Canyon offers mineral rights to environmentalists

In an unusual, perhaps unprecedented gesture, Canyon Resources (CAU-X) is offering to sell mineral rights to nearly 1 million acres in western Montana to environmental groups.

In addition, the company has pledged to use proceeds from the sale for reclamation work at the Kendall mine in Montana. The company has spent US$6 million on reclamation since the mine closed in 1995; it needs US$3 million to complete the job, and the company is short on cash as a result of its underperforming Briggs mine in southeastern California.

“By acquiring these mineral rights, a conservation-minded group can control how the mineral resources they contain are developed,” says Canyon President Richard De Voto.

The company acquired the 965,000 acres of mineral rights in 1990. Most of the acreage is in the Blackfoot and Clark Fork River basins and were once held by Anaconda Copper.

“Environmental groups are not used to being approached by mining companies with innovative ideas of this sort,” says De Voto. “However, they have responded very positively.”

Canyon won’t name any of the environmental groups it has approached.

Environmentalism is a sensitive issue among Montana’s miners. In 1998, voters approved initiative I-137, which banned the use of cyanide in new mining projects. The new law put a stop to Canyon’s largest asset: the multi-million-ounce McDonald gold project, near Lincoln.

‘Takings’ suit

In April, Canyon filed a lawsuit against Montana, seeking either to overturn the anti-cyanide initiative or achieve compensation for the loss of the property caused by I-137. Canyon believes the award for this “takings” lawsuit could run as high as US$500 million.

The company would have to share any award it receives with Franco-Nevada Mining (FN-T) and Phelps Dodge (PD-N). In 1999, Franco-Nevada supplied Canyon with US$3.5 million in cash to pursue the lawsuit in return for one-third of the award. If the initiative is overturned, Franco will benefit from a 4% net smelter royalty on production at McDonald. Also, Phelps Dodge would receive one-third of any award as payment for having sold its majority stake in McDonald in 1997.

Meanwhile, at its only producing mine, Canyon will begin pre-stripping at the North Briggs deposit so as to gain access to higher-grade ore in 2001. From the main Briggs pit, Canyon has been mining mineralization grading 0.027 oz. per ton. In the first quarter, the mine produced 20,419 oz. at cash operating costs of US$267 per oz. Through hedging, the company has been able to sell its gold at an average price of US$372 per oz. With the North Briggs ore averaging 0.053 oz. per ton, Canyon expects to see cash operating costs fall to US$215 per oz.

Canyon has suffered of late, owing to low gold prices and the lengthy difficulties of advancing McDonald. The project has been in the permitting stage for nearly a decade, and the company’s share price has fallen as a result. Recently, Canyon was forced to complete a 1-for-4 reverse stock split to maintain listing requirements on the American Stock Exchange.

In the first three months of 2000, Canyon incurred a loss of US$812,900 (or 7 per share), compared with a loss of US$380,900 (3 per share) in the year-ago period. Cash and cash-equivalents at the end of the recent quarter totalled US$585,000.