U.S. REPORT (July 29, 1991)

Acting upon the advice of its financial advisers, Fairbanks Gold (VSE) has entered exclusive negotiations with an unnamed major mining company for the purchase of all Fairbanks’ issued shares.

Fairbanks began soliciting offers for the company last year. The company’s primary asset is a 51% interest in the Fort Knox gold deposit near Fairbanks, Alaska.

Minable reserves at the property are reported at 220 million tons grading 0.024 oz. gold per ton with an overall strip ratio of 0.82-to-1. With over 11 million shares outstanding and a recent market price in the $7 range, a takeover would likely cost in excess of $80 million.

HRC Development, a privately owned Vancouver-based company, plans to proceed with an exploration program on the Golden West property in Arizona.

The company has the right to earn a 50% interest from joint owners, PIC Prospectors International (VSE) and Almaden Resources (VSE), by spending a total of $1 million.

Pacific Sentinel Gold (VSE) dropped its option to earn an interest in the property earlier this year after completing a 34-hole diamond drilling program.

HRC recently completed a small reverse circulation drilling program on the property to determine if grades had been understated by Pacific Sentinel’s core drilling.

The best intersections included 20 ft. grading 0.10 oz. gold per ton in hole GH-1, and 45 ft. grading 0.067 oz. gold per ton in hole GH-4. HRC stated that it believes significant potential exists to define a gold reserve on the property and it plans to conduct additional drilling.

A work program consisting of trenching and reverse circulation drilling has started on the Southern Cross gold property owned 100% by International Mahogany (TSE).

The company recently completed a review of previous exploration work carried out on the Montana property by Chevron Resources. This independent engineering study concluded that gold could be recovered from the property at an average cash cost of US$160 per oz.

Preliminary reserves are currently estimated at 2.08 million tons grading 0.34 oz. gold per ton within several zones, plus an additional one million tons grading 0.1 oz. gold per ton in the West zone.

International Mahogany believes this resource can be increased by further exploration drilling on previously identified structures. Of particular interest are the West zone where previous drilling returned 100 ft. grading 0.13 oz. gold, and the 600 zone where the last drill program returned 65 ft. grading 1.25 oz. gold.

After the current work program is completed, the company will consider the possibility of developing the property in association with a joint venture partner.

Environmental baseline studies to facilitate permitting are already in progress. A combined underground and open pit mining operation is envisaged.

Having survived the latest takeover attempt, management at Newmont Mining (NYSE) is moving to enhance the company’s position as North America’s top gold producer.

Now that merger talks with American Barrick Resources (TSE) have terminated, Newmont says it will accelerate its gold output to 1.6 million oz. in 1992 and 1.7 million in 1993 from the 1.54 million oz. it expects to produce this year.

Analysts in New York were told recently that the increase was possible because research into how refractory ore at the company’s Carlin, Nev., operations should be treated had been concluded sooner than expected. As a result, Newmont says it won’t have to restrain its production at around the 1.5 million-oz.-per-year mark.

But Barry Allan, precious metals analyst at Deacon Barclays de Zoete Wedd in Toronto called the announcement a knee jerk reaction to the scuttled merger discussions with American Barrick.

“Judging by recent increases in their share prices, the market liked the potential involvement of Barrick in Newmont’s Nevada operations,” said Allan. He believes the Newmont board, which has already survived takeover bids by Texas oilman T. Boone Pickens and South Africa-controlled Minorco, is also attempting to distract investor attention from Newmont’s first half financial results.

For the six months ended June 30, Newmont reported net income of US$59.4 million or 88 cents a share on revenues of US$318.5 million, down from US$89 million or US$1.31 a share on revenues of US$350.2 million in the same period last year.

Newmont’s 90% owned subsidiary Newmont Gold (NYSE) produced 419,000 oz. at a cost of US$208 per oz. in the first half of 1991, down from 461,000 oz. at US$206 per oz. in the same period last year.

The company’s first-half earnings declined to US$63.5 million or 65 cents a share from US$79.9 million or 76 cents a share in the equivalent 1990 period. Alan Gaines, president of New York investment firm Gaines, Berland agrees that it was the Newmont board, rather than the company’s biggest shareholder Sir James Goldsmith, which vetoed the Barrick merger proposal. The lion’s share of the 49% Newmont interest, acquired by Goldsmith and associate Jacob Rothschild from British-American company Hanson PLC, is held by General Oriental Investments (VSE). As a standstill agreement prevents the Goldsmith-Rothschild group from acquiring over 50% of Newmont until November 1997, the board is still in control.

“They (the directors) were probably concerned about the general and administrative cuts that may have followed an amalgamation of the two companies,” said Gaines who believes the merger issue is dead for the time being.

Meanwhile, Goldsmith has been elected to the boards of both Newmont Mining and Newmont Gold and will act as chairman of a strategy committee with a mandate to find ways to enhance the companies’ growth.

“I am anxious to bring to fruition the opportunities foreseen in a possible merger with American Barrick and to continue this type of initiative in other areas,” said Gordon Parker, chairman of Newmont Mining.

With the completion of an environmental assessment of the Robertson gold property in Nevada, Amax Gold (NYSE) is continuing with its exploration efforts.

The Bureau of Land Management halted work on the 11,000-acre property for about two months until the assessment was completed.

Amax can earn a 60% interest in the property from Coral Gold (TSE) by completing a bankable feasibility study.

Amax is now concentrating on the near-surface potential of the large property after deep sulphide drilling met with limited success and was discontinued last year.

Jim Baylis, a spokesman for Coral, said Amax began drilling in early July and is now concentrating on the core reserve area to confirm and expand the gold mineralization. Amax is also conducting tests to determine recoveries for both sulphide and oxide material.

Coral briefly operated an open pit heap leach mine at Robertson but was forced to suspend operations in 1989 because of operating problems and low gold prices.

Partners Minerex Resources (TSE) and Electra North West Resources (VSE) recently announced letter-of-intent agreements to acquire exploration and mining rights adjacent to their Aurora Partnership mine near Hawthorne, Nev.

Minerex is operator and 50% owner of the heap leach gold mine, with Electra holding the remaining interest. But Minerex receives all joint venture cash flows (less royalties and fees) until capital contributions are recovered. Planned production for next year is 33,800 oz. gold.

Acquisition of the new properties will allow the exploration and development of the easterly extension to the Humboldt vein structure currently being mined.

Once the final agreements are completed, an 11,000-ft. drill program will begin on the properties adjacent to the existing mine.

More encouraging results were released by Centurion Gold (NASDAQ) from ongoing drilling at the Big Horn gold project in the San Gabriel Mountains of southern California.

The latest core drill results from three holes are: 23.6 ft. grading 0.38 oz. gold per ton, 24.9 ft. of 0.51 oz. and 25.2 ft. of 0.11 oz. These results are uncut and represent actual drill-hole length.

These results, combined with previously released results, have the company optimistic that Big Horn will prove to be a relatively thick, shallowly dipping deposit that would be amenable to low-cost, underground bulk mining methods.

Centurion owns 100% of the gold project, with no royalties. Drilling is continuing on the property.