Miramar takes option on George Lake, Goose Lake (November 24, 2003)

In a deal with major Kinross Gold (K-T), junior producer Miramar Mining (MAE-T) has taken up an option to earn a 60% interest in the George Lake and Goose Lake gold properties in Nunavut.

The basic earn-in period on the deal is two years. It obliges Miramar to spend $10 million within a year of signing a definitive agreement with Kinross, or by the end of 2004, whichever is later. Miramar takes over operation of the project from Kinross.

After two years, or by the end of 2005, Miramar must have spent $25 million, or alternatively it can extend the earn-in period by one year by agreeing to spend an extra $3 million (for a total of $28 million). Miramar can only exercise that option if it has spent at least $15 million in the first two years of the agreement.

If Miramar delivers a positive feasibility study, Kinross has the option of taking back a 10% interest (forming an equal joint venture), by paying back one-third of Miramar’s expenditures during the option period. To put the deposit into production, both partners would provide the necessary equity, but Kinross would be obliged to seek project debt financing for at least 65% of the cost, on a best-efforts basis. Kinross would also have to provide all the guarantees and cost-overrun facilities required by the lenders.

The project operator, whether Kinross or Miramar, is entitled to a management fee as well.

The deal is still subject to the results of a due-diligence investigation by Miramar, and to approval by both companies’ boards of directors.

The George Lake land package, which Kinross bought from Wheaton River Minerals (WRM-T) late in 2001, comprises six separate properties covering about 390 sq. km; the properties are centred about 110 km south of Bathurst Inlet in Nunavut. The George Lake property holds the deposit with the largest resource, 2.62 million tonnes grading 9.9 grams gold per tonne in measured and inferred categories, with a further 3.9 million tonnes grading 10.1 grams per tonne inferred.

Goose Lake, about 60 km southeast of George Lake, contains a deposit in multiple zones with a measured and inferred resource of 1.75 million tonnes at an average grade of 9.6 grams gold per tonne. A further 595,000 tonnes grading 9.5 grams gold per tonne are inferred.

The resource figure for Goose Lake is recent, having been calculated by consulting firm Watts Griffis and McOuat in 2002. The George Lake resource, calculated by Mineral Resources Development International in 1998, was reviewed in 2001 to ensure compliance with new securities regulations.

Both deposits are hosted in iron formation, with both near-conformable sulphide zones and quartz veins occurring in iron formation and the surrounding sedimentary rocks. At George Lake, three layers of oxide-facies iron formation (which may be the same unit repeated by folding and faulting) host a series of gold occurrences. One of these zones, Locale 2, is a tabular, near-vertical body open at depth, and Miramar believes that zone has the best potential for increasing the George Lake tonnage.

At Goose Lake, a folded iron formation unit hosts mineralization concentrated in the nose and limbs of a northwest-plunging antiform, on the edge of a larger regional-scale synform. The deposit at Goose Lake South is open down the plunge of the antiform. Miramar plans to test this down-plunge extension of the fold nose, and believes there may be further down-plunge potential in the limbs of the fold as well.

Miramar has arranged with two investment houses to place 2.8 million flow-through shares at $3.65 per share, to finance the work on its new project. A further 1 million units, consisting of a share plus half a purchase warrant, are priced at $3.05 apiece; a full warrant entitles the holder to buy another common share at $3.65 for 18 months after the financing closes.

The proceeds of the basic offering add up to $13.3 million, which could increase by a further $5.2 million if the underwriters take up an additional 1 millon units, at their option. The offering is expected to close on Dec. 9. There is a 5% cash commission, and the underwriters also receive a broker’s warrant for common shares equal to 5% of the number of flow-through shares they sell. The broker’s warrant is exercisable for 18 months at $3.05 per share.

That financing will require the approval of the Toronto and American stock exchanges.

Miramar’s Con mine in Yellowknife, N.W.T., will be hoisting its last ore this week, and will close after 65 years of production. Ore from the Giant mine, across town, will still be processed at the Con plant. Miramar said it expects to book a $6-million loss in the third quarter, including $3.5 million in severance charges.