Wayside Secures US$14M For QR Mine, Bonanza Ledge Deposit

Barkerville, B. C., southeast of Quesnel, is a ghost town left over from the 1858-63 Cariboo gold rush, and soon, International Wayside Gold Mines (WYG-V, IWGFF-O) will ask shareholders to consider taking on the name Barkerville Gold Mines as a part of a complicated deal that could allow the company to put two nearby deposits into production.

Wayside has secured US$14 million through a three-year drawdown loan facility at an 8% interest rate. The funds will help pave the way to restart operations at the QR gold mine and 900-tonne-per-day mill, bring the Bonanza Ledge gold deposit at the Cariboo project into production and fund other capital programs.

Andrew Rees, a director for Wayside, says the company went for debt financing so as not to dilute the shares. “We don’t want to issue US$15 million worth of stock at fifty cents a share,” he says.

But Rees points out that the company is going above and beyond a little debt financing to avoid dilution. Wayside plans to use accumulated tax writeoffs of $25 million to buy the QR mine and mill from now-bankrupt Cross Lake Minerals. Wayside will be passing on the tax writeoff to one of Cross Lake’s creditors, contract miner Procon Mining & Tunneling, which took control of the mine and mill when Cross Lake went bankrupt.

Originally, the plan was to pay Cross Lake to custom-mill high-grade Bonanza open-pit ore by trucking it 110 km by road to the QR mill. But Cross Lake fell on tough times during the latest downturn and ended up putting the mine on care and maintenance.

To get the deal done, Wayside plans to spin off all of its properties, including the QR mine and mill, the Cariboo project, and its assets, liabilities and obligations to a new subsidiary, Barkerville Gold Mines, in exchange for shares of Barkerville. Wayside shareholders will then trade in their shares for Barkerville shares on a one-for-one basis.

That will leave Wayside as essentially a shell company with a $25- million tax writeoff. Procon Mining & Tunneling will then take over Wayside, and Barkerville will list on the TSX.

“It’s a creative way to fund an acquisition,” Rees says.

Kinross Gold (K-T, KGC-N) built the QR mine and mill in 1994 only to shut down the operation in 1998. Between 2005 and 2008, Cross Lake spent about US$34.5 million on acquisition, exploration, development and refurbishment.

Wayside expects to complete prefeasibility studies for both the QR mine and the Bonanza deposit in early September.

Rees says that if the deal goes through, Wayside hopes to start production at QR in October.

The company also plans to bring Bonanza into production, but is still waiting on a mining permit.

By the end of December 2010, Rees says Wayside (by then Barkerville) will have mined about 50,000 oz. gold from the two deposits.

The QR mine hosts measured and indicated resources totalling 58,000 oz. gold with an average grade of 5.07 grams gold per tonne, plus another 100,000 inferred oz.

The Bonanza Ledge deposit contains 89,000 oz. gold in the measured and indicated categories and another 8,000 oz. in the inferred category.

The company, which has resources on other Cariboo deposits, plans to do more exploration work once the deal goes through.