Royalstar eyes garnet production in New Mexico

With the recent completion of a feasibility study by Consultants Mountain States R&D International, Royalstar Resources (VSE) is reviewing the possibility of bringing its San Pedro garnet property into production at a rate of up to 125,000 tons per year.

Royalstar has an option to purchase the property, located in Santa Fe Cty., New Mexico, for an initial US$50,000 payment by Apr. 22, plus a further US$1.17 million payable over 78 monthly payments of US$15,000. The property is also subject to a 1.5% royalty (to a maximum of US$1.5 million) payable to John Young, the president of Royalstar. Noramco Mining (TSE), which owns about 45% of Royalstar’s issued shares, holds a 5% gross operating royalty with no cap.

Preliminary geologic reserves at San Pedro are estimated at 22-30 million tons grading 85% andradite garnet. The property has a fully permitted and refurbished mill which the company says can be modified for garnet production within four to six months at a capital cost of US$700,000.

Mountain States noted that the success of the project is dependent upon rapid penetration of the garnet market and recommends the company conduct an in-depth marketing study to confirm market projections.

The current total common abrasive market in the southwestern United States is estimated at about 350,000 tons per year. Selling price, FOB mine site, is estimated at US$30 per ton compared with a projected operating cost of about US$12 per ton.

Royal Star’s initial output is projected at about 30,000 tons in 1993, increasing to over 100,000 tons by 1997. Based on an ultimate yearly output of about 125,000 tons, the company would have to supplant more than 35% of the current common abrasives market in order meet its objectives. The study also proposes that the company could produce a filtration media concurrently with the abrasives and begin marketing the product within six months of startup.

During the next 18-24 months, the study recommended that the company market technical abrasives, water jet abrasives and coated abrasives. The estimated market for the various specialty abrasives and the filtration media is estimated at 75,000-90,000 tons per year.

Royalstar plans to proceed with a detailed marketing study shortly as recommended by Mountain States.

Young said the company is currently reviewing an equity financing to raise a minimum of about US$1.5 million. Although Royal Star’s share price has recently jumped to the $1.80 level from around 70 cents, Young said he would prefer to not issue stock at these levels.

The company currently has about 7.1 million shares outstanding.