Belmoral rejects Ketza, Canamax sues

In a brief statement, Canamax said legal proceedings have been initiated against Belmoral for alleged breach of contract. But spokesman John Pearson did not give any more details of the pending law suit.

The lawsuit was announced just two days after Belmoral decided not go ahead with its previously announced acquisition of the Ketza project for about $16 million. Canamax, the project operator, and partner Pacific Trans-Ocean Resources (TSE) each have a 50% interest in the project.

Despite a reserve miscalculation and other severe startup problems, Belmoral expected the mine to boost its 1989 gold output by 40,000 oz. But after a 3-month due diligence period in which Belmoral reduced the terms of its original offer by $7.5 million, Belmoral Chairman Kenneth Dalton said the deal is off.

“Belmoral’s decision is based primarily on information recently made available to it that gold production at the Ketza mine is materially less than the forecast production represented to Belmoral pursuant to its agreements with Canamax and PTX (Pacific Trans- Ocean),” said Dalton who resigned recently from the Canamax board.

“We had anticipated that the addition of the Ketza River mine production would go a long way to achieving Belmoral’s goal of having annual production of 100,000 oz.”

While Dalton refused to elaborate on the reasons for the decision, PTX President Elmer Stewart said a study conducted on PTX’s behalf by Strathcona Mineral Services (SMS) indicates that the mine should be capable of producing a minimum 36,000 oz this year.

The study was commissioned after Canamax revealed that the wrong specific gravity level had been used to determine Ketza reserves prior to production start up. Canamax brought the mine into production last June thinking that it was operating with 460,000 tons grading 0.45 oz gold per ton. The SMS study later revealed that mineable oxide reserves were actually 250,000 tons grading 0.350 oz.

A similar study conducted for Canamax by consultants Derry, Michener, Booth and Wahl more or less agrees with those calculations.

Under a proposed agreement, Belmoral was scheduled to acquire all of PTX’s outstanding shares in addition to $13 million debt load which PTX had assumed largely because of cost overruns and start up problems at Ketza.

“We are trying to understand the situation and find another party to purchase our interest in the mine,” said Stewart who learned of Belmoral’s decision while packing his suitcase before leaving for Toronto to sign the deal.

“Interest has been expressed by several companies in the past day or two,” said Stewart.

Meanwhile, Canamax said it is back to business as usual at Ketza River which remains the only producing gold mine in the Yukon. The 49%-owned Amax Gold subsidiary expects to announce an $8.2-million write down on the value of the Ketza mine which employs about 100 personnel.

With its Bell Creek and Kremzar gold mines in production, Canamax was expecting to churn out 55,000 oz of the yellow metal this year. Pearson said he doesn’t yet know how the Belmoral decision will affect Canamax’s 1989 gold output.

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