Royex gold production to exceed 110,000 oz LKD

Moving closer to its objective of becoming a substantial, low-cost gold producer, Royex Gold Mining Corp.’s annual share of production should exceed 110,000 oz this year and 200,000 oz in 1988, says President Peter Steen in the annual report.

The Renabie mine near Wawa in northern Ontario should reach its newly expanded capacity of 40,000 oz gold this year with direct operating costs of $210(US) per oz. Royex is operator of the mine with a 50% interest, while American Barrick Resources holds the remaining 50%.

The mine is well on its way to achieving its goal. Indeed, over the past year gold production was up 40% with 34,943 oz of gold produced in the 12 months ended Sept 30 compared to 24,654 oz in the previous 12 months.

The increase reflects a change not only in mining method back in April, 1985, to trackless sub-level caving from longhole stoping, but also an intensive program of rehabilitation and modernization, says Mr Steen.

A $23-million expansion program completed by the end of fiscal 1986 included sinking the internal shaft from the 3,105 level to 4,507 ft below surface, expanding mill capacity from 500 to 700 tons per day and upgrading various areas of the mine infrastructure.

Mr Steen also notes production costs at the mine have been reduced from $394 per oz in 1984 to $229 per oz in 1986.

Since the 1986 fiscal year-end, diamond drilling from the 3,510 and 3,930 levels has upgraded much of the inferred tonnage at the mine, resulting in an increase in proven and probable reserves to 1,011,900 tons averaging 0.219 oz, undiluted and with a 0.15 oz per ton cutoff, at Nov 30.

Inferred reserves on that date were calculated as 112,700 tons averaging 0.270 oz per ton. The orebody remains open at depth, says Mr Steen, with drilling continuing as new areas of the mine are opened up.

With all this the mine has posted its first annual profit. For the year ended Sept 30 net income was $2.6 million on revenues of $16.9 million compared to a net loss of $445,664 on revenues of $133,206 in the year- earlier period.

Output from the Nickel Plate, B.C., mine which will start production mid-year, is expected to be about 32,500 oz gold increasing to 160,000 oz in 1988. Direct operating costs are slated to be $136 per oz this year and dropping to $112 per oz next year.

While Mascot Gold Mines is developing this 2,700-ton-per-day open pit mine, Royex will manage the operation once in production. Mascot is owned 52% by Royex.

Based on surface and underground drilling from 1984 to 1986, proven ore reserves were established of 8.3 million tons grading 0.14 oz gold per ton mineable by open pit. Underground reserves of two million tons were indicated below the planned open pits. Further exploration, to be carried out when the mine is in production is expected to add to reserves, says Mr Steen.

Construction and development are proceeding on schedule and under budget, says the president. Project debt financing of $70 million to cover the entire cost of placing the mine in production was arranged last year.

Royex also owns 38% of International Corona Resources, which in turn owns 50% of the David Bell mine at Hemlo in northern Ontario. The mine produced about 53,000 oz gold in the 12 months ended Sept 30 and is expected to reach its rated capacity of 1,000 tons per day early this year.

Mineable reserves at Sept 30 were 6.1 million tonnes grading 0.36 oz gold per ton. In addition, says Mr Steen, a quarter claim optioned to Noranda, in which Corona has a 25% net profits royalty interest, contained 2.1 million tonnes of geological reserves grading 0.40 oz. Total production from the quarter claim in fiscal 1986 was 13,224 oz gold, for which Corona received $163,000 as its net profits royalty interest.

Output from the whole operation this year, including the quarter claim, is expected to be 137,000 oz, increasing to over 180,000 oz annually in 1988 and 1989.

Regarding the Page-Williams’ Hemlo property lawsuit between Lac Minerals and Corona, Mr Steen says that a resolution in Corona’s favor would provide additional production of 255,000 oz of gold this year and 374,000 in 1988. The Royex share is 19% of these amounts.

In the exploration department, Royex has become the operator and is acquiring a 30% interest in the 464-acre Jolu property in the La Ronge area of Saskatchewan. Based on results of 234,000 ft of diamond drilling last year and previous drilling, probable and possible reserves have been estimated to be 966,000 tons averaging 0.50 oz.

A 3,000-ft decline is being developed to a vertical depth of 460 ft to provide access for underground drilling and for a bulk sample for metallurgical testing.

On the financial side, Royex has reduced its loss before unusual items from $6.6 million in 1985 to $2.6 million in 1986, primarily because of improved operating results at Renabie, says Mr Steen.

The company issued 27,583,391 additional common shares to eliminate its debt to Corona, convert a portion of its preference shares and finance exploration activities. As a result, Royex currently has 60.7 million shares outstanding. On a fully diluted basis, there would be 73.1 million shares outstanding.

At Sept 30, Royex had a consolidated working capital deficiency of $2.2 million which was primarily due to commitments incurred by Mascot for the Nickel Plate mine. Funds to pay these commitments had not been drawn down on the $70-million project financing, says Mr Steen. Had they been drawn at Sept 30, Royex would have reported a substantial positive consolidated working capital.

Mr Steen says additional financing is currently in place to meet the company’s other financial commitments until usable cash flows are available from operations starting in 1988.