NEVADA — Echo Bay Mines forms strategic alliance with Fairmile — Exploration program to test Buffalo Valley gold property

Based on a recent letter agreement, Echo Bay Mines (ECU-T) will enter into an alliance with Fairmile Gold (FLA-A), a junior company exploring the Buffalo Valley property in Nevada.

Fairmile’s property is a short distance from Echo Bay’s McCoy-Cove gold operation, near Battle Mountain.

The Buffalo Valley mine area has a history of production dating back to 1912.

Underground mining between 1924 and 1951 produced about 3,000 tons grading 0.4 oz. gold per ton. A subsequent operator carried out limited heap leaching in the late 1980s, when more than 60,000 oz. gold was produced from ore averaging 0.04 oz. gold.

Fairmile acquired the property in 1993 and carried out a drill program below the pit and at other targets. At last report, drilling had outlined 17.2 million tons grading 0.03 oz. gold in the ABO area, or about 500,000 contained ounces of gold.

Echo Bay plans to acquire 700,000 shares of Fairmile for $1.4 million, with 80% of those proceeds being directed to exploration and development programs at Buffalo Valley.

The agreement calls for Echo Bay to direct development drilling and engineering studies on previously identified mineralization. Meanwhile, Fairmile will direct its exploration efforts to other targets identified on the 8,200-Acre property.

In addition to the private placement, Echo Bay will fund a bankable feasibility study up to $5.5 million. Once both conditions are met, Echo Bay will have an option to buy a 55% interest in the project. This can be increased to 65% through the execution of warrants.

The major agreed to pay Fairmile US$14 million for its interest in the first million ounces of recoverable gold, plus additional payments for further ounces produced as a result of Fairmile’s exploration efforts.

Meanwhile, Echo Bay expects to produce 725,000 oz. gold and 7 million oz.

silver from its global operations this year. The company’s two largest producers, Round Mountain and McCoy-Cove, are both in Nevada.

The company turned out 183,328 oz. gold during the first quarter, which represents a 17% increase over the 161,246 oz. produced in the same period last year. Silver production doubled to 2.4 million oz. from 1.2 million oz., while cash operating costs decreased to US$255 from US$261 per oz.

Echo Bay reported a loss of US$16.8 million (or 12 cents per share) in the first quarter, compared with a loss of US$16.2 million in the previous year.

Mcoy-Cove produced 52,286 oz. gold during the first quarter, up from 48,890 oz. a year ago, while cash costs there fell to US$285 from US$314 per oz.

More than three-quarters of the gold produced at the operation is milled, with the remainder heap-leached.

Echo Bay’s share of gold production from the 50%-owned Round Mountain mine totalled 56,161 oz. in the first quarter, up 41% from 39,716 oz. in the first three months of 1996. Operating costs were US$210 per oz., down from US$216 a year ago.

Echo Bay is building an 8,000-Ton-per-day mill at Round Mountain to treat non-oxidized ores. Testing is expected to begin in the second quarter, with full production scheduled for later this year.

The company is continuing to explore both Nevada properties. A series of exploration holes is being drilled beneath the Cove pit, as well as on nearby targets. Exploration work at Round Mountain is focused on new targets within the claim block, as well as on defining reserves that exist within the boundaries of the ultimate pit.