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Gold/Mining/Energy : Holmer Gold Mines

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To: Brian MacDonald who wrote (696)	10/6/1999 6:09:00 PM
From: Midas	Read Replies (2) of 739

Hello Brian: Having negotiated mining deals for a mid-sized gold producer over a period of ten years, the deal sounds like a good one. The reasons that I make this comment are as follows: (1) Although the grade is reasonable, the indicated tonnage on the Holmer property is small compared to most new gold deposits. Mid-size and large mining companies wouldn't develop a new mine-mill complex unless there is an indicated reserve of 1 million ounces. Holmer will have to spend a lot of time and money to increase its reserves in Timmins and then pay a hefty fee to a reputable consulting firm to "prove" they have the goods. They would then have to have a feasability study done to prove the project warrants financing by various lending institutions. (2)Holmer has no in-house expertise in either mine or mill operation and would have to go out and buy people that can turn this exploration company into a mining company. In-house expertise is necessary for any mining company even if they operate a mining and milling using contractors. It is unlikely that holmer could attract top notch management to run the mining operation part of the comapny at this time. (3) Building and putting a new mill into operation for 2 million tons of ore may cost Holmer $25/ton ($50 million mill). The joint venture with St. Andrews cuts $25/ton off the operating costs because no mill needs to be built. This inkind contribution by St. Andrews warrants a reasonable return. Without this concession by St. Andrews it is unlikely that the known mineralized zone would ever be mined. (4) Majors like Placer Dome might give Holmer 40% of net profit but never 60%. They would also insist that they have the right to mine to any depth over an indefinite period of time. (5) The meaning of terms used in an agreement, such as operating profit, are usually defined in the agreement in order to minimize disagreements after the fact. (6) Management at St. Andrews includes several very sharp mining engineers that can complete preliminary mining feasibility studies in a matter of weeks rather than months or years. Most management types crave the ability to take on a project and bring it into production. St. Andrew's management is no different. If the project is warranted it will move ahead very quickly. (7) Just because a mill is rated for 1300 tons per day (t.p.d.) doesn't mean that is all you can process. The Pamour mill is rated for 2400 t.p.d. but it routinely processed 4000 t.p.d. By increasing the tons processed you decrease the recovery of the ore but compensate by the increase in tonnage. For example - processing 1300 tons with 0.25 o.p.t. of Au and a 95% recovery the St. ANdrews mill will produce 309 ounces of gold per day. If instead you process 1800 tons of similar grade but with a 90% recovery it produces 405 ounces of gold per day. Considering that one of your biggest and fixed costs in a mill is the labor, you will have increased your profit margin by sacrificing on your recovery in the mill. I hope this helps put the Holmer (Timmins) deal in the proper light. Midas

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