Lac inherits bounty from Bond

When Lac Minerals (TSE) shelled out $10 per share, or US$378.8 million, for a controlling interest in Bond Gold in 1989, many believed the gold producer had paid too dearly to boost its output and expand its global exploration.

But the skeptics have been forced to backpedal as Lac begins to show concrete signs of growth. Nowhere is this growth more evident than in Chile, where Lac has inherited a cornucopia of rich deposits.

Within the portfolio are two operating mines: El Indio, a copper-gold complex, and Toqui, a zinc-gold producer.

In 1992, the El indio complex, 300 miles north of Santiago, produced 223,888 oz. gold at an average cash cost of US$183 per oz. That compares favorably with 191,342 oz. at US$197 per oz. in 1991, when Lac swallowed the remaining 35% of Bond.

Reflecting higher ore grades mined from the Dona Rosa zone, Toqui produced 31,385 tons of zinc last year, a figure that is expected to increase to 34,000 tons this year. Gold revenues from the mine were applied against the operating costs to reduce cash costs to US$233 per ton in 1992. Reserves at El Indio represent about 37% of Lac’s proven, probable and possible gold reserves of about 10 million oz. The complex includes the underground El Indio mine as well as two open pits — Wendy and Kimberley — at the Tambo mine.

Exploration around Tambo, where reserves increased by 280,000 oz. to 1.16 million oz. last year, could give El Indio an even bigger role in Lac’s future.

Lac says the greatest potential for expanding reserves lies in the Kimberley pit, where a heap-leach resource is being investigated by means of a 60,000-ft. drill program.

A new deposit called Wendy Norte has also been discovered adjacent to the Wendy open pit. It is estimated to contain 120,000 oz. of gold. But what has really piqued the interest of analysts in Toronto is Lac’s Nevada prospect, about 30 miles north of El Indio. As its Spanish name suggests, the deposit lies amidst the snow-capped peaks of the Andes, about 16,000 ft. above sea level (T.N.M., April 26/93).

Nevada was discovered by Bond’s predecessor, St. Joe Minerals, in the 1970s. But the St. Joe geologists, who were looking for a geological environment similar to El Indio, were frustrated in their attempts to establish a significant reserve. It was not until the late 1980s that a reverse circulation hole prompted Lac to change its geological model at Nevada. Instead of an El Indio-type vein system, Nevada was showing all the earmarks of a stratabound epithermal deposit.

The re-interpretation yielded excellent results, and analysts who visited the property in March say Lac has outlined about two million ounces of gold since drilling began last October.

The main Esperanza zone, a tabular, sub-horizontal body with an average grade of about 0.06 oz. per ton, has been tested over 2,000 ft. by 650 ft. Additional potential lies about one mile to the south, where Lac has uncovered gold values in a similar rock type.

Drilling has stopped for the winter but will resume in September. “The next two seasons will be critical as Lac accelerates its exploration effort to delineate a minable orebody large enough to justify the large, upfront capital required to develop a mine high in the Andes,” says Kerry Smith, an analyst with First Marathon Securities.