The bad news is Rio’s pulling out — A `good news’

It was a good-news/bad-news kind of week for the backers of the South Kemess project.

First, a prefeasibility study on the South Kemess copper-gold project in north-central British Columbia predicts a bright future for the proposed mine. In its study, Kilborn Engineering Pacific considered the design, construction and operation of a 44,000-ton-per-day open pit and mill. The project is 60%-owned by El Condor Resources (VSE) and 40% by St. Philips Resources (VSE). On the bearish side, Rio Algom (TSE), which holds about one million shares of El Condor and 2.6 million shares of St. Philips, is distancing itself from the project.

Rio recently announced plans to sell its shareholding in St. Philips and is not planning to explore its wholly owned ground southwest of South Kemess. Since Rio Algom’s holding in El Condor is less than 10%, the company has not announced its intention for the investment. C.K. O’Conner, Rio’s vice-president of exploration, admitted that South Kemess stands a good chance of being developed into a mine but said Rio’s prospects in Chile offer better potential and, therefore, the best use of funds.

Undaunted by Rio’s decision, representatives of El Condor, the operator, are currently in Europe trying to sell the project. Meanwhile, the joint venture is planning to apply for a mine development certificate with the British Columbia government in September. If all goes smoothly, production could begin as early as the latter half of 1996.

As for the near term, a $250,000, 12-hole program is scheduled, the intention being to test for a potential faulted-off orebody to the northeast of the deposit.

The Kemess project hosts minable reserves estimated at 221 million tons grading 0.22% copper and 0.018 oz. gold per ton with a strip ratio of about 1.26-to-1. Roughly 20% of the reserve is represented by the overlying cap of Supergene material. The balance consists of Hypogene ore.

Based on estimated recoveries of 78.2% for gold and 88.3% for copper in the Hypogene and 70.2% for gold and 70.1% for copper in the Supergene, yearly output is projected at 213,000 oz. gold and 58 million lb. copper over a 15-year life.

Standard flotation is expected to produce a concentrate of 22%-28% copper and 1.5-3 oz. gold.

Cash production costs are estimated at $4.32 per ton while the net smelter return is projected at about $9.38 per ton based on US$1 per lb. copper, US$375 per oz. gold and a 77 cents Canada-U.S. exchange rate. Pro-rata production costs for gold and copper based on the estimates are US$206 per oz. and US60 cents per lb. respectively. Capital costs for mine, mill, ancillary facilities and infrastructure are estimated at $374 million. El Condor has about 14.4 million shares outstanding on a fully diluted basis, putting its current market capitalization at about $64 million. Scott Cousins, a spokesman, noted that the company has about $5 million in working capital which should be more than enough to see it through permitting. St. Philips has about 11.4 million shares outstanding on a fully diluted basis, or a market capitalization (based on its recent trading level) of about $31 million.