Westmin slaps lien on partners at Premier Gold

The new Premier Gold mine near Stewart, B.C., is producing more problems than gold for operator Westmin Resources (TSE) and joint venture partners, Pioneer Metals (TSE) and Canacord Resources (TSE). As operator and 50.1% owner, Westmin is finding its startup problems at the gold-silver mine compounded by the failure of its partners to meet their required cash contributions under the joint venture agreement.

Pioneer, which is struggling with financial difficulties brought about by its unprofitable and now closed Puffy Lake gold mine in Manitoba, is reported to owe Westmin in excess of $11 million based on its 40% stake in the project. Canacord holds 9.9% and is reported to owe Westmin $3 million.

Westmin said it has already exercised liens on the joint venture production for both Pioneer and Canacord, “and will continue to do so until these arrears are eliminated.”

Sized at 2,200 tons per day, the mill at Premier Gold is processing stockpiled ore in excess of 26,000 tons, which is expected to last until June. Open pit mining will resume in April. The mill is running at about 87% of designed capacity.

Westmin is reviewing its startup difficulties at the open pit mine, and a report is expected to be presented to the board in March. Marilynn Knoch, Westmin’s manager of corporate relations, said the review will include a recalculation of reserves and grade for the project.

“This will be based on the fact that operating costs have been higher than anticipated while grades and precious metal prices are lower than expected,” she said, adding that capital costs of $92 million were also higher than originally estimated.

Westmin’s review is expected to include plans to supplement open pit ore with feed from higher-grade underground reserves that it has been outlining on the Premier Gold property.

Late last year, Westmin and Tenajon Resources (TSE) announced a tentative agreement wherein the Premier Gold mill would process feed from Tenajon’s nearby SB high-grade deposit. A formal joint venture agreement has not yet been worked out, although the two companies are reported to be still talking.

Westmin’s operating problems are not confined to its latest mining venture. The company is also experiencing some operating problems at its H-W base metal mine-mill complex on Vancouver Island where mill capacity was recently expanded to 4,400 tons per day.

“We are probably going to reduce that tonnage per day and try to enhance the milling recoveries,” said Knoch, adding that a report on this operation is being reviewed by the company’s board of directors.

Westmin is carrying considerable long-term debt on its books as a result of the H-W mine-mill complex and the Premier Gold mine. The company’s weak financial position and operating problems have revived long-standing speculation that it may eventually be amalgamated with Noranda (TSE), particularly now that Westmin has divested itself of its oil and gas assets. Westmin and Noranda are related in that both are corporately controlled by the Brascan-Brascade group of companies.

While Knoch told The Northern Miner there have been some general discussions in this regard, she stressed that “nothing is concrete.”