Sullivan’s downside: Valdez upside is Arthur White mine

Reduced production and cost increase at the Valdez Creek mine in Alaska are the prime culprits behind the $687,000 loss posted by Sullivan Mines in its latest fiscal year.

President Claude Genest, in the annual report, says suspension of the Valdez mining operation in the near future is contemplated in order to take a thorough definition drilling program.

At the time of the annual report’s writing, the 1986 production program was still in progress, but completion was slated for early April with a total production of 24,000 oz of fine gold or 60% of the initial forecast.

The problems which plagued the operation over the past year included opposition from ecologists which delayed removal of the waste gravel. Then, the presence of water in silt beds caused serious sloughs of the pit wall and a considerable enlargement of the volume of waste to be removed, requiring additional investment in heavy equipment. Thirdly, a narrowing of the channel, where grade was presumed to be higher, reduced the quantity of pay gravel, which had been overvalued according to production results. Problems at Valdez

The problems translated into inflated costs, stemming from extending the mining period and the necessity to winterize the operation. Mr Genest says one of the three partners in the Valdez project is in default in its financial contribution. As for Sullivan, and to the extent that the feasibility reassessment would leave a comfortable profit margin, no additional funds will be committed without assuming the project management under the responsibility of the joint management committee, he says

At the end of 1986, total reserves (proven, probable, possible, inferred) amounted to 5.8 million cu yd grading 0.094 oz gold per ton. Of that amount, 404,000 cu yd grading 0.144 oz are in the proven category and 1.05 million cu yd are in the probable category.

Closer to home near Red Lake, Ont., at the Arthur W. White mine, in which Sullivan has a 34% interest, the scene is brighter. Gold production increased 8% to 67,890 oz in 1986 from 62,890 oz in 1985.

The huge increase in mine development, up 134%, consisted of 3,613 ft of raise and 7,603 ft of drift and crosscut. Exploration and development drilling increased from 60,760 ft in 1985 to 76,041 ft in 1986.

At year-end, total reserves (proven, probable and possible) amounted to 3.9 million tons grading 0.31 oz per ton, of which 1.5 million at 0.33 oz are in the proven category.

The company’s production revenues from the mine were $11.7 million, while expenses ran $9.4 million for a net pre-tax profit of $1.6 million, a 52% increase over the last fiscal year. White mine

The Arthur W. White mine meets all expectations in terms of grade, ore reserves and future possibilities, even though there is still room for improvenment in productivity and production, says Mr Genest. For this reason, he says, Sullivan has twice refused to sell its interest in the mine to the operator, with 66% interest, Dickenson Mines. These offers were made for a consideration representing twice and three times the original purchase price in 1982 of about $11 million.

Among its exploration projects, Mr Genest is encouraged by the results at the former Eldrich-Flavel gold mine in northwestern Ontario.

Exploration, totally funded by Sullivan, has outlined reserves on the new zone 5 at 547,600 tonnes averaging 5.75 g gold per ton, (about 0.166 oz gold) after a 30% dilution. Exploration continues and studies suggest that with the new data on this zone, construction of a mill could be justifed, he says. Plans for this year call for deepening of the shaft another 704 ft to reach 1,765 ft. Drifts will be driven into the new zone 5, in order to be in a position to confirm grade and tonnage.

Looking at the company’s finances, revenues increased to $12.8 million from $10.8 million in 1985. Net loss amounted to $687,000 or 8 cents per share, down considerably from net income of $522,000 or 6 cents per share in 1985.

Shareholders’ equity stands this year at $32.4 million with long -term debt at $804,000.