Cassiar selling Bissett to Rea

But James O’Rourke, president of Cassiar Mining, doesn’t see the deal as the outright sale of an asset his company has been involved in for several years. “From our perspective it’s more of a joint development situation,” he said.

That’s because the letter of intent entered into by the two companies allows Rea Gold to purchase the former underground producer for $1 million in cash, two million of its common shares at $5 per share, and debt of $4 million secured by a convertible debenture with interest at 8% payable annually for a term of five years, convertible into shares of Rea Gold at $5.50 per share for the first 18 months, and $6.75 per share for the balance of the term.

In addition, Cassiar will have the right to put, and Rea Gold the right to call (for 12 months after the closing of the purchase), a loan from Cassiar to Rea Gold of a further $4 million to be secured by an additional convertible debenture on similar terms. (Originally, Cassiar had been discussing a possible joint venture arrangement with Rea Gold after its plans to bring the project into production were thwarted by the October, 1987 market crash.)

Cassiar Mining will then end up with a significant share position in Rea Gold (about 20% in the first stage) to add to its other significant and recently very profitable assets, and at some stage is likely to have representation on Rea Gold’s board. Cassiar owns and operates the Similco open pit copper mine near Princeton, B.C., and the Cassiar open pit asbestos mine in northwestern British Columbia. Sales in 1988 from the two mines were about $110 million.

Rea Gold has important assets of its own, particularly a 30% working interest and a 5% net smelter royalty in the Samatosum high grade silver mine owned 70% by partner and project operator, Minnova Inc. (TSE). This 500-ton- per-day operation is currently under construction and is expected to be in production by June, 1989.

Larry Reaugh, president of Rea Gold, told The Northern Miner his company intends to proceed with the development of the Bissett gold project to production after a review of Kilborn Engineering’s feasibility study is completed.

“We view this project as a coup because it provides us with diversification and fits into our long term plans to get production up to 100,000 oz within several years of the Samatosum project coming on stream,” he said.

The project’s mineable reserves of 1.32 million tons at an average grade of 0.223 oz gold per ton (after allowing for dilution and mining recovery) are based on drilling carried out between the 26th level and the 37th level. Because the deposit is open at depth and has not been geologically terminated, it is expected to have considerable potential for further mineable reserves.

Kilborn’s report estimated capital costs to bring the mine into production at $11.2 million, with pre- production work to include extending the A shaft 900 ft to the 16th level, and more importantly, deepening the D shaft to facilitate access to the ore reserves below the 26th level.

Production is projected at 40,000 oz per year with costs of $230(US) per oz for the first three years. Mill head grade is predicted to average 0.25 oz gold in the initial three years, after which the grade decreases to 0.205 oz and production decreases to 32,600 oz per year. The 500-ton- per-day mill was built and commissioned in 1982 by a previous operator just before gold prices dropped, forcing plans for production to be shelved.

Assuming a formal agreement is signed, Rea Gold will become operator of the Bissett gold project. Reaugh said the company is now in the process of expanding its technical division to strengthen the company and enable it to meet the challenge of becoming a mine operator. He also noted that the company intends to draw on the experience and technical expertise of Cassiar Mining.

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