Inco puts hefty price on Nor-Acme capital costs

The report includes mining plans as well as mill and process designs. At the targeted production rate of 450,000 tons per year and an 87% recovery rate, the study estimates the mine would produce 68,000 oz gold per year at a cost of about $250(US) per oz.

The capital cost of the project, estimated at $50 million, came as a surprise to both High River’s officers and shareholders. Expectations seemed to be in the $20-30 million range. An indication of that disappointment was reflected in the price of the stock which fell 35 cents from the $1.40 level following the release of the report.

The Nor-Acme deposit, a former gold producer at Snow Lake, Man., is being explored by Inco Gold under a $6.5-million exploration agreement. The agreement calls for Inco Gold to fund, through a series of private placements, an exploration program and feasibility study.

With the completion of the exploration program, Inco Gold holds 31% of High River’s common stock plus warrants to further increase its position to 37%. Inco Gold also has the option to earn a 50% interest in the Nor-Acme property by funding it to production.

The Snow Lake mine produced 5.4 million tons of ore from 1949 to 1958 at an average grade of 0.15 oz per ton gold. Mining proceeded to 1,530 ft below surface accessed by a shaft down to the 1,780-ft level. The mine was forced to close when inflation pushed production costs above the then-fixed gold price of $35 per oz.

The objective of Inco Gold’s exploration program was to locate sufficient reserves below the mined-out stopes to warrant a production decision.

Underground drilling from cross-cuts on the 1,780-ft level located three zones below the 1,530-ft level. These occur on the same structure with two of the zones extending to at least 3,000 ft while the third has been traced to 2,300 ft. All three zones remain open at depth and on strike with widths ranging from 10 ft to more than 50 ft.

Proven and probable reserves on the property, including two higher zones adjacent to the mined-out area, are calculated as 3.9 million tons grading 0.19 oz. Inco Gold estimates a mining dilution of 10% will bring the grade down to 0.17 oz.

High River now awaits an economic study from Inco Gold which will determine whether the project’s payback is sufficient for the $50-million investment.

The capital cost is of importance to both companies and ultimately to the viability of the project. The higher the capital cost, the longer to payback for Inco Gold which receives 80% of the cash operating profits until payback.

In High River’s case, although it is not required to put up any money, it only receives 20% of operating profits until payback. It is, therefore, in High River’s interest for the capital cost to be as low as possible.

High River directors David Mosher and James Clucas are quick to point out that the capital cost estimate is not a final figure and is subject to revision. According to Mosher and Clucas, the higher capital outlays can be traced to underground development expenditures, although no specific it em could be cited.

David Browne, vice-president of exploration for Inco Gold, said he was quite confident in the number and did not see a great deal of scope for decreasing it. He declined to estimate when the economic portion of the feasibility study would be released. He did indicate, however, that before a production decision is made Inco Gold would likely have to go back underground and outline more reserves in an effort to increase the projected mine life.

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