Deadline set for June 20 — Anvil negotiates Faro

A private company run by former executives of now-bankrupt Curragh expects to reach a deal with receiver Peat Marwick Thorne this month regarding the purchase of Curragh’s Faro lead-zinc mine in the central Yukon.

Anvil Range Mining Chairman Robert Granger told The Northern Miner that he hopes to finish negotiations prior to the June 20 deadline set by Ontario Court Judge James Farley so that legal preparations for the acquisition can begin in advance.

Toronto-based Anvil Range was given the go-ahead to engage in exclusive discussions with the receiver following an Ontario Court hearing on May 7. The company beat out two other offers — one from Korea Zinc in tandem with Cominco (TSE) and Teck (TSE); and the other from Vancouver-based Jordex Resources (TSE) and its partner, the Phoenix group of Toronto (consisting of three former middle management executives of Curragh and a lawyer who was integral to that company’s purchase of Faro in the mid-1980s). Claimants secured by Yukon liens on the Faro mine, who are owed almost $25 million, preferred Anvil’s $27-million cash offer to a $55-million bid made by the Jordex-Phoenix group (which consisted of $20 million up front, plus $5 million paid annually over seven years).

Korea Zinc’s proposal was declared unacceptable before it reached the courts because the company refused to acknowledge responsibility for environmental liabilities arising from past mining practices. Its bid was $15 million. Cominco and Korea Zinc have already bought Curragh’s Sa Dena Hes mine, also in the Yukon.

Anvil hopes to close the Faro deal before October and begin pre-stripping of the nearby Grum deposit within a month thereafter.

“It’s very important to start that stripping before the bad weather starts,” Granger stressed. “We want the machines up and running before a northern winter sets in.”

For its part, Jordex refuses to give up on Faro just yet. Chairman Paul Kostuik said the company is contemplating its position from the sidelines and that another offer is not out of the question. “The judge told us he would accept another offer as long as he was given 48 hours to consider it, so we can give a new proposition anytime,” he said. “But we do not want to get into a bidding contest with Anvil.”

During the court proceedings, some debate arose over an alleged breach of confidentiality involving Jordex’s bid after an eleventh-hour change to Anvil’s proposal. However, Kostuik said his company will not be contesting the issue.

Among the ex-Curragh executives who run Anvil is Kurt Forgaard, who was responsible for restarting the Faro mine in 1986 after Curragh bought it from Cyprus Anvil Mining. Others include: Adrian White, formerly Curragh’s chief financial officer; Ralph Sultan, one of Curragh’s founders; and William McKnight, a former federal minister of Energy, Mines and Resources and of Indian Affairs.

Anvil plans to go public within a year of the deal’s closure, or possibly earlier, said White, a company director. “We plan on being a publicly owned company with various shareholders, none of which would have more power than the other,” he said. “We’re going to be a single-purpose mining company focused on the Yukon.”

The company has the backing of two investment groups which are financing most of the $27-million price tag — Korean-based Hyundai and a group of Canadian institutions that wish not to be identified.

White added that since the court decision, smelters and trade companies have started coming on board as well. “So in a way, we have a second finance scheme with a strong smelter following.”

Once ranked as the Western world’s sixth-largest zinc producer, the Faro mine first started up in 1970 and has been closed twice. Curragh forced the last shutdown, in March, 1993, as a result of low metal prices and failure to get a government loan to finance pre-stripping of Grum. Reserves are expected to last about 12 years.

If the acquisition is approved this month, the group proposes to resume operations in September, 1995.

As part of the deal, Anvil has proposed the creation of a “New Environment Fund” which would serve as a trust for financing the post-closure clean-up, estimated to cost $85 million. Royalties from future production would be contributed to the account, based on total revenues rather than profit — a plan which should keep the coffers full, White explained. The royalties would be phased in in accordance with the price of zinc — creating an estimated $100 million over the course of the mine’s operations.

The Department of Indian Affairs and Northern Development (DIAND) would not comment on whether it supports Anvil’s proposal. “The principles outlined in its proposal were the basis for future discussions, but it’s still too early to say (whether we support it),” said Dr. Joseph Lazarovich, director of DIAND’s Mines and Minerals Group. “Our position in court was that we could live, in principle, with either Jordex’s or Anvil’s proposal.” DIAND has a dual interest in the mine’s future as it is both a creditor and a regulator of the operation. “We are owed money, so we want the best price for the property, but we are also a regulator, and everyone who has an interest in the mine wants to know about its past and future mining practices,” explained Hiram Beaubier, director general of natural resources and the environment with DIAND’s northern development branch.

Meanwhile, Anvil Range has devised a social and economic benefits package with the Ross River Dena Council, a Yukon First Nation whose members live near the mine. The plan incorporates such aspects as jobs, training, scholarships and a mechanism whereby the natives can buy an interest in the mine, purchased at a low price, and payable only once the option becomes profitable.

“We’ve suggested getting the natives involved in road maintenance, environmental monitoring and site maintenance,” White explained. Anvil wants the money it contributes to the environmental fund to be deducted from its taxable income. It also wants the government to use the accrued tax losses that have been run up by Curragh to slash its future tax bills. The group plans to extract about 450,000 tonnes of lead-zinc concentrate per year, a conservative amount in comparison with Curragh’s 1992 plan for producing 520,000 tonnes from the various Faro ore sources.

Anvil says it will focus on improving the productivity of the mine and on exploring sites nearby.

— The writer is an occasional contributor to The Northern Miner.