Talapoosa royalty worries Pegasus

With a third phase of work completed on the Talapoosa gold project in Nevada, Pegasus Gold (TSE) is nervously awaiting confirmation of a proposal from the U.S. government that a royalty be applied to mining operations situated on federally owned lands.

Pegasus is earning up to a 70% interest in Talapoosa from Athena Gold (VSE) but is concerned the project will not be viable if the royalty proves prohibitively high.

Michael Steeves, spokesman for Pegasus, noted that Talapoosa is still one of the company’s highest-priority projects, adding that the company’s proposed acquisition of El Condor Resources (VSE) does not affect the status of Talapoosa.

Drill footage on Talapoosa totals more than 140,000 ft., including Pegasus’s drilling.

Based on a cutoff of 0.01 oz. gold per ton, Pegasus estimates the mineral resource to be 50.1 million tons grading 0.026 oz. gold and 0.35 oz. silver. Increasing the cutoff to 0.025 oz. gold, the resource drops to about 20.8 million tons grading 0.040 oz. gold and 0.50 oz. silver.

Refinement of metallurgical recoveries and mining costs is ongoing and, as a result, Pegasus has not released minable reserve figures.

It estimates maximum recoveries from heap leaching will be 78% for gold and 55% for silver in oxidized material. This drops to 60% for gold and 50% for silver in sulphide material.

Much of the deposit is unoxidized and metallurgical testing is continuing in an effort to gauge the impact of bacterial oxidation on sulphide material. Oxidizing the material to 20% yields a recovery increase of 12 percentage points for gold and 18 points for silver. Tests are continuing on sulphide material bio-oxidized to a 30-40% level.

To maintain its option on the property, Pegasus must pay US$250,000 on or before March 9. And to earn the 70% interest, it must spend an additional US$1 million and pay Athena a further US$2.5 million prior to March 9, 1995. Pegasus is committed to funding all capital costs to production and will receive 90% of cash flow until payback.

A further term in the joint-venture agreement boosts Athena’s interest to 40% after the first 500,000 oz. of production.

Athena’s interest can increase to 40% immediately if the gold price is at least US$450 per oz. during the 12-month period prior to full payback. Also, if the price of the yellow metal averages more than US$400 per oz. from March, 1995, to March, 1996, Athena will receive an additional US$1.5 million.