Geomaque losses shrink in 2002 (February 24, 2003)

Though still deep in the red, Geomaque Explorations (GEO-T) lost only half as much in 2002 as in the previous year, thanks to higher gold prices.

The company lost $4.6 million (or 3 per share) last year, compared with $10.5 million (17 per share) in 2001. Revenues have not been disclosed, though the company reports having sold 30,369 oz. gold at an average price of US$313 per oz. in 2002, versus 27,077 oz. at US$275 per oz. in 2001.

Geomaque also reduced its debt by US$1.6 million and erased all royalty obligations related to its Vueltas del Rio mine in Honduras. In lieu of the financial obligations, Capital Resource Fund II will accept 3.2 million shares of a company to be formed as a result of Geomaque’s proposed merger with St Barbara Mines of Australia (T.N.M., Jan. 20-26/03).

Vueltas del Rio, which began commercial production in June 2001, is Geomaque’s sole producing asset. In 2002, it generated $1.3 million in cash, or twice as much as in the previous six months, and the entire amount was sunk back into the operation.

A total of 754,907 tonnes of oxides grading 1.68 grams per tonne was mined and heaped on the leach pad. Ore grades consistently fell over the year, from an average 1.95 grams in the first quarter to 1.52 grams in the final one, but recoveries are nearing the 80% level, as predicted in the feasibility study.

Cash costs averaged US$270 per oz. in 2002, up US$29 from 2001.

Production was hindered by heavy rains, but new water management procedures and improvements to mine infrastructure should enable the mine to weather future storms. Improvements to ore handling procedures and crushing are planned as well.

Metallurgical tests on transition and sulphide mineralization continue.

Meanwhile, Geomaque has discovered more oxide mineralization roughly 200 metres south of the mine. The mineralization, which is similar to that being mined, coincides with two geochemical anomalies that stretch over a combined length of 700 metres and widen to 350 metres.

The highest grade obtained in trenching was 40.78 grams over 2 metres of veining. Some trenches averaged 0.3 gram over widths of up to 70 metres.

Gold mineralization is structurally controlled and associated with zones of silicified and sericitic alteration.

Proven and probable reserves stand at 1.3 million tonnes grading 3.05 grams per tonne. The reserve sits in a resource of some 24.4 million resources averaging 0.65 gram, excluding the newly discovered areas.

From the reserve, which was calculated using a gold price of US$330 per oz., Geomaque expects to produce 42,000 oz. in 2003 and 35,000 oz. in 2004. Cash costs over this period will likely average US$214 per oz.

Geomaque also squeezed 180 oz. from the leach pads at the closed San Francisco mine in Mexico. The last bar was poured in May, and government approval for waste-water discharge is expected shortly.

Geomaque hopes to seal the merger deal and then quickly gain the approval of shareholders and regulators. The company also must take over Midas Gold, a private, U.K.-based company controlled by Strata Mining (St Barbara’s biggest shareholder), in order for the merger to proceed.

The merged company will be named Defiance Mining and seek listings on the Toronto and Australian Stock Exchanges, as well as the Alternative Investment Market in London. It will have roughly 130 million shares issued and outstanding.

Under the proposed combination, each Geomaque share is good for 0.125 of a Defiance share, giving current shareholders about 15.8% of the new company. St Barbara shareholders will receive 0.226 of a Defiance share for each of their shares and 0.039 of a Defiance share for each of their listed options, for a 64.4% holding. Midas shareholders get the remaining amount.

Geomaque has since issued just over 30.3 million units in two private placements to raise $2.4 million in gross proceeds. Each unit was priced at 8 and consisted of a share and a warrant that can be exercised over the next three years, at 10.

Haywood Securities, which brokered the financings, was paid a commission.

About $900,000 of the net proceeds will be lent to Midas to help cover the costs associated with the purchase and exploration of the Tasiast gold property in Mauritania. Midas must pay US$6.5 million to Newmont Mining (nem-n) before the property title is transferred.

According to a scoping study, Tasiast can produce 120,000 oz. at an average life-of-mine cash cost of less than US$185 per oz. Capital and sustaining costs are pegged at US$48 million.

Including Tasiast, by 2005, Defiance is expected to be producing over 350,000 oz. annually from three mines. The others are the Meekatharra mine and advanced Paulsens project. Both are in Australia and owned by St Barbara.

Total cash costs are projected at US$195 per oz.

At year-end, Geomaque had a working capital deficit of $959,000, far worse than a year ago. However, its accounts payable and accrued liabilities shrank from $3.5 million to $2.1 million.

Geomaque now has 170.4 million shares issued and outstanding.