315 holes was carried out in 1989. Once again the total tonnage was doubled — to 4.6 million tons with an increase in grade to 0.17 oz. gold, 0.72 oz. silver and 0.81% copper — largely because the drilling confirmed the Miller Creek discovery as significant. At the end of 1990 — after yet another significant discovery called Homestake — preliminary reserves were again doubled to 8.3 million tons averaging 0.18 oz. gold, 0.75 oz. silver and 0.69% copper. Drilling that year totalled 97,385 ft. in 226 holes.

Although drilling is still in progress, Crown Butte announced in late October that preliminary reserves now total about 10.4 million tons “containing over 2.2 million oz. gold.” (Reserves were calculated at a composite cutoff grade of 0.10 oz. gold.)

The boost came largely from the Homestake deposit where tonnage increased by 1.8 million tons and contained ounces increased “by over 600,000 oz.” The main Miller Creek deposit is considered to be delineated and defined, but an outlying pod of mineralization increased Miller Creek reserves by 166,000 tons of 0.17 oz. gold, “or 28,000 oz.” Preliminary reserves in these two key deposits are now estimated to total 7.18 million tons grading 0.26 oz. gold. Although New World was originally envisioned as an open pit project based on the Como and McLaren deposits, Rovig estimates that over

85% of current gold reserves are contained in the Miller Creek, Homestake and Fisher Mountain deposits which will require underground mining techniques.

A 50% jump in gold production this year to just over 60,000 oz. following a 30% jump in production in each of the two previous years has Glamis Gold (TSE) solidly on a growth curve.

The company expects the production upswing to continue with a 100,000-oz. production target set for 1994.

For the fiscal year ended June 30, Glamis produced 60,210 oz. gold compared with 40,467 oz. in 1990.

Most of the production increase came out of the company’s Yellow Aster mine in Kern Cty., Calif., about 125 miles north of Los Angeles. Yellow Aster produced 37,286 oz. compared with 18,339 oz. in 1990. Cash production cost at the Yellow Aster operation was US$175 per oz. during the year based on an average ore grade of 0.026 oz. gold per ton. At year-end, proven and probable reserves at Yellow Aster were estimated at 13.6 million tons grading 0.023 oz. gold. An additional 6.5 million tons grading 0.023 oz. gold are included in the company’s estimate of possible reserves.

Glamis expects production at Yellow Aster to increase to 40,000 oz. for 1992. Further production increases are tied to the nearby Baltic pit which the company hopes to bring into production in 1993. The Baltic operation is estimated to contain proven and probable reserves totalling 13.6 million tons grading 0.023 oz. gold with an additional possible category of two million tons grading 0.023 oz. gold.

Glamis expects to receive permits for the Baltic operation by April, 1992, with production startup scheduled for July. Gold production for fiscal 1993 is expected to reach 25,000 oz., increasing to a rate of 36,000 oz. per year by 1994.

Capital cost for phase-one pad construction plus associated recovery facilities is estimated at US$4 million. The purchase of mining equipment would add an additional US$3 million to the capital cost although the company may opt to lease equipment instead.

The company’s Picacho mine, in Imperial Cty., Calif., produced 17,362 oz. gold for the year ended June 30 compared with 22,128 oz. in 1990. Cash cost per oz. was US$157, up from US$116 in 1990. Proven and probable reserves at year-end totalled 7.4 million tons grading 0.034 oz. gold minable at a strip ratio of 1.9-to-1. This represents an increase of over 2.2 million tons compared with reserves at the end of 1990.

Glamis’ future production profile does not include potential production from its Imperial Valley joint venture west of the Picacho mine. The project, 35% owned by Arizona Star Resources (VSE), is estimated to contain a minable reserve of 5.1 million tons grading 0.023 oz. gold with a strip ratio of about 2.7-to-1. A second zone contains an estimated preliminary reserve of 7.5 million tons grading 0.028 oz. with a strip ratio of about 4-to-1. Arizona Star, the operator during the exploration phase, is proceeding with further drilling to delineate and expand existing reserves.

Glamis reported net earnings of $4.7 million for the year on revenues of $29 million.

Cash flow after changes in working capital was $10.6 million for the year ended June 30 compared with $10.1 million for the year-earlier period. Working capital at year-end was $2.1 million while long-term debt stood at $8.3 million.

The company’s liquidity has increased markedly since year-end following the issuance of US$12 million in 8% convertible debentures as well as a US$14.4-million banking agreement with Mase Westpac. Glamis paid off the $8.3 million in long-term debt with a portion of the new banking facility. Glamis is one of the few junior mining companies to pay a dividend, paying out six cents in 1991, up from four cents in fiscal 1990.

Recent drilling by Noranda Exploration (TSE) on the Enterprise property in northern Wisconsin has returned multiple sulphide zones containing up to 3% chalcopyrite (copper sulphide) and 1% sphalerite (zinc sulphide).

WisCan Resources (TSE) is earning a 50% interest in the Enterprise property from Noranda by spending US$2.5 million by December, 1995. The first five holes, or 2,457 ft., were paid for by a recent public financing. Noranda tested five separate conductors that lie in a similar geologic environment to the nearby Pelican River deposit, which hosts reserves of 2.3 million tons grading 4.5% zinc and 1% copper. WisCan says the bedded sulphide zones, which occur as cherty sediments in rhyolitic tuffs and breccias, are up to 15 ft. thick. Assays are expected shortly and diamond drilling will resume after freeze-up.

Units of WisCan sold through The Toronto Stock Exchange have been split into common shares and warrants. The warrants are exercisable until Aug. 25, 1992.