Royal Oak ready to take on Windy Craggy

While other companies are rushing offshore to pursue opportunities, Royal Oak Mines (TSE) is picking up bargain-priced projects in its backyard.

In early April, the company completed the purchase of the mothballed Colomac mine north of Yellowknife, N.W.T., and announced plans to buy a sizable interest in the Windy Craggy copper-gold deposit in British Columbia. The agreements relating to Colomac and Windy Craggy involve Northgate Exploration (TSE). Royal Oak bought Colomac and related assets from a Northgate subsidiary, Neptune Resources.

Also, Royal Oak is set to acquire Northgate’s interest in Geddes Resources (TSE) for $10 million. Still subject to due diligence and regulatory approval, the transaction would result in Royal Oak holding 13 million shares, or about 39.3% of Geddes’ outstanding shares (plus purchase warrants for a further one million shares).

Royal Oak would have a 39.3% indirect interest in Windy Craggy, North America’s largest undeveloped copper-gold deposit. It contains about 300 million tonnes grading 1.38% copper, with significant gold, silver and cobalt values.

“We are looking at the Geddes interest as a portfolio investment,” said Royal Oak President Margaret Witte. “We have significant upside potential and limited downside risk for our shareholders, should the government decide either to compensate Geddes or allow the project to be developed.” Windy Craggy has been in limbo since the B.C. government referred it to the Commission on Resources and the Environment (CORE) for review. CORE has since presented the government with three options, one being to allow development in the highly prospective portion (25%) of the Tatshenshini region. CORE recommended that the owners be compensated if the government decides to defer its decision, or if it decides to prohibit development.

The government plans to introduce legislation this spring related to compensation of expropriated claims. Under the proposed guidelines, compensation would be limited to exploration and holding costs over the past five years from the notice of taking (roughly $20 million in the case of Geddes). This cost-based policy is being aggressively opposed by mining companies which advocate compensation based on estimates of market value. In any event, Royal Oak’s proposal ups the ante for the B.C. government which has danced around Windy Craggy for some time. If the project is expropriated without reasonable compensation, many companies would refuse to invest further in the province’s already-beleaguered mining industry. More than $48 million has been spent on Windy Craggy, now outlined by 221,000 ft. of drilling and substantial underground development. Royal Oak notes that the acquisition would increase its reserve base by about 700,000 oz. gold and 1.6 million tonnes of copper.

As controlling shareholder of Geddes, Royal Oak says it is committed to carrying out the proposed development, “having due regard for economic and environmental considerations.” It would also work closely with government and meet with groups interested in protecting the environment surrounding the deposit.

Witte says a new feasibility study would make major changes to the mine design and investigate the possibility of recovering cobalt. Still, she insists Royal Oak has no plans to take on all the risks of developing the project. A variety of options will be considered once a feasibility is completed, depending on the outlook for metal prices at that time. “This would likely be the biggest engineering challenge ever to come my way,” Witte says. “It would make building Colomac look like a piece of cake.” With several ambitious projects on the go, Witte said Royal Oak intends to pull in the reins for a while. “We have enough to chew on for the next few years,” she says.