Battle Mountain buys offshore gold reserves

Douglas Bourne, chairman, said the company has reached an agreement to acquire a significant ownership of Niugini Mining which holds as its key asset 20% of the giant Lihir gold discovery in Papua New Guinea. The Texas-based company also intends to exercise an option to acquire an interest in a Bolivian gold mining company.

Last year Battle Mountain produced 304,000 oz of gold, with 243,000 oz coming from its Battle Mountain complex in Nevada which includes the Fortitude mine and satellite Surprise deposit, and the remainder from the Pajingo mine in Australia. This year the company is predicting total production of 330,000 oz gold from both operations.

Although known as one of North America’s lowest cost gold producers, Battle Mountain is also considered to be short on reserves in comparison to companies of its size. With available reserves from current mining operations reported to be sufficient for only a further six to eight years, the company has committed itself to an ambitious international exploration and acquisition program currently budgeted at $36 million(US).

Bourne said Battle Mountain is particularly pleased to be associated with Niugini Mining which has a proven track record of discoveries, including Lihir, in the important South Pacific “ring-of-fire” region.

The Lihir gold project has a presently reported geological gold resource of 42.7 million oz, and mineable gold reserves of 18.7 million oz based on detailed development drilling.

According to Robert Quinn of Battle Mountain, Lihir has proven and probable reserves totalling 330 million tonnes at an average grade of 2.7 g (0.079 oz) using a 1 g (0.029 oz) per tonne cutoff, and 208 million tonnes in the possible category at an average grade of 2.1 g (0.061 oz).

Battle Mountain’s agreement with Niugini allows it to purchase 20 million shares for a total consideration of $82.2 million(US) payable over four years. At this point, the company would hold about 32% of Niugini’s outstanding shares. Taking into account shares previously acquired, Battle Mountain’s total investment in Niugini would then amount to $104.7 million.

Battle Mountain also has an option to purchase up to 10 million additional treasury shares at a price of $4.52(US) per share. While Battle Mountain said it may increase its equity position through market or private transactions, it has agreed to limit its equity position to no more than 75% for a period of five years.

The development timetable for the Lihir project was recently announced by Niugini and its 80% joint venture partner BP Minerals America, which is in turn being acquired by Rio Tinto Zinc. Subject to approvals, the partners are planning to process oxide ore at the rate of 10,000 tonnes per day for 12 months starting in the third quarter of 1991.

By the third quarter of 1992, the processing of sulphide ore at 11,250 tonnes per day by pressure oxidation is expected to begin to run for 30 months. Processing of sulphide ore is expected to increase to 13,250 tonnes per day in the first quarter of 1995.

Recoveries are anticipated to average about 92% for both ore types, while cash production costs are estimated to be in the $140 to $165(US) per oz range over the first 10 years.

The funds provided by Battle Mountain are expected to finance all Niugini’s Lihir development expense obligations and support its ongoing exploration program.

Battle Mountain estimates that its costs, based on Niugini’s equity in Lihir alone, would equate to about $75 per oz based on estimated mineable reserves, or $30 per oz based on the geological resource. Niugini also has other discoveries in Papua New Guinea, including a high grade, smaller gold discovery. The company also owns and operates a small gold mine.

Paul Esquivel, a Toronto research analyst with Yorkton Securities, said that while Battle Mountain’s share of gold production at Lihir appears modest at its initial level of interest, the numbers improve significantly should the company increase its equity position to 51%, or to a maximum 75% interest.

“I would bet that Battle Mountain would like to consolidate this down the road and have attributable ounces,” he said. Bolivia

Although Battle Mountain intends to immediately exercise its option to acquire a one-third interest in Inti Raymi, a Bolivian gold mining company, it is also working to acquire a new option to increase to 51% its total interest.

Inti Raymi is working to expand gold production to 60,000 oz per year from its open pit heap leach mine. Battle Mountain’s preliminary assessment of the existing operation is that there is significant potential for sulphide ore beneath the oxide cap being mined.

The company said early drilling has resulted in most of the ore holes bottoming in ore grading from 0.06 oz to 0.2 oz per ton. This early drilling was concentrated on the Kiro Kollo deposit where mining is under way, which is only one of three significant targets to be tested.

Frank Schweitzer, vice-president development, said it is premature at this stage to forecast what the ultimate production level will be from the Bolivian gold mining operation as considerable drilling is required to determine the extent of the sulphide mineralization.

Battle Mountain and Inti Raymi have also formed a separate exploration company to jointly explore the gold potential of key areas in South America.

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