Pegasus growth tied to international plays

Growth in reserves and output is the name of the game in the gold mining business. Pegasus Gold (TSE) plans to achieve this growth by combining grassroots exploration with participation in advanced developments around the world.

With exploration offices in Chile and Argentina, the company plans to focus its exploration efforts on South America.

One of its more advanced exploration projects is Pullalli, in Chile, which contains a geologic resource of 15 million tons grading 0.036 oz. gold per ton. Prospects for expanding the resource are deemed excellent, and preliminary metallurgical tests have returned promising results. Pegasus’ involvement in more advanced projects is international, with development under way on properties in North America, Australia and the former Soviet Union.

This international focus contrasts sharply with 1992, when production came entirely from the western U.S.

Pegasus’ reasons for moving out of the U.S. are the same as those shared by of a host of other companies exploring in foreign countries — namely, the increasing difficulty of obtaining permits on a timely and rational basis, and uncertainty over proposed changes to the U.S. General Mining Law, including the likely imposition of a royalty.

The move away from the U.S. was highlighted by the company’s recent termination of an option to earn a 70% interest in the Talapoosa gold-silver project in Nevada from Athena Gold (VSE).

That is not to say, however, that all of North America is out of bounds. At the annual meeting in Vancouver, B.C., Pegasus President Werner Nennecker indicated that the company is still keen on the South Kemess project in north-central British Columbia.

Subject to the completion of a due diligence review, Pegasus plans to acquire all the issued shares of El Condor Resources (VSE) at $7.50 per share (payable in Pegasus stock), which will give it a 60% interest in South Kemess. (Vancouver-listed St. Philips Resources owns the other 40%, but is not included in the takeover offer.)

Nennecker said confirmation drilling has returned positive results and is confirming El Condor’s numbers.

The company has also had discussions with the British Columbia government and received a positive response to the potential development of South Kemess. If the project proceeds, it will be Pegasus’ largest mine, producing an estimated 213,000 oz. gold and 58 million lb. copper per year over a 15-year life (on a 100% basis).

In the immediate term, much of Pegasus’ focus is on its 53% interest in Zapopan N.L. of Australia, where development work has been very successful. At the Mt. Todd open-pit, heap-leach mine, Zapopan completed the first phase of construction within its US$27.4-million budget and the first gold was poured in late December.

Production this year at Mt. Todd is expected to reach 92,000 oz. at an average cash cost of US$210 per oz. And a planned expansion in late 1994, to 6.6 million tons from 4.4 million tons per year, will boost annual output to 130,000 oz. at a cash cost of US$200 per oz.

Further expansion, slated for completion at the end of 1996, includes the addition of conventional milling and/or heap leaching. That phase will bring yearly gold output at Mt. Todd up to 200,000-220,000 oz. from milling and 150,000 oz. from leaching, at a cash cost of US$200-210 per oz.