Giant Resources debt woes no problem for Golden Star

Debt problems currently being experienced by Giant Resources of Australia may prove to be a blessing in disguise for Edmonton zinc-silver producer Golden Star Resources (TSE).

Giant Resources recently informed Golden Star that it could no longer afford to participate in a joint venture placer gold project in the Mahdia region of Guyana. Debt worries have persuaded the Australian outfit to put its Canadian assets, including Pamour (TSE), on the selling block (T.N.M., Dec. 11/89).

Under an agreement signed in May, 1988, Giant Resources agreed to put up 80% of exploration and development costs at Mahdia in return for a 45.75% stake in a company set up to run the project. The Guyanese government retains a 8.5% interest in the project where geological gold reserves stand at 8.5 million cubic metres, grading 0.52 grams per cubic metre.

Exploration and development work so far has been sufficient to ensure that Golden Star will be able to get the financing needed to bring the project into production.

Staff at the Guyana site are already setting up a test unit. “If everything goes according to plan, the project should churn out about 4,000 oz. gold this year,” said Golden Star President David Fennell. Pending the successful completion of private placement and public offering arranged through Loewen, Ondaatje, McCutcheon & Co. of Toronto, almost all of the proceeds from future gold production will go to Golden Star. Expected to close Dec. 28 and early February, respectively, the financings are expected to raise $10 million.

“You don’t usually find people dropping out at this stage (in a project’s development),” said Fennell, who regards Mahdia as a “dream situation.”

Situated 200 km southwest of Georgetown, Mahdia covers about 14,800 hectares of permissions which are estimated to contain as much as 10.5 million tonnes of grade 1.1 grams. Access is by all- weather landing strip or seasonal roads.

As gold will be extracted from saprolite deposits in the ancient river channel and from modern alluvials in the Mahdia River, Golden Star is planning to use methods more akin to open pit than placer mining. At a targeted full production rate of 1.9 tonnes annually, cash operating costs are estimated to be less than US$100 per oz., and total capital costs are expected to be US$8 million.

According to Golden Star, the mining development plan, designed by Exploration and Development Associates (EDA) of Denver, calls for the installation of a 1-million- cubic-metre-per-year production unit by June 30. In the first three months after the unit is installed, Golden Star will use it to test bulk samples. Then it will be modified if necessary and used as a production facility at a recovery rate of 37,300 grams gold per month.

While the Mahdia deposits are expected to produce diamonds as a byproduct, diamonds haven’t been factored into the economics of the project, Fennell told The Northern Miner. He said the $3.6 million needed to build the first production unit and complete the final feasibility study will be partially offset by gold sales in the final quarter of this year.

“It’s a project that we are very enthusiastic about,” said Fennell, who has received about $4.8 million so far from Giant Resources to fund exploration at Mahdia and other projects in Guyana. In Bolivia, Golden Star’s wholly owned Carguaicollo mine is producing 200 tonnes per day with recoveries standing at 79% zinc and 71% silver. Reserve grades stand at 5.82% zinc, 0.33% tin and 140 grams silver.

Golden Star is also involved in a joint venture with Placer Dome (TSE) in the 53-million-tonne Omai gold project in Guyana.