Dayton enters Nevada scene with Denton-Rawhide purchase

As a latecomer to the Great Basin, Dayton Mining (DAY-X) missed the heady days of exploration in Nevada. However, with its newly acquired 49% interest in the Denton-Rawhide gold-silver mine, the company has acquired a foothold in one of the world’s most prolific gold-mining states.

The Vancouver-based company acquired the stake in the open-pit, heap-leach operation, southeast of Fallon, from Kinross Gold (K-T).

For Dayton, the $16-million purchase was part of a strategy to expand its assets. These include a 100% interest in the Andacollo gold mine, in Chile, and the advanced-stage El Dorado gold-silver project in El Salvador, acquired as a result of merging with Mirage Resources (in which Kinross owned a majority interest).

Kinross decided to sell the 49% interest in Denton-Rawhide in order to focus on its three main gold assets: the Fort Knox mine, in Alaska; the Kubaka mine, in Russia; and the Hoyle Pond, mine near Timmins, Ont.

Since 1990, Denton-Rawhide had been operating under the 51% ownership of Kennecott Minerals, a division of London-based Rio Tinto (RTP-N). In 1999, the mine produced 115,602 oz. gold and 692,245 oz. silver, or 128,000 oz. gold-equivalent. Cash operating costs averaged US$234 per oz. gold-equivalent.

Stripping ratio falls

Dayton expects to receive 52,000 oz. gold and 477,000 oz. silver from the mine in each of the next three years. Cash operating costs in 2000 will decrease to US$225 per oz. gold, including silver credits. In 2001, costs should continue falling to US$211 per oz., reaching US$173 per oz. in 2002. One reason for the falling costs is that the stripping ratio decreases over the next few years.

The operation is expected to generate more than US$500,000 in cash flow, based on a gold price of US$280 per oz. and a silver price of US$5 per oz. The mine will have negative cash flow in 2001 because of a proposed leach pad expansion.

At the end of 1999, reserves stood at 31.9 million tonnes grading 0.71 gram gold and 11.7 grams silver, equivalent to 723,000 oz. gold and 12 million oz. silver — sufficient for several more years of operation. The estimate is based on a gold price of US$325 per oz.

The mine is surrounded by 69.7 sq. km, which Dayton intends to explore. Prior to acquiring the mine, Dayton and Kinross approved a US$1.4-million program to test several targets around the mine site. Dayton’s share of the cost will be US$700,000.

The mine also expects to spend as much as US$3.8 million to expand the existing leach pad. Dayton’s share of this expenditure will be US$1.9 million. Construction is slated to begin in January 2001.

Dayton hopes to use Denton-Rawhide as a stepping stone to acquire other gold assets. At the time of the Denton-Rawhide acquisition, the company raised US$6 million from a special warrants financing.

As a result of a 20-to-1 share rollback, the company has 27.1 million shares outstanding, and 31.1 million fully diluted. Kinross, having vended Denton-Rawhide and arranged the merger with Mirage, now controls 32% of Dayton.