Canadian-United says Teeshin option on Dome Mountain project

The fight has been going on for years but Canadian-United Minerals (VSE) may at long last have the upper hand in its dispute with Teeshin Resources (VSE) over the Dome Mountain project northeast of Smithers, B.C. At least that was the impression shareholders were given at the company’s annual meeting held in Vancouver recently.

Canadian-United President Michael Callahan told the meeting that Teeshin had failed to meet its exploration commitments for Dome Mountain and, as a result, its option had terminated. That being the case, he said that Total Erickson Resources (TSE) now holds a 70.5% interest in the project and Canadian-United 29.5%.

Interpreting a letter from Teeshin’s legal counsel as being a repudiation of the joint venture agreement, Callahan concluded that Teeshin’s only legal recourse would be to claim damages through the courts, something he thought was highly probable.

“But this would not prevent us from developing the property,” he insisted. Indeed, he predicted a production decision was possible next spring and he noted that Total Erickson was in the process of reviewing the pre-feasibility study. A new study has been commissioned and a 200-ton-per-day mill rate is being considered; gold output would be about 26,000 oz per year.

Presenting his views on Dome Mountain at the meeting, Richard Tinsley, chairman, (whose measured responses prompted one shareholder to call him “the preacher”) said the “reserve numbers were good” although some in-fill drilling will be required before a production decision is made.

One questioner asked about the 5% net smelter royalty payable to Panther Mines (VSE) and Reako Explorations (VSE), something he thought would have a negative impact on the economics of the project. Tinsley conceded it was heavy but he insisted the 400,000 tons of reserves grading 0.38 oz gold would carry that royalty. The company has been trying to reduce the royalty but to date has not been successful, he added. Cash operating costs for the proposed mine are estimated to be $200 per oz of gold and he conceded “the big question is how much capital and financing costs will be.”

Two months ago the Brown Ford Syndicate, a Vancouver-based mining group, agreed to provide up to $5 million for exploration and development work on Canadian- United’s Fireweed polymetallic discovery on Babine Lake northeast of Smithers, B.C.

The funds will be supplied by the syndicate on a flow-through basis through an associated company, Gunnar Explorations (ASE), which can earn up to a 50% interest for $3 million. The other $2 million would be spent on surrounding claims.

Canadian-United or the syndicate can convert that interest into shares. That rankled several shareholders who said it went against the intent of the flow-through system to buy shares in companies with flow- through funds. Callahan disagreed calling it a convertible financing and he noted it was Gunnar that would end up buying the shares, not Canadian-United. He also said the deal had been examined by two funds, NIM and First Exploration Fund, and they said it was okay. The motion to conclude the deal was voted on and passed by the company. Another 22,000 ft of drilling is planned for Fireweed in the next three months at a cost of about $800,000.

“This will allow us to talk about drill indicated tonnage,” said Callahan. About $900,000 has been spent there so far and he felt they “had made a substantial silver discovery” with some additional potential for base metals.