United Keno shuts 6 mines after suffering heavy losses

The 33%-owned affiliate of nickel giant Falconbridge Ltd. (TSE) reported a consolidated net loss of $12.9 million or $3.54 per share after deciding to shut down three silver mines in the Galena Hills area near Elsa, Y.T.

They were placed on a care and maintenance basis Jan 6 pending an increase in the price of silver.

United Keno included a $2.64- million provision for the shutdown of its mining and milling operations. In 1988 these lost substantially more than the 1987 shortfall of $4.79 million or $1.40 per share.

While the company produced 1.74 million oz silver and 6.2 million lb lead in 1988, compared to 1.5 million oz silver and 3.2 million lb lead in 1987, silver output was 360,000 oz below expectations.

Most of the problems experienced by United Keno stem from dipping silver prices.

“A marginal decrease in silver revenues during 1988 was due largely to a decline in the realized price of silver to $6.66(US) per ounce in 1988 from $7.10 in 1987,” President J. C. Cowan told shareholders at the company’s recent annual meeting in Toronto.

But the company has also encountered a high turnover rate at its Yukon operations due to intense competition for skilled workers in the area, Cowan said. In addition, operating problems at some of its mines contributed to an increase in costs to $9.08 per oz from $6.70 per oz in 1987.

For example, poor ground conditions at the Bellkeno mine hampered exploration drifting activity on the 700 and 800 levels and shaft sinking at Husky Southwest was delayed by flooding.

Before United Keno decided to place its operations on hold, the company had planned to expand its silver output to over 200,000 oz per month by bringing three new mines on stream: The Bellekeno, Silver King and Husky Southwe st.

“The shutdown of operations was not due to lack of ore reserves,” said Cowan. “Ore reserves are the highest in terms of contained ounces of silver since 1980, and if possible ore is included, the highest in 24 years,” he said.

At the end of 1988, proven and probable reserves stood at 322,000 tons grading 28 oz silver per ton and 4.6% lead. According to Cowan, that represents an increase of 131,900 tons from 1987 levels.

Most of the increase results from exploration at the Bellekeno and Silver King mines and to reclassification of ore at Husky Southwest mine when the shaft was completed, Cowan said.

In a bid to wipe out an $8.1- million debt load, the company recently arranged for a rights offering designed to raise $13.3 million if it is fully subscribed for.

Under the offering, which was scheduled to expire April 20, United Keno issued to its shareholders transferable rights to subscribe for more than 3.8 million common shares at $3.50 per share.

According to Cowan, Falconbridge has agreed to exercise its rights and to take up all of the common shares unexercised under the offering (subject to the condition that its stake in United Keno doesn’t exceed 49%.)

United Keno common shares were trading recently on the Toronto Stock Exchange at a 52- week low of $3.70. They peaked during the past 52 weeks at $10.25.

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