Grouse Creek on-stream in late 1994 — Great Lakes buys slice

In a bit of a twist from the norm, junior company Great Lakes Minerals (TSE) has signed a deal with New York-listed Hecla Mining, a senior producer, to fund part of the development of Hecla’s Grouse Creek gold project.

The agreement in principle stipulates that Great Lakes will buy a minimum 20% interest in the project, situated in Idaho, for US$6.8 million. Additionally, Great Lakes will fund its pro rata share of the US$85-million development cost. The junior’s total cost would be about US$25 million. It has also been granted the option to boost its ownership in Grouse Creek to 30% if it contributes additional funds. To raise the money for the initial purchase and pro rata costs, Great Lakes plans an equity issue through lead broker Wood Gundy. The number of shares to be issued and the price are to be determined.

“It’s a major deal for us,” said Great Lakes President Nicholas Tintor. “It means growth in both assets and cash flow.”

Construction of the open-pit, conventional milling facility began in July. Production should begin in the final quarter of 1994. For the first two years, the mine will produce 145,000 oz. per year at an estimated life-of-mine cash cost of US$155 per oz. After the second year, mine output will decline to about 100,000 oz. (This does not include the gold-equivalent-in-silver production, which in itself should be substantial.) In mountainous terrain near Challis, Idaho, Grouse Creek has proven and probable reserves of 831,000 oz. gold and 17.5 million oz. silver. The reserve can sustain production for eight years. Two surface deposits will be mined by open pit. A deeper, higher-grade ore zone discovered in late 1992 will be mined by underground methods.

Both Hecla and Great Lakes consider the exploration potential excellent, and exploration to extend the reserve base continues as the mine takes shape. Hecla, the operator, reports that “earthworks are under way, concrete for the mill foundation has been poured and the grinding mills are being installed.” Daily production is projected at 6,000 tons. The mill will feature conventional crushing and grinding circuits with a Merrill-Crowe zinc precipitation system. (With high silver components, Merrill-Crowe circuits are standard.)

The two deposits — Sunbeam and Grouse — are in the Challis Formation, volcanics of Eocene age. The deposits are structurally controlled in northeast-trending fractures within a graben typical of epithermal deposits. Asked why Hecla brought in a late partner, company spokesman April Robertson told The Northern Miner: “It gives us financial flexibility to expand our other projects.” Specifically, she mentioned its La Choya gold project in Mexico.

In late June of this year, Hecla sold 2.3 million convertible preferred shares, netting it US$110 million. The proceeds were aimed primarily at developing Grouse Creek and La Choya.

As part of the Great Lakes deal, Hecla receives right of first refusal on the junior’s Lluvia de Oro gold project in Mexico’s Sonora state. This project, 125 miles south of Tucson, Ariz., hosts an oxidized gold deposit amenable to heap leaching. Field work begins later this month.

Based in Coeur d’Alene, Idaho, Hecla is a company whose mining activities go back 102 years. Great Lakes is barely a toddler by comparison, having been formed in 1990. It is in the midst of developing a copper deposit in northern Michigan.