Callahan will spend $2 million on Kirkland Lake gold prospect

Shenandoah Resources (VSE) and Miller Independence Mining each have a 37.5% interest in the properties with Nortek Minerals (VSE) holding the remainder. Under its joint venture agreement, Callahan can earn a 50% interest by spending $2 million over the next 15 months. The company has the option to increase that interest to 60% by making another $1 million in expenditures.

The initial work program will include additional drilling and bulk sampling of the No 1 vein structure, which is estimated to contain 500,000 tons of reserves averaging 0.32 oz gold per ton. About $200,000 will be spent on this program within the next six months and could lead to the “development and mining of the mineralized zone,” the company said.

Callahan is a leading silver producer in the United States with holdings in Idaho’s Coeur d’Alene belt. It receives 50% of the cash flow from the Galena mine and a 5% net profits interest in the adjoining Coeur mine. Callahan also has a 100% interest in Ropes Gold, a Michigan-based mining operation which last year produced 43,000 oz gold in its third full year of operation.

The mine reported a pre-tax loss of $6.5 million last year after taking a $4.9 million writedown because of reduced reserves and lower gold prices. It was shut down for part of the year because of surface subsidence, but lower grades, softer gold prices and higher milling costs also hurt profits.

Callahan’s net loss for the year was $6.3 million or 82 cents per share compared with earnings of $2.6 million or 35 cents in 1987. A sharp reduction in silver revenues from Galena and Coeur had an impact on the company’s bottom line because of lower prices and grades.

Although 1988 was a difficult year financially, Charles Snead, president, noted that Callahan was essentially debt-free, “with some $22 million in readily available cash and year-end working capital of nearly $30 million.”

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