Ex-Pegasus managers to fund Neptune’s dream

To be successful, mining companies run by innovative and free- wheeling people have to be married to financial backers who are equally innovative and free- wheeling.

Neptune Resources (TSE) has done just that. Led by president and major shareholder Margaret Witte, the 10 highly energized professionals who run Neptune from offices in Mississauga, Ont., this week managed to consummate such a marriage with Gold Reserve Corp., a U.S. public company (NASDAQ).

Gold Reserve is a Spokane, Wash., based company, run by three former managers of Pegasus Gold Inc., a company which has grown substantially in recent years to become a $300-million company.

Having set out just 2 1/2 years ago to set the gold mining world on fire, Neptune has accelerated itself to the stage where it needs $130 million to realize the dream of building a major (200,000-oz-per-yr) gold mine.

The deposit, called the Colomac, is located in the Northwest Territories, 137 miles north of Yellowknife. With 16 million tons averaging just 0.064 oz gold per ton, it has been considered uneconomic in the past by both Cominco and Newmont. Neptune plans to process 10,000 tons of ore per day from an open pit mine to produce gold at a cost of $202(US) per oz. The deposit was discovered more than 40 years ago.

Douglas Belanger, former vice- president corporate affairs for Pegasus, read about Neptune’s financial difficulties in The Northern Miner, he says and called Witte two weeks ago to talk business.

Belanger is chairman of Gold Reserve Corp. and Bell West Investments, a private investment company based in Nassau, Bahamas.

They hit it off immediately and quickly arranged to do an equity financing of up to $48 million. Gold Reserve will acquire 4,285,714 Neptune shares immediately at $3.50 a share, then on or before Sept 30, it will receive a debenture for $33 million.

The debenture can be converted anytime over the next three years into 3.6 million Neptune shares and a 10% participating joint venture interest in the Colomac project.

Existing Neptune shareholders will continue to elect the majority of the board of directors and Gold Reserve’s interest will not exceed 47%. So control of Neptune remains with the shareholders.

“This is a perfect opportunity for Gold Reserve,” Belanger says. “They want to operate a gold mine and we’re not interested in being mine operators.”

Gold Reserve is run by Belanger, Rockne Timm and Hobart Tenneff. When Tenneff retired from his position as president and CEO of Pegasus last year, he brought with him to Gold Reserve a 30% net profits interest in the Zortman- Landusky mine in Nevada. That interest has since been traded for 1.5 million shares in Pegasus, worth about $23.6 million at today’s market price. Timm was Pegasus’ vice- president finance.

“I left Pegasus for personal reasons,” Belanger says. “We had accomplished everything we wanted to at Pegasus and the company was becoming more formal out of necessity. So the fun was starting to slowly go out of it. Besides, I’ve always wanted to be independent.”

Neptune continues to negotiate a $90-million bank loan from a number of sources led by Bank of America. Negotiations, too, are under way with the federal government for a working capital facility.

With financial backing from the former managers of Pegasus maybe Neptune will follow the same growth curve Pegasus did under Teneff, Belanger and Timm.