Equity questions mine closure cost estimates

The British Columbia government and Equity Silver Mines (TSE) are still discussing the amount of a reclamation bond for Equity Silver’s mine near Houston, B.C., slated to close in late 1992. Equity Silver emphasized this point after an official of the British Columbia Ministry of Mines was publicly quoted as saying that the company should post a $60-million bond to ensure a safe mine site after operations cease.

Equity and the government have been negotiating for some time now the level of the bond required to fund reclamation costs, particularly the ongoing treatment of acid mine drainage. The $60-million figure compares with a recently revised estimate by Equity of $30 million, up from the company’s 1989 estimate of $20 million. Equity has set aside $16 million to date for post- closure costs.

Earl Dunlop, spokesman for Equity, said negotiations are still taking place with the government and no figure has been finalized. He did not know the source of the government quote.

A $60-million charge would be a blow to Equity’s otherwise very healthy balance sheet. As at March 31, the company had shareholder equity of $58.5 million and about 32.5 million common shares outstanding. The shareholder equity includes the $16 million set aside for reclamation.

Dunlop does expect a very good year in 1990 with increased production of silver, gold and copper as mining moves into higher grade ore.

He estimated silver production at 7.8 million oz., gold production at 64,000 oz. and copper production of 16 million lb. He said the cash cost to produce an ounce of silver, after other metal credits, is expected to be in the order of US60 cents per oz.

Dunlop noted that in 1991 costs will rise as production drops. He projects silver and gold production will likely be half that in 1990 while copper production would drop by about one-third. In 1992, as the operation is wound up, metals production would drop again, amounting to about half that in 1991.

Equity’s share price has not fared well over the past month dropping to the $1.50 level from about $2 per share.