Kinross climbs aboard Buckhorn Mountain

As part of a campaign designed to boost reserves and production, while decreasing costs Kinross Gold (K-T) has signed a letter of intent to acquire Denver-based Crown Resources (CRCE-O).

Under the proposed deal, Crown shareholders would receive 0.2911 of a Kinross share for each share turned in. Assuming all of Crown’s warrants, options and convertible debentures are converted, Canada’s third-largest gold producer would need to issue about 13.1 million shares to complete the transaction. Based on the closing price of Kinross’ shares in Toronto on Oct. 9, the bid values Crown at around $133.8 million.

The plan also calls for Crown to distribute to shareholders its 41% stake in South American explorer Solitario Resources (SLR-T). On the flip side, Solitario, via the conversion of US$1.4 million worth of secured and subordinated convertible notes, and associated warrants, would gain a 13.7% equity interest in Crown on a fully diluted basis. That stake would see the company receive about 1.8 million Kinross shares; it would also regain some 1.3 million of its own shares currently held by Crown. Solitario says it will either retain those shares in its treasury or cancel them outright.

The agreement is subject to regulatory approval, and the thumbs up from at least two-thirds of Crown’s shareholders.

Crown’s key asset is the wholly owned Buckhorn Mountain high-grade skarn gold deposit in north-central Washington state. At the end of 2002, proven and probable reserves totalled 1.94 million tonnes grading 13.44 grams gold per tonne; another 1.07 tonnes of mineralized material grades 13.82 grams gold.

A 41-hole, infill-drilling campaign completed earlier this year at Buckhorn confirmed grades and continuity of the Southwest zone. Highlights form the last batch of 14 holes in the program include 6.9 metres running 24.3 grams gold, 3.5 metres of 29.5 grams and 3.7 metres averaging 32.6 grams gold. Two of the holes ended in mineralization suggesting expansion potential at depth. The holes also aimed to better define the margins of the Southwest Zone.

Kinross is currently reviewing the drill data and plans to update the reserve and mineralized material estimates to conform to the standards of National Instrument 43-101.

Earlier this summer, Crown submitted an initial plan of operation for a 1,500-ton-per-day underground mining and milling operation at Buckhorn to the state’s Department of Ecology and the U.S. Forest Service. The plan minimizes environmental impacts compared with earlier plans for an open-pit, heap-leach operation. The company plans to file a Supplemental Environmental Impact Statement during the second half of 2003. Approval of both submissions is required before construction can begin.

Crown says that by the end of June, it had spent about US$514,000 of some US$1.6 million budgeted for permitting costs in 2003. The company figures development of the project will ring in at around US$91 million, including US$21 million in contingencies. The project would employ around 150 people for about a decade.

Kinross’ chief executive Bob Buchan said in a prepared statement, “We have been encouraged by the recent legislative changes in the state of Washington, which have improved the business climate and the opportunity for the development of the high quality Buckhorn Mountain gold project.”

The Buckhorn deposit is situated about 67 km from Kinross’ Kettle River gold mill, which it inherited from Echo Bay Gold Mines under a larger three-way merger deal also involving TVX Gold. The major plans to look for synergies between the two operations.

Exploration at Kettle River is currently focussed on the Emanuel Creek deposit, near the past-producing K2 and Kettle mines. During 2002, 41 diamond drill holes outlined a zone of gold mineralization between 10 and 20 metres wide. The gold-bearing vein system remains open along strike and to depth.

A crosscut from the exploration drift was developed through the Emanuel Creek orebody to provide future mining access. Around 300 meters north and along trend of the deposit, drilling cut a new zone of gold mineralization over a 200-metre strike length. Five holes on the new zone, dubbed North Emanuel Creek, returned 60.4 meters grading 31 grams gold, 71.3 meters of 2.4 grams, 7.4 meters of 14.7 grams, 16.4 meters averaging 10.7 grams, and 6.7 meters running 9.1 grams. Further work is planned to define the extent and geometry of the body.

The deal’s announcement sent shares in Crown soaring US51, or 34%, to a new 52-week high of US$2.01 in late-afternoon over-the-counter trading. Kinross shares were off 40 at $9.81 in Toronto; for their part, Solitario shares shot up 17 to $1.22.