Arauco to take over Back River

Homestake Canada, the Canadian unit of Homestake Mining (HM-N), and its joint-venture partners, Kerr McGee and the Maclab group, have granted Arauco Resources (ARU-V) an exclusive 45-day option to buy their 100% interest in the Back River project in the Northwest Territories.

Back River comprises six claim groups in an area situated 150 km east of the Lupin gold mine of Echo Bay Mines (ECO-T).

A substantial amount of work has been completed on the properties in the past, including almost 120,000 metres of diamond drilling. Work to date has revealed a geological resource of 5 million tonnes grading 0.397 oz. gold per tonne, mostly at the Goose Lake and George Lake properties. The latter property has more than 100 surface gold showings over an 18-km length, which grade in excess of 10 grams gold per tonne. “There aren’t too many resources in the world of that size and grade that are not economic,” says Arauco Chairman Kerry Knoll. “Our goal is to just drive on and put the thing into production.”

Knoll, a past president of the company, was appointed chairman earlier this month. Other recent appointments include President Robert Gilroy, who had been the Lupin mine manager from 1983 to 1987, and director John Zigarlick, president of Echo Bay Mines from 1977 to 1992.

“We’re buying one of the biggest gold resources that’s going to be available in Canada for some time,” he adds, noting that there is excellent potential to increase reserves on the properties. The majority of their combined 56,000 hectares have yet to be explored.

The geology of the properties is similar to that of the Lupin mine, namely, native gold hosted in banded iron formations, with associated pyrite, arsenopyrite and smaller amounts of other sulphides. Preliminary metallurgical tests indicate a 92% gold recovery.

Knoll says the Back River project could be developed as a combined open-pit and underground operation. Ore could possibly be trucked to the Lupin mill for processing, or Arauco may build a mill of its own.

The terms of the proposed transaction are for Arauco to pay the Back River partners $20 million and 6 million common shares of Arauco valued at $2.50 per share, plus a variable overriding royalty. Arauco has entered into an agreement with Canaccord Capital for a brokered equity financing, on a part-and-parcel basis, to fund the acquisition. Arauco must complete a deal by Aug. 15 or lose the $100,000 it paid for the exclusive purchase rights.

Upon completion of the transaction, Arauco plans to start a drilling program and a prefeasibility study.

Arauco is 36.6%-owned by Santa Elina Gold (SAU-T) and 7%-owned by Wheaton River Minerals (WRM-T).