Delays at Bounty mine hamper Viceroy

Vancouver — A low gold price combined with high operating costs resulted in another quarterly loss for Viceroy Resource (VOY-T) during the three months ended March 31.

The company posted a net loss of $5.7 million (or 10 per share) on sales of $20.3 million duiring the period, compared with a loss of $8.9 million (16 per share) on sales of $25.6 million in the first quarter of 2000.

The operating cash flow loss amounted to $4.1 million (7 per share), and the company finished the quarter with a total cash balance of $20 million, comprising $4.1 million in free cash, $6 million in cash appropriated for reclamation and $9.9 million in restricted cash. About 48,840 oz. gold were produced at an average cash operating cost of US$238 per oz., compared with 59,353 oz. at US$242 per oz. in the year-ago period.

Seismic event

The Bounty mine in Australia contributed 23,094 oz. gold to the company’s coffers at a cash operating cost of US$336 per oz., whereas in the first quarter of 2000, it produced 33,508 oz. gold at US$231 per oz. Production was delayed as a result of a seismic event in the mine. In addition, increased waste material had the effect of diluting the ore. However, geotechnical and ground control issues have since been resolved, and ore grades began to improve late in the quarter.

Acquisition of the Bounty mine has caused Viceroy to miss A$9.5 million in debt payments so far this year. Under the loan agreement, the unpaid principal payments allow NM Rothschild & Sons to demand immediate and full payment of the debt. The company is in discussions with the financial group in an attempt to restructure the debt and is looking into raising equity through private placements, as well as asset sales to third parties.

Meanwhile, Calgary-based Proprietary Energy Industries (PPI-T) has reached a preliminary agreement that would see the diversified company take a 49% stake in Viceroy. Proprietary would subscribe for 28 million units of Viceroy at 30 apiece. A unit consists of one share and one warrant; for every two warrants, the holder can acquire one share at 35 for two years. The deal would put $8.4 million into Viceroy’s coffers.

Proprietary owns and manages a portfolio of financial, natural resource and real estate assets. Once the deal closes and all the warrants are exercised, Proprietary would hold a 49% equity interest in Viceroy.

Viceroy acquired the Bounty mine in 1999 from LionOre Mining International (LIM-T) for US$24.6 million in cash and shares. At the end of 1998, Bounty was host to proven and probable reserves of 2 million tonnes grading 5.17 grams, equivalent to 331,000 oz. Total resources stood at 8.8 million tonnes grading 3.92 grams, equivalent to 1.1 million contained ounces. Bounty is an underground operation, supplemented by smaller, lower-grade open-pit deposits, with a carbon-in-leach plant capable of processing 750,000 tonnes per year.

Scoping study

Meanwhile, next-door to the Bounty mine, Viceroy has completed an in-house scoping study geared at the New Morning nickel sulphide deposit. The total resource is estimated at 275,000 tonnes grading 5.61% nickel. The company plans to begin a feasibility study at New Morning in the second quarter.

Viceroy’s share of gold production at its 75%-owned Castle Mountain mine in Southern California was 20,076 oz. gold at a cash operating cost of US$237 per oz. During the quarter, crews sourced ore from the Oro Belle & Heart Tunnel pit and addressed slope stability issues and mine planing in the higher-grade Jumbo pit. The pit has since been mined out. Viceroy states that if problems persist at the Jumbo pit and economic criteria are not met, mining will not resume at Castle Mountain, and stockpiled ore will be exhausted by the end of May. Once all the ore is stacked, gold will continue to be produced from the leach pads for about two years, depending on the price of the metal.

Viceroy took a $30.6-million writedown on its Brewery Creek mine in the Yukon. The operation produced 5,668 oz. gold during the quarter at a cash operating cost of US$230 per oz. Heap leaching is expected to continue until the end of the year, and seasonal mining will not resume unless the price of gold increases.

At the Gualcamayo gold project in Argentina, results from reverse-circulation drilling are being used to update the resource and help direct exploration.