Homestake seeking buyer for Golden Bear gold mine

In light of low gold prices, Homestake Mining (NYSE) has decided against financing expansion of the Golden Bear open pit in northwestern British Columbia.

Expansion of the pit, operated by North American Metals (VSE), is estimated at $5.6 million. The expansion would have provided an additional 8-to-18 months of millfeed for the troubled operation.

Homestake plans to search for a buyer for its 84.8% interest in North American Metals. If one cannot be found, the mine will be shut down when stockpiled ore is exhausted.

The mine has sufficient stockpiled material to feed the mill for about six months.

Homestake notes that North American has a cash balance of about $2 million which should increase as the stockpile is processed. The company would therefore be able to afford severance and closure costs.

Golden Bear has been plagued with problems since startup in 1990. These include a capital cost that more than doubled and operating problems in the mine and mill.

In fact, Homestake has taken a bath on the project from day one. From the original takeover in 1988 (5.4 million shares of North American Metals at $5 per share), additional share purchases have increased its interest to 11.8 million. In addition, loans from Homestake to North American for capital and ongoing costs exceeded $50 million.

In the period 1990-1992, Homestake wrote off its entire investment in North American Metals, with charges totaling US$59.6 million.

In 1992, production from Golden Bear totalled 58,224 oz. at a cash cost of $352 per oz.