Audrey, Minnova reach agreement on Mobrun

Having reached a new agreement, Audrey Resources (TSE) and partner Minnova (TSE) are set to commence further exploration and development work at the Mobrun polymetallic mine near Rouyn-Noranda, Que.

Since Minnova tabled a feasibility study on Mobrun’s 1100 massive sulphide lens last fall, the two companies had been unable to agree on how fast and at what cost the new ore should be developed.

Strapped for cash for its share of expenses that could have been as high as $90 million, Audrey has been searching unsuccessfully for an international mining concern willing to purchase the 1,400 tonne-per-day Mobrun complex. Minnova, meanwhile, was waiting quietly in the wings.

But three months after Minnova and Audrey resumed negotiations, the two sides have come up with a deal that allows Audrey to restructure $14.6 million in bank debt and seek out alternative financing sources.

Under the agreement, Minnova is contributing $2.8 million toward a $4.1 million underground exploration program designed to provide more information on two new lenses (the B and C) located near the 1100.

By doing so, Minnova is spending the final portion of the $10 million it agreed to contribute to convert a 30% non-contributing project interest into a 50% participating stake. Audrey will use the funds to drive an 885-metre ramp to the mine’s 4,845 level where deep drilling on the B and C lenses will be carried out.

At the same time, Audrey is planning to spend $30 million to gain access to the top portion of Mobrun’s 1100 lens by extending the existing shaft by 200 metres. Under a clause in the agreement, Minnova is granting Audrey 100% of the upper part of the 1100, above the 4,850 level, while retaining a 4% net smelter royalty on ore extracted from this area (with the exception of the first 50,000 tonnes).

This upper portion contains about 16% of an estimated 15.5 million tonnes grading 4.64% zinc, 0.83% copper and 36 grams silver and 1.2 grams gold per tonne in the 1100. Scheduled to be on stream by 1993, the production rate for this zone will be 1,500 tonnes per day.

Once the underground program is completed late next year and new mineralization is incorporated into existing reserve calculations, the joint venture will consider the feasibility of doubling the daily production rate to 2,800 tonnes. If the feasibility report is acceptable to both parties, Minnova would have 120 days to consider whether or not to contribute its 50% share of a $30-million shaft extension program.

If it backs out, Audrey automatically becomes 100% owner of the project, subject to a 4% net smelter royalty to Minnova, and it can then seek out other partners.

As about 300,000 tonnes of ore remaining in Mobrun’s 850, 870 and 930 lenses are scheduled to be mined out by next February, Audrey President Guy Hebert is attempting to find alternative sources of feed to keep the mill running until the first ore is mined from the 1100.

Hebert told The Northern Miner he is talking with companies in the Rouyn-Noranda area and he hopes to have a custom-milling deal signed in the near future.

Hebert is also leaving the door open to bidders (which are rumored to include Royal Dutch Shell subsidiary Billiton Minerals) for its interest in Mobrun via agent Levesque Beaubien. But if Billiton comes forward with a formal offer, it will likely have to pay a big premium on Audrey’s recent trading price of $2 per share before Hebert and Audrey management are persuaded to sell. The Audrey issue is trading in a 52-week range of $4.10 and $1.85.