Golden Band sorts out tailings, financing issues

Golden Band Resources  (GBN-V) is targeting the fourth quarter for production startup at its La Ronge gold project in Saskatchewan after more than one delay along the way.

Tailings management and financing have been the two main hurdles over the last few years at the project which includes 12 gold deposits, five former producing mines, and a licensed gold mill on a 750 sq. km land package in north-central Saskatchewan.

“We had initially wanted to get going last year but had difficulty securing financing due to the economic climate and decided to delay it to this year,” says Gary Haywood, Golden Band’s chief operating officer.

Golden Band is planning to produce 141,400 oz. gold over a four year total project life, which includes four months of preproduction, but doesn’t account for resource development along the way. The company will start off mining the Bingo underground mine, and then, using the cash flow, will develop the EP deposit into a small open pit mine which will be followed by mining the Komis deposit. Ore is already being stockpiled for the Jolu 400-tonne per day mill and brush is being cut to make way for a 25 Kv grid power line to be installed by SaskPower this summer.

Haywood says part of the problem with getting financing has been the company’s production strategy of having just a few years of reserves.

Proven reserves stand at 80,000 tonnes grading 7.27 grams gold per tonne for 18,700 oz. while probable reserves are 682,000 tonnes grading 6.09 grams gold per tonne for 133,600 oz.

“It’s not our intent to drill off ten years of reserves,” Haywood. “Some of the more traditional lenders run away in fear of that.”

Recently, Golden Band bought back an 8% participating interest in the Bingo, Alimak/Decad, and RKN properties from Virginia Energy Resources (formerly Santoy Resources) for $750,000 and $3 million in shares, which should help Golden Band get financing. Haywood says Virginia’s interest was meant to be short term.

“Santoy had flow through dollars they needed to spend in a hurry and we needed some exploration dollars,” Haywood says.

Golden Band says that capital costs for the project should total around $18.6 million.

Haywood says the company is seeking short term debt to move project forward. “If we take on debt we want to get rid of it quickly.”

Golden Band’s production timeline has been stunted because of the company’s tailings situation. Golden Band bought the Jolu mill in 2004, but when the company starts production next fall, it won’t be using the original tailings pond. The province of Saskatchewan has given Golden Band the approval to build another tailings facility with a three-year capacity.

The original tailings pond is currently undergoing a federal environmental permitting process right now that’s being led by the Department of Fisheries and Oceans. The DFO has signed off on a screening report and the project is now entering a public consultation phase. Haywood expects the old tailings pond will be permitted by early 2011 if all goes to plan.

The tailings pond was originally a lake that was drained in the late 80s (after the fish were removed).

“The mines have come and gone but the tailings pond has endured and always kept ht provincial licence up to date,” Haywood says.

However, while doing some baseline environmental studies it was found that fish had returned to the lake (it’s hypothesized that they returned after a beaver dam was deconstructed to control water levels). The DFO reclassified the tailings pond as a natural water body and a fish habitat although the province of Saskatchewan still considers it a tailings pond.

The fish and the water are contaminated though, so now the company has to ensure that the fish don’t leave the tailings facility. If the federal permits are approved, Golden Band will dispose of the fish before using it as a tailings pond again.

“We don’t want to relocate the fish because they could contaminate fish in other lakes,” Haywood says.

This issue has made it difficult for the company to sell its story with investors because it can only guarantee a three-year timeline.

“When the company purchased the mill we were sure if it would be a liability or an asset,” Haywood says.

But in the end, he says that having the mill has been a huge advantage in project licensing and cost cutting.

“If we had to go out and spend $50 million in constructing a brand new mill it would have made it difficult to get this project up and running because we don’t have a large deposit to fund the capital investment.”