MINE:Read what the company's CEO has to say about BRE-X
Golden Eagle International, Inc.
4949 S. Syracuse Street, Suite 300
Denver, CO 80237 (303) 694-6101
June 23, 1997
Dear Shareholder:
I would like to introduce myself as well as update you on three critical points regarding your
ownership of shares in Golden Eagle International, Inc. ("the Company").
First, my name is Terry C. Turner. I was appointed by the Company's Board of Directors as a Director, President and CEO on February 14, 1997. For more than a year prior to that time, from January 1996 until my appointment, I represented the Company in Bolivia as its attorney. The Company hired me at that time because I had the distinction of being the only attorney residing in Bolivia who was admitted to practice law in both the United States (Utah)
and Bolivia (first and only North American attorney admitted to practice law in that country). Also, I had 13 years of experience working in Bolivian mining--with significant experience in
the Tipuani Mining District where the Company?s operations are located. During that period of representation, I worked with the Company's management in Denver, Colorado, and the Company's subsidiary's management in La Paz, Bolivia, on important legal and
administrative issues regarding contract negotiations and doing general business in Bolivia. My resume is discussed below in more detail, or is available in the Company's 1996 Form
10-KSB Annual Report which should accompany this letter. If you did not receive a copy of the Company's Form 10-KSB, please write or phone the Company at its address above in
Denver, Colorado, to request a copy.
The three critical points on which I would like to update you as a shareholder in the Company are the obvious three that every shareholder has a right to know:
1. Recent History: Where has the Company been?
2. State of Operations: Where is the Company currently?
3. Strategy for Growth: Where is the Company going?
I have to ask you at the outset to forgive the encyclopedic nature my response may appear to be in answering these three questions - my preference would have been to have had our first
introduction be a short, courteous one. However, the Company has accomplished some incredible things in the recent past, is carrying out a clearly-defined operating program currently, and has some interesting strategic growth plans for the future; about all of which
you have a right to be informed.
In addition, the recent Bre-X scandal, regarding a Vancouver-based gold exploration company, has rocked the entire mining and business community worldwide and is on the mind and lips of every person with whom I speak in both North and South America. It has
brought to our attention the importance of every serious mining company taking more vigorous steps to disclose any and all material information to its shareholders - and the public in general - so that they may make informed investment decisions.Obviously, all mining
companies, even the majors, will now be held to a new, higher standard of scrutiny by the regulatory agencies, institutional investors, the investing public, and the mining industry's own professionals. The Company's Board of Directors and management have discussed this fact
at great length and believe that this new scrutiny will be positive for the Company's current and future shareholders. Golden Eagle International, Inc. is committed to meeting this new,
higher standard of scrutiny.
With regard to the above discussion, please take very careful note of the following:
This letter should not be relied upon by itself to make informed investment decisions.Any and all investment decisions should also be based upon a full and complete review of the disclosures contained in the Company's Form 10-QSB Quarterly Reports,and Form 10-KSB Annual Reports, in addition to discussions with independentprofessionals after their review of the reports referred to above. These reports will be provided to any interested party, upon request, and at no charge.
To date, the Company has generated no revenue, while incurring significant operating losses, and is considered a "development stage company."This letter is not a solicitation to buy, nor an offer to sell, any security.)The intent of this letter is to provide the Company's shareholders with information regarding the Company's management's assessment of the Company's recent and current activities, as well as management's strategic planning for the future.
Management may, or may not, have accurately assessed the Company's activities; and may, or may not, be able to implement its strategic planning for the future. Each shareholder, or potential shareholder, must evaluate management's position based on the disclosures contained in the Company's reports referred to above.
I. Recent History: Where Has The Company Been?
In 1994 and 1995 the Company experienced several failed attempts to acquire gold and copper mining properties in North America. Those attempts are discussed in detail in the Company's 1994, 1995 and 1996 Form 10-KSB Annual Reports.
This letter will focus on the Company's successful negotiation of mining rights on 2,004 hectares (4,810 acres) of mining concessions owned by the United Cangalli Gold Mining
Cooperative, Ltd. ("United Cangalli") in Cangalli, Bolivia, beginning in the latter months of 1995.
The following is a comprehensive historical explanation, in chronological order, of the events relating to the acquisition of the mining rights, subsequent operations in Bolivia, and other
significant events regarding the Company:
A. Initial Reconnaissance of the Cangalli Area Within the Tipuani Mining District and Pre-Feasibility Report.
In October 1995, the Company's management began reviewing mining opportunities in Bolivia. The Cangalli area had been presented with strong credentials. Historically, the Cangalli area, which lies in the heart of the Tipuani Mining District, had been the largest
gold-producing area in Bolivia. Government estimates, and those of geologists writing on the subject (1), put the gold production of the Tipuani Mining District during its known history at 1,000 metric tons (32,150,000 troy ounces ["ozt"]). (The Company's management was unable to verify these estimates as being accurate and has not relied
upon them, but believes that they were made in good faith after an evaluation of all of the known records and information.)
In late 1995, the Company contracted an independent consulting firm from Denver,Colorado, to perform a site evaluation and gather sufficient information to make a recommendation to the Company's Board regarding the site's potential feasibility as an exploration and development target. The consulting firm's initial report was
positive and a full pre-feasibility report was commissioned by the Company in December 1995.
The independent consultant's pre-feasibility report was presented to the Company in January 1996
(2). That report evaluated the Cangalli area very positively and calculated potential mineralization at two points within the United Cangalli concessions: the open-pitprospect at Chaco and the Cangalli Shaft underground workings (3). The calculations for those two points were as follows:
Potential Mineralization
Site Name in Troy Ounces of Gold
Chaco 109,996 ozt
Cangalli Shaft 5,413,505 ozt
The report indicated that these two sites were among at least 15 other
gold-bearing sites within the United Cangalli concessions. (The Company cannot
assure that this report is accurate, nor that the mineralization stated can be
economically mined. The report was produced by an independent consulting firm
which was responsible for its accuracy. However, the Company's management
did conclude that the report was a very strong indicator of a large, gold-bearing
deposit, and a mineralized trend suggesting geological continuity.)
B. Letter of Intent, Formation of a New Subsidiary and Private Contract.
After receiving the favorable pre-feasibility report, the Company's management
negotiated the terms of an understanding and signed an initial Letter of Intent with the
Board of Directors of the United Cangalli Gold Mining Cooperative on January 19, 1996,
in Cangalli, Bolivia. Within days management had formed Golden Eagle Bolivia Mining,
S.A. ("GEBM"), a Bolivian company in which the Company initially owned a 74%
interest. The Company later acquired an additional 19% from its Bolivian partners, to
own a total of 93%.
On January 25, 1996, the officers of the newly-formed GEBM signed a private
contract with United Cangalli for exclusive mining rights to the 2,004 hectares
(4,810 acres) owned by United Cangalli. The significant terms of that Contract
were:
i. a 25-year term, with an option for an additional 25-year term;
ii. an 18% gross royalty on all gold recovered payable to United Cangalli;
iii. a commitment by GEBM to rehabilitate and operate the Cangalli Shaft;
iv. a commitment by GEBM to invest a minimum of $3 million in the
exploration and development of the concessions within 420 days from the
signing of the Contract;
v. a commitment by GEBM to loan, interest-free, $100,000 to United
Cangalli to assist in satisfying several of its pending obligations, with
repayment to GEBM from United Cangalli's gross royalty on production;
vi. a commitment by GEBM to grant to United Cangalli, without further
obligation of repayment, $100,000 to assist in satisfying pending obligations;
vii. all ownership of equipment and machinery brought on-site for the
exploration and mining of the concessions remains vested in GEBM until
GEBM either withdraws because of a lack of feasibility, completes its 25-year
term and elects not to exercise its option, or exercises its option and
completes another 25-year term;
viii. a voluntary commitment on GEBM's part to cooperate with United
Cangalli, and the Cangalli village leadership, to improve fundamental health
and medical treatment in the area; to review and improve the overall sanitary
conditions relative to the potable water and sewer systems; and to contribute
to upgrading the standard of education in the village.
I am recounting the history behind the signing of the contract with United Cangalli,
and the contract's significant terms, even though that information is contained in
the Company's 1996 Form 10-KSB Annual Report, because I believe that a more
detailed explanation is warranted.
First, I am often asked why this opportunity still existed in Bolivia, and why a small
gold exploration and mining company from Denver, Colorado was the one to find it
and secure the mining rights?
I believe the answer is found in the idiosyncracies of mining cooperatives in
Bolivia. The Tipuani Mining District had been labeled for several decades as "No
Man's Land" for traditional mining companies precisely because gold mining
cooperatives owned such a high percentage of the mining concessions. The
cooperatives, made up of between 15 to 118 members, with little or no
administrative expertise, were judged to be difficult organizations with which to
work. Each member was equal to the other in rank, vote and authority. In addition,
world politics during the 60's, 70's and 80's created a tendency in these
cooperatives toward socialism and away from free-market concepts.
When private mining companies did enter into joint-venture agreements with the
cooperatives, the terms were almost always: 1) the cooperative received 50% of
the gold production for putting in the property; 2) a 1- or 2-year contract term; and
3) the cooperative kept any equipment and machinery at the expiration of the short
contract term. Significantly, these private companies were not required to, and
therefore never did, invest anything back into the development of the community or
its infrastructure. For that reason the Tipuani Mining District is still extremely
underdeveloped today despite the many millions of ounces of gold which have
been mined there.
In late 1995, the Company's management -- principally the Company's President
at the time, Ronald A. Knittle, and the Corporate Secretary and one of the
Directors, Mary A. Erickson -- had the vision to see, and the courage to pursue,
this mining opportunity in light of changing world and local politics which would
allow participation by American private enterprise. They also knew that United
Cangalli, even with 118 members, was one of the oldest, most well-organized, and
stable cooperatives in the Tipuani Mining District. However, the most important
point by far was their attitude toward the people of United Cangalli and the Cangalli
village. Their voluntary commitment, on the Company's behalf, to include contract
language providing for cooperation with the cooperative members to improve their
daily living conditions, and that of their families, left United Cangalli's Board of
Directors deeply impressed, and resulted in a great deal of flexibility on other
significant contract terms.
As an example, a 25-year contract period, and an option for an additional 25-year
period, are unheard of in the District. Such terms allow the Company the ability to
plan exploration and mining efforts well into the future.
An 18% gross royalty, while high by North American standards, is a very modest
royalty in the District. In fact, if the property proves up in accordance with the initial
reports and sampling results, the royalty will have been a small ongoing price to
pay.
Also, the negotiation of a minimal initial investment on the loan and grant funds for
United Cangalli, which pursuant to the contract have been stretched out over the
first year and into the second, was another reasonable feature of the contract.
In retrospect, after 14 years of experience in Bolivia and several specific cases of
negotiating with cooperatives, I believe that the foregoing analysis is the answer to
the question of why this opportunity still existed, and why the Company was able to
seize the moment.
If you ever have the opportunity to meet Mr. Knittle or Ms. Erickson, you might want
to thank them for their important accomplishment on behalf of the Company and
its shareholders. Mr. Knittle is no longer with the Company; however, Ms.
Erickson, after recently serving several months as the Company's President, has
accepted an appointment again as Corporate Secretary and continues to serve as
one of the Company's Directors.
C. Changes in Company Management During 1996.
Ronald A. Knittle, who had served as a Director, President and CEO of the Company
since November 1994, resigned from those positions in May 1996. As stated above, Mr.
Knittle was instrumental in the negotiations that resulted in the acquisition of the United
Cangalli mining rights.
Mr. Knittle is now working independently to address the serious medical, health,
education and housing needs in Bolivia that he experienced first-hand while
working there.
Ronald Sparkman
was appointed interim President in May of 1996 and served until July 4, 1996.
Mary A. Erickson
, then serving as Corporate Secretary, was appointed as President on July 4, 1996 and
served in that capacity until February 14, 1997. She has again assumed the position of
Corporate Secretary. Although it may seem to be a repetition of the praise for Ms.
Erickson already given above regarding the acquisition of the mining rights on the United
Cangalli concessions, I think that the Company's shareholders should be aware of Ms.
Erickson's additional contributions to the Company's welfare during her term as
President.
During some very critical times in the key development stage of the Cangalli
properties, Ms. Erickson was able to secure loans to the Company, often only by
providing her personal guarantee. To obtain the most recent bank line of credit of
$1 million approved for the Company in the first quarter of 1997, Ms. Erickson had
to pledge the majority of her personal stock in the Company.
However, not even the pledge of her stock equals the investment of time and
personal energy that I watched her make to:
i. bring the Company's reporting requirements current;
ii. oversee, long distance, the re-negotiation, improvement and execution
of a new contract with United Cangalli;
iii. administer the formation of the Company's new subsidiary in Bolivia,
Eagle Mining of Bolivia, Ltd, eliminating a number of issues bearing on GEBM
and the original contract with United Cangalli;
iv. engineer a $1 million mining equipment acquisition in Bolivia for stock,
leaving the Company's much-needed cash intact; and,
v. initiate a comprehensive exploration program on the Cangalli
concessions.
D. Workings in the Cangalli Shaft Establish Both Lateral Walls of the
Paleo-Canal.
On September 18, 1996, the Company issued a Form 8-K Current Report indicating
that the Company's subsidiary had "reached the Paleo-canal inside its exploratory shaft
on the Cangalli prospect in Bolivia." The Paleo-canal is sometimes also referred to as
the Paleo-channel, the Paleo-tipuani or the Ancient River Bed. This ancient course of
the Tipuani River was filled with the conglomerate material known as Cangalli. An
independent mining engineer and geophysicist retained by the Company to study the
Cangalli concessions described the Paleo-canal and its subsequent refilling as follows:
"Over the Paleozoic Basement lies the Cangalli Formation of the late Tertiary
Age-Miocene-Pliocene, named after the village on the Tipuani River where this
conglomerate, generally hardened, forms the surrounding hills where United Cangalli
has its concessions, and Golden Eagle's subsidiary its center of operations. The
thickness of the Cangalli varies from 500 to 2,500 m (1,640 ft. to 8,202 ft.)."
(4)
The importance of this event was the confirmation of the subsidiary's mining labors
directed toward reaching the floor of the Paleo-canal. For over 50 years, miners in the
Tipuani Mining District have sought to reach the floor of the Paleo-canal in various
locations along its course. The Company's consulting mining engineer/geophysicist
explains why in his recent report:
"The ore grades mined were usually very high - from a few tens of grams to many troy
ounces per cubic meter. As much as 125 kg. (4,019 ozt) of coarse gold have been
recovered from as little as eight m
3 (10.5 y3) of gravel found in a pocket in a small bedrock depression. This was based on information
well-documented in the Aramayo Company records. This company also reported that in l944, at
Tujojahuira, a single sample yielded 112 kg. (3,600 ozt) of gold in 12 m3 (15.7 y3) of material." (5)
E. Company Formed New Majority-Owned Operating Subsidiary.
On October 2, 1996, the Company formed a new majority-owned operating subsidiary,
Eagle Mining of Bolivia, Ltda.. ("Eagle Mining"). The Company owns 84% of the new
subsidiary's stock; Mary A. Erickson, former President and current Corporate Secretary
and Director, owns 3%; and Rene Velasquez, Eagle Mining's President, owns 13%.
F. Company's Newly-Formed Operating Subsidiary Entered Into a Public Contract
with United Cangalli.
In October of 1996, Eagle Mining assumed GEBM's contract rights and renegotiated its
contract with United Cangalli. The new contract was protocolized, or recorded, with the
Notary of Mines in La Paz on November 11, 1996. The new contract provides for a
gross royalty of 18% of the gold production for United Cangalli, as it did previously.
However, all other performance dates were changed so that Eagle Mining commited to
complete first-phase exploration and open one work front, in addition to the Cangalli
shaft, by April 20, 1997; to open two additional work fronts by December 6, 1997; and to
invest a minimum of $3 million in the project.
The Company has recently opened an additional workfront in the Cangalli open pit
and is working toward its $3 million commitment. To date, the Company has
expended substantial sums toward this commitment, including the acquisition of
$1 million worth of recovery and other mining equipment. With additional funding
sources obtained earlier this year through private stock purchases and the
extension of a $1 million line of credit from a Texas bank, we believe this
commitment has, in large part, been met.
In addition, Eagle Mining committed to provide to United Cangalli $200,000 for
reduction of United Cangalli's prior obligations; $100,000 in the form of a loan and
$100,000 in the form of a grant. Eagle Mining completed funding of the $100,000
loan to United Cangalli prior to year-end 1996, and as of this date has substantially
completed the additional $100,000 grant.
G. Company's Management Commissioned an Additional Independent Geological
Resource and Mining Feasibility Study of the Concessions Under Contract.
In early December 1996, the Company commissioned Guido Paravicini, M.A., Eng., a
Bolivian mining engineer and geophysicist, to carry out the following tasks relative to the
gold deposits at Cangalli, in the Tipuani Mining District of Bolivia:
i. Review the geological literature and studies regarding the region, the
Tipuani Mining District, and the local area surrounding Cangalli;
ii. Conduct field studies of the local geology, along with conducting a
sufficiently-in-depth sampling program to verify the mineral resources and
reserves on the claims owned by the United Cangalli Gold Mining
Cooperative, which are controlled under contract by Golden Eagle's Bolivian
subsidiary;
iii. Recommend further exploration and confirmation work to be carried
out and appropriate mining methods to be employed; and
iv. Verify Golden Eagle's subsidiary's rights to legally mine the claims
under study.
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