Malartic acquires Congress mine from Echo Bay

The deal gives Echo Bay 400,000 Malartic common shares and 200,000 common share purchase warrants good for three years at $6.50 a share. Echo Bay also garnered Malartic’s 21.3% stake in Gold Texas Resources (VSE) and $750,000 (US). When the deal closes June 30, Echo Bay will become Malartic’s second largest shareholder with 9.5%. Fordel Holdings is majority shareholder with 38.6%.

In return, Malartic receives a mine that is expected to produce at least 150,000 oz of gold over the next five years. Situated 60 miles northwest of Phoenix, the property includes the past-producing Congress mine which Echo Bay purchased in mid-1987. Existing reserves on the property total 431,000 tons of grade 0.29 oz gold per ton, but Malartic hopes to at least double that.

The present reserves were established by Echo Bay from 1,000-ft drill holes on the Niagara vein, which is parallel to the vein that yielded 370,000 oz of gold for the Congress mine. Continuous ore grades were returned to the bottom of the holes, says Malartic President Marc Henderson, and since Congress was mined to 3,600 ft depth, Henderson sees great potential from the Niagara vein.

The Congress mine might produce more gold as well, he says.

“We think there’s at least a couple of hundred thousand tons of low grade ore left,” Henderson told The Northern Miner. “There are also tailing reserves on the site and we didn’t even include them in our reserve estimates.”

Malartic plans to build an on-site mill to reduce production costs. Echo Bay had been shipping the ore to a smelter 350 miles away in New Mexico and the trucking alone added $27 per ton to the production costs. The silica-rich ore was sold as flux to the smelter which then recovered the gold. But the arrangement was risky, said John Sullivan, Malartic’s vice-president of operations. If the smelter stockpiled the flux, the gold was left unrecovered and the mine didn’t receive the money.

By milling the ore on-site, production costs should drop to about $250(US) per oz when the mill becomes operational from the 1988 average of more than $300(US) per oz.

The new mill will cost between $3 million and $4 million, depending on whether flotation or cyanidation milling is chosen. A feasibility study is under way, said Sullivan. Henderson added that it will probably be lease-financed although in a worst case scenario, Malartic could pay for the mill and still have more than $4 million in its treasury. In the meantime, the company is considering an interim arrangement with the New Mexico smelter or one of several closer mills and smelters.

Henderson is not concerned with the increased stake that Echo Bay now holds in Malartic.

“It’s tough for a big company (like Echo Bay) to make money on a small project,” he said. “We’re happy to have them as shareholders. We take it as a vote of confidence that they look at Malartic as an investment.”

“I think Echo Bay fast-tracked the mine and then lost interest in it,” said Sullivan. But he added that many of Echo Bay’s personnel have chosen to stay on the project, indicating that they have confidence in the mine’s potential.

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