U.S. REPORT Oneida becomes operator on Mexican Hat joint venture

The joint venture agreement on the Mexican Hat property has been amended to allow Oneida Resources (VSE) to temporarily become operator of the gold project in Cochise Cty., Ariz. The amended joint venture agreement gives Oneida nine months from March 22, 1991 to complete 20,000 ft. of drilling, with the right to drill a further 20,000 ft. to March 22, 1992.

Placer Dome (TSE) earned a 60% interest in the property last year after drilling some 137 holes. This resulted in a preliminary reserve estimate of 5.8 million tons grading 0.027 oz. gold per ton.

Placer estimated the deposit would need a break-even grade of about 0.35 oz. gold per ton, based on a US$410 gold price and a stripping ratio of about 5-to-1.

Following the completion of its drilling program and reserve estimate, Placer informed Oneida of its intent to sell its interest in the property. This included offering it to Oneida for US$3 million cash.

Oneida was unable to fund the purchase, but completed its own preliminary estimate of reserves which resulted in a calculation of 7.7 million tons grading 0.034 oz. gold.

Oneida hopes to increase the size and the grade of the deposit through a program of stepout and infill drilling.

If the drilling proves sufficiently encouraging to Placer, it can re-assume operatorship of the property and within 30 days begin a feasibility study at its expense.

If Placer does not proceed with a feasibility study after the drilling program, Oneida has the right to buy Placer’s interest for US$3 million less the cost of the drilling program.

If Oneida does not proceed with the second 20,000 ft. of drilling, Placer has the right to market a 100% interest in the property with the proceeds of any sale to be split on a 60-40 basis.

The amendment includes a clause allowing Oneida’s interest to be diluted by 1% for each 1,000 ft. of drilling not completed in the first 20,000-ft. program.

The company expects to file a statement of material facts in the near future to raise funds to pay off company debt and to partially fund a 20,000-ft. drilling program.