Kemess South entices Vengold

An advanced mining play in British Columbia has caught the eye of Vengold (TSE), the junior that holds the largest area of gold concessions in Venezuela’s Kilometre 88 district.

The company plans to acquire St. Philips Resources (VSE), whose main asset is 40% of the Kemess South gold-copper property in north-central British Columbia.

While it is no secret that Vengold was looking to acquire an advanced-stage project to complement its portfolio of exploration properties, the offer to acquire a minority interest in a domestic project appears to have caught some analysts off-guard.

“This is not what people expected from us, and yes, it is a minority interest,” said Glen Ives, Vengold’s chief financial officer. “But we are confident of the project and we like the technical work that has been done on it. We think it is going to be a mine.”

Vengold will offer one Vengold share plus one-half of a Vengold share purchase warrant for two and one-half St. Philips shares. Directors and certain other shareholders of St. Philips have already agreed to tender their shares to the Vengold offer.

John Ivany, president of St. Philips, said the offer is a good one for shareholders in that it works out to about $4.50 per share, compared with the pre-announcement share price at the $2 level. And he thinks Vengold is getting good value for a 40% interest in South Kemess.

“This asset hasn’t been fully recognized,” Ivany said. “How many four-million-oz. gold deposits are there sitting around, fully proven?” A 1993 prefeasibility study by Kilborn Engineering calculated a minable reserve of 220.9 million tons at an average grade of 0.018 oz. gold per ton and 0.22% copper. Ivany praised the quality of the technical work performed on the project by operator El Condor Resources (VSE).

El Condor has a 60% interest, and is seeking a buyer for the project following the recent withdrawal of Pegasus Gold (TSE), which had offered to acquire El Condor.

When asked whether Vengold is a potential buyer of the remaining 60% interest, Ives said only that the company has made no decision to acquire El Condor but will look at “all the opportunities and options.” In the meantime, El Condor has retained a financial firm to assist in any possible sale. “We have several senior companies interested in the project at the moment,” said El Condor Chairman Robert Hunter.

Hunter and associate Robert Dickinson previously sold two high-profile projects to major companies. These include the Mt. Milligan copper-gold deposit, sold to Placer Dome (TSE), and the Golden Bear gold project, sold to Homestake Mining (NYSE). Golden Bear was over budget in the development phase and failed to live up to expectations under Homestake’s stewardship. Wheaton River owns the mine now. Mt. Milligan was subsequently written off by Placer Dome as being uneconomic and remains undeveloped. Both are in British Columbia.

All that is water under the bridge, according to Ives. “We understand Pegasus did not have a problem with the technical aspects of the Kemess project, and we will be doing our own due diligence,” he said. “We see it as a bit of a contrarian play, where our costs of acquisition are about US$20 per oz. gold. Another benefit is that costs would be in low Canadian dollars and revenues would be in higher U.S. dollars.”