Queenstake's 9mo results
Queenstake Resources Ltd QTR
Shares issued 38,210,879 Dec 24 close $0.52
Tue 29 Dec 98 Company Review
Mr. James Mancuso reviews the company
Queenstake Resources Ltd. is committed to its mission to discover one or
more mineral deposits to materially enhance shareholder value. The down
cycle of the equity markets for junior mineral exploration stocks continues
and the company remains in a capital preservation mode. Other companies
will pay most of the major expenditures on our properties while the company
continues to finance reconnaissance exploration programs on its existing
property portfolio in Peru, Mexico and Chile. The exploration pipeline will
be kept full with new projects, while the company retains a substantial
interest in any orebody discoveries made by our joint venture partners.
In late September Queenstake drilled one 350 metre deep hole to test the
thickness of post-mineral cover, the source of conductive zones and the
sulphide system at its 100 per cent owned Quebrada Grande project in
northern Chile. A review and analysis of the results are pending. A joint
venture partner will be sought to finance additional exploration. Three
additional projects will be drilled before the end of 1998: Guinoloza in
Mexico (formerly called Yecorato 51), Uchcumachay in Peru and Pico Machay
in Peru.
Guinoloza is surrounded by concessions held by Francisco Gold, the
discoverers of the El Sauzal 3.5 million ounce gold deposit two kilometres
east of the Guinoloza property boundary. Mapping at Guinoloza has
identified an altered rock package in the center of the claim block;
interpreted to be the same rock package found at the El Sauzal deposit. The
altered rocks are geochemically enriched in barium, arsenic and lead, with
a weak gold signature. An induced polarization geophysical survey conducted
last year identified resistive zones within a more conductive halo
coincident with silica altered rocks. Similar anomalous resistive zones
have been recognized over the El Sauzal ore body. A four-hole reverse
circulation program began on Nov. 18 to test the altered rock package. A
road completed this summer by Francisco Gold crosses the northern portion
of the Guinoloza property, and access roads have been constructed to the
drill sites. The target is a gold deposit, similar to El Sauzal, mineable
by open pit methods. Surface rights over the Guinoloza concession have been
acquired from the local Ejido community. Barrick Gold Corporation will be
drilling on the company's 100 per cent owned Uchcumachay property in west
central Peru. A 3,000 metre, ten hole drill program is planned as an
initial test of altered, mineralized and geochemically anomalous epithermal
gold targets in rocks of the same age as Barrick's Pierina mine 130
kilometers to the north. Pierina is a +7 million ounce gold deposit where
production will begin late this year. Annual production for the first three
years is expected to be 750,000 ounces of gold at $50 (U.S.) per ounce.
Detailed mapping and sampling in 1997 and 1998 defined drill targets based
on structure, alteration and gold and related element geochemical
anomalies. Ninety-two samples from the primary targets average 0.25 grams
per tonne (gpt) gold and range from 0.05 to 1.6 gpt gold. Based upon
results, the initial drilling may be followed by eight additional holes.
Drill results will be released after logging and receipt of assays. The
targets at Uchcumachay are a series of gold deposits mineable by open pit
methods.
The Barrick-Queenstake joint venture agreement, signed on May 28, 1998,
requires Barrick to spend a total of $2,500,000 (U.S.) by June 1, 2001, for
Barrick to earn a 51 per cent interest in the Uchcumachay property. A first
year expenditure of $500,000 (U.S.) includes the requirement to drill at
least 1,000 metres. Following completion of Barrick's earn-in, the terms
are essentially the same as for the agreement between the company and
Barrick on Queenstake's North Ancash group of 24,000 hectares of mineral
properties and the agreement on the South Ancash group of 19,500 hectares
of mineral properties Barrick holds under option. In all cases, each party
will have the option to finance its share of ongoing programs or dilute its
interest to 30 per cent, where if the program continues, the diluting party
will be carried by the nondiluting party through to a positive decision to
mine. If Barrick holds the majority interest at the time a decision to mine
is made, with respect to a project, then Queenstake will have the option to
require Barrick to finance its share of development costs at prime plus 3
per cent.
On Nov. 10, 1998, Newcrest Resources Inc. began drilling on the company's
100 per cent owned Pico Machay property located in western Peru. A 2,000
metre drill program is planned as an initial test of altered, mineralized,
and geochemically anomalous epithermal gold targets hosted in volcanic
rocks of similar age as those found at Barrick's Pierina mine and Newmont's
Yanacocha mine located in the northern half of Peru. Detailed mapping and
sampling by Newcrest has outlined an altered zone 2 kilometres by 1
kilometre in size surrounded by weakly altered to fresh volcanic rocks.
Initial rock chip sampling of a strongly silicified outcrop returned 33
metres at 0.84 gpt gold, 90 metres at 1.21 gpt gold, including 12 metres at
4.97 gpt gold and 69 metres at 1.25 gpt gold, including 42 metres at 1.82
gpt gold. Analysis of over 400 rock chip samples indicates strongly
anomalous gold zones correlative with altered rocks within the core target
area. At the center of the system, assay results average 1.0 gram per tonne
(gpt) gold over 130 rock chip and six soil samples in an area 400 metres by
300 metres. The area of plus 0.1 gpt gold in surface rocks covers 1.2
kilometres by 600 metres. Newcrest plans an initial drill program of 2,000
metres in six to eight reverse circulation angle holes to test the altered,
mineralized, and gold bearing. Additional drilling will follow-up any
mineralized intercepts. The target at Pico Machay is a gold deposit
mineable by open pit methods.
The Newcrest - Queenstake agreement, signed in Oct. 1996, requires an
expenditure of $1,930,000 (U.S.) over five years by Newcrest to earn a 51
per cent interest in the Pico Machay property. At that point, Queenstake
can elect to participate or dilute its interest. Dilution of Queenstake's
interest cannot fall below 40 per cent until a prefeasibility study is
completed, and cannot fall below 35 per cent until a full bankable
feasibility study is completed. Furthermore, at Queenstake's option,
Newcrest will be required to finance 20 per cent of development costs for
Queenstake at prime rate +2 per cent.
Elsewhere in Peru, several major mining companies, some more than once,
have visited Mamanina, a large, copper-zinc, skarn porphyry system about 80
kilometres north of Antamina. The company, and its 40 per cent partner in
this property, Alamos Minerals Ltd., is confident a partner will be found
soon to drill this property. The company has completed its grass-roots
geochemical exploration program on the company's 90,000 hectare Andahuaylas
block. Several major mining companies are currently conducting due
diligence to determine whether to joint venture the Andahuaylas block and
the Conchaturio property drilled by the company last year. Reconnaissance
work on the remainder of the company's portfolio of properties not already
examined will be completed over the next half-year with additional
properties being acquired in areas in which the company is active.
As previously reported the board of directors eliminated the position of
chief operating officer that was held by Robert Miller. Mr. Miller's
employment was terminated at the end of July 1998 although he continues to
act as a director of Queenstake. On Sept. 1, 1998 Mr. Miller commenced an
action in the state of Colorado against the company and the company's
president, James Mancuso, for breach of contract, wrongful discharge,
intentional interference with contractual obligations and defamation, for
which Mr. Miller is seeking unspecified damages. The action against Mr.
Mancuso has since been dismissed. The company believes that the action
commenced by Mr. Miller has no merit and the company will vigorously defend
itself in this action. The company is disappointed that Mr. Miller has
chosen to pursue litigation rather than carrying on with the good faith
negotiations that were underway. The company has set aside $97,125 as a
current contingent liability for costs and settlement with respect to this
dispute.
In the nine months ended Sept. 30, 1998, Queenstake's interest income was
$337,581 compared to $318,589 in the same period last year. Management fees
included in other income are charged by the company based on expenditures
on the Peru and Mexican companies owned jointly with Alamos Minerals Inc.
These fees totalling $50,325 relate partially to 1997 expenditures but are
included in 1998's income. General and administration expenses decreased to
$939,516 from $1,120,057 at this time last year. Last year's expenses
included $254,800 deemed proceeds of 98,000 common shares issued to certain
officers in May 1997 under the bonus plan. There is a similar amount of
$22,500 deemed proceeds of 50,000 common shares issued to one officer under
the bonus plan in May 1998. In addition, there is an amount of $97,125
accrued as a contingent liability to settle the action between the company
and its former president and chief operating officer. Once these non-cash
and contingent amounts are removed from both periods the cash decrease for
the period is $45,366 achieved by cost savings in investor and shareholder
relations. Current exploration expenses amounted to $13,369; all of the
general exploration costs for the first nine months of 1997 were
capitalized. The company's working capital at Sept. 30, 1998 is
$8.7-million with no debt. The company's working capital is sufficient to
finance its planned capital requirements. Other share issues for the period
include 150,000 shares issued pursuant to the exercise of the last
remaining stock options priced at 15 cents. At Sept. 30, 1998 the company
has 38,410,879 shares issued and outstanding and 45,008,379 shares
outstanding on a fully-diluted basis. |
