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Golden Hat Resources Inc. — Annual Report 1998
Jun 4, 1998
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Download source fileGOLDEN HAT RESOURCES INC.
ANNUAL INFORMATION FORM
FOR THE YEAR ENDED JUNE 30, 1997
And subsequent period
May 27, 1998
TABLE OF CONTENTS
| Page No. | ||
|---|---|---|
| Item 1 | The Company | 2 |
| Item 2 | Description of the Business | 2 |
| Item 3 | Description of Mineral Interests | 2 |
| Item 4 | Selected Financial Data | 20 |
| Item 5 | Management’s Discussion and Analysis of Financial Conditions and Results of Operations | 22 |
| Item 6 | Market for Securities | 24 |
| Item 7 | Directors and Officers | 25 |
| Item 8 | Additional Information | 26 |
| Certificate | ||
ITEM 1. THE COMPANY
Golden Hat Resources Inc. (the “Company”) was incorporated on January 14, 1982 under the Company Act, R.S.B.C. 1979 as amended by the registration of its Memorandum and Articles under the name Banex Resources Corporation. The Articles of the Company were amended with respect to a name change to Hat Resources Corporation on June 2, 1982 and to Golden Hat Resources Inc. on June 16, 1986. By the provisions of the Company Act, R.S.B.C. 1979 as amended, the Company was deemed to be a reporting company in the Province of British Columbia on April 28, 1987 by virtue of having a Prospectus receipted in the Province of British Columbia.
The Company has an authorized capital of 50,000,000 shares without par value. As of March 31, 1998 a total of 10,705,079 shares were issued and outstanding, a further 2,845,249 shares were reserved for issuance in relation to share purchase warrants and outstanding options. Of the issued shares, 352,905 shares remained in escrow. The Company’s shares are listed for trading on the Vancouver Stock Exchange. The Company’s executive office is located at 718 - 510 West Hastings Street, Vancouver, B.C. V6B 1L8.
Subsidiaries
The Company owns 55% of the issued shares of Inca de Canada S.A. de C.V. (the “Subsidiary”), a Mexican corporation.
The Subsidiary was registered before the Mining Public Registry on June 28, 1996.
The head office of the subsidiary is located at Cerro Blanco #155, Col. Infonauit, Hidalgo, Del Parral, Chihuahua, Mexico. This subsidiary holds the Company’s interest in the Inde Project.
ITEM 2. DESCRIPTION OF THE BUSINESS
The principal business of the Company is the acquisition, exploration and development of mineral properties for the production and sale of ores and minerals. The Company’s major asset is its interest in the Inde Project where it is completing the evaluation of the Tailing part of its project.
ITEM 3. DESCRIPTION OF MINERAL INTERESTS
INDE PROJECT
The Company owns 55% of the outstanding shares of Inca de Canada, S.A. de C.V. (the “Subsidiary”), a Mexican corporation. The Subsidiary is the operator of a development project in the Cieneguillas Mining District, in Central Durango State, Mexico approximately 170 km. south of Parral. The Company has acquired from Minera Scorpio, S.A., Gila Equipment and Mining, Inc., and Julian Mining Corporation certain rights in respect to the tailings portion of the Inde project and the sulphide portion of the Inde project. In addition to the agreements in respect to the two portions of the Inde Project, the Company has entered into a working agreement with the same parties in order to set rules of conduct for the Subsidiary.
TailingsAgreement
On February 13, 1994, Minera Scorpio S.A. (“Minera”) of Churubusco No. 16, Hgo. Del Parral Chi., Mexico, a company whose principal is Francisco Silveyra Ibarra entered into an agreement with Julian Mining Corporation (“Julian”) of 204 - 8907 Pineo Court, R.R. #1, Summerland, B.C. whose principal is David Ross and Gila Equipment and Mining, Inc. (“Gila”) of Box 99, 347 Turkey Creek Road, Gila, New Mexico whose principal is James Scartacinni. Subsequently, Julian and Gila assigned its interest to Golden Hat Resources Inc. on July 11, 1994. The previous agreements were amended on the 27th day of February, 1995. The parties to the amending agreement were Minera Scorpio, Julian, Gila and the Company.
As a result of the above described agreements, the Company may acquire its interest in the tailings portion of the project (tailings located on the surface or within 500 meters of the outermost boundaries of the Cieneguillas (T.178596) mineral claim near the Village of Cieneguillas, State of Durango, Mexico) in consideration for the future issue and allotment of up to 750,000 fully paid shares of the Company’s common stock to each of Julian and Gila which number of shares shall be calculated subsequent to the acceptance by the Vancouver Stock Exchange of a report by Ralph Westervelt, P.Eng. (the “Evaluation Report”) by dividing the value determined and the Evaluation report by the market price of shares of Golden Hat on the date of the certificate forming part of the Evaluation Report. None of the shares will be issued before the acceptance of the said Report by the Vancouver Stock Exchange. Another provision is that an operating company (the “Subsidiary”) shall be created as a separate entity which will be used solely for the development of the Inde Project. The Company has agreed to pay the costs of the creation of the operating company. The interest of all the parties in the Tailing Agreement have been assigned to the Subsidiary. The Company has agreed to fund the Subsidiary with sufficient funds: (1) to cause the preparation of Evaluation Report on the property; (2) to make cash payments to Minera in the amount of $3,000 U.S. every month after execution of the agreement until commercial production commences on the property; (3) to cause Kappas Cassidy & Associates, of Sparks, Nevada to finalize metallurgical testing on samples from the property; (4) to cause a survey of the Cieneguillas mineral claim to be carried out and to arrange the acquiring of the right to use such additional grounds as necessary to mine and develop the property to commercial production, if such acquisition is warranted in the sole discretion of the Subsidiary; (5) if the Subsidiary concludes that it is economically viable to cause a plant to be built and equipment to be acquired to extract any gold and silver present in the tailings. The agreement provides that the Subsidiary shall be owned 55% by Golden Hat and 45% by Minera.
The agreements further provide there shall be a shareholders agreement between the Company and Minera that will provide from the proceeds of production from the property described in the Tailings Agreement, Minera shall receive 20% of any production proceeds and the Company shall receive 80% of any production proceeds until such time as the production proceeds received by the Company shall be equal to any amount expended by the Company to carry out its commitments described above.
After the Company has recovered all of its costs of funding the work set out above, the Subsidiary shall pay any production proceeds, after providing for ongoing costs on a reasonable reserve for operating on the property, according to the issued capitalization of the operating company. The said shareholders agreement shall provide that Minera and the Company shall cause the operating company to carry out the work described above.
Sulphides Agreement
In addition to the agreements with regard to the tailings described above, the Company has entered into similar agreements with the same parties and dates in respect to the mineral claims described as Cieneguillas T178596, Carmen T181233, Alejandra T164706, El Estudiante T155936, Ilusion T181232, Ernesto T181231, Paco T181414 and Cieneguillas Fraction T180580, all of which are located in the vicinity in the village of Cieneguillas, in the State of Durango, Mexico. The claims have been grouped under the name “Unification Paco”. This agreement specifically excludes any oxide ores on the mineral claims. As a result of the three agreements, the consideration and terms to be met by the Company are as follows:
(a) an operating company be created (the “Subsidiary”) (which has been done). The Company paid the costs of the creation of the Subsidiary. The interests of the parties in the property described in the Sulphides agreement were assigned to the Subsidiary;
(b) the Company will fund the Subsidiary with sufficient funds to:
(1) cause the preparation of a title opinion on the property (which was done);
(2) cause the preparation of an independent evaluation of the property (which has not yet been completed);
(3) to carry out work if recommended by the independent evaluation report on the property and if accepted by Minera;
(4) carry out a work program on the property in the first year to carry out $100,000 of exploratory work and in the second year to carry out an additional $200,000 of exploratory work. The proceeds of production from the Property shall be distributed as set out above in the description of the tailings agreement.
The Company has agreed to issue 100,000 shares to each of Gila and Julian. None of the shares to be issued prior to acceptance by the VSE of an evaluation report prepared by Ralph Westervelt, P.Eng.
Summary
The Company has met its obligations pursuant to the Tailing Agreement and the Sulphides Agreement as follows:
(Tailings Agreement). The Company has carried out all of its obligations up to the current stage of obtaining evaluation reports from “Lurgi Mexican” and Inco Tech. With these reports, Westervelt Engineering will be able to prepare a final report on the viability of the Tailings Project.
(Sulphide Agreement). The Company will commence its program on the Sulphides upon putting the Tailings into production.
Operating Agreement
On October 18, 1996, the parties to the Sulphide and Tailings Agreements entered into a further agreement (the “working agreement”). The working agreement provides that in the event that Golden Hat abandons its interest in the Subsidiary, the said interest shall be delivered to Minera. Minera has maintained its right to the surface of the properties and all of the parties acknowledge that the oxides zone is excluded from the exploitation of the property by the Subsidiary.
The Company has decided that it will pursue the development of the Tailings portion of the Project as a priority.
The following information has been extracted from a report prepared by Ralph Westervelt, P.Eng. dated July 15, 1994 as updated by a Memorandum dated May 8, 1998. During the period of the Offering, the said report is lodged at the head office of the Company, 718 - 510 West Hastings Street, Vancouver, B.C. where it may be examined during normal business hours.
INDE TAILINGS PROJECT
Cieneguillas Mining District
Durango, Mexico
July 15, 1994
SUMMARY
Two major tailings deposits have been identified in the historic Cieneguillas mining district in central Durango State, Mexico, approximately 170 km south of Parral. The available records suggest total past production from an oxide zone during the period 1880-1953 at about 2 million metric tons with a gold grade averaging about 20 gmt with silver grades in the 100-200 gmt range.
Based on recent mapping and sampling, the serves on the tailings are estimated as follows:
| Metric Tons Probable Possible | Grade Au (gmt) Ag (gmt) | |||||
|---|---|---|---|---|---|---|
| Guadalupe | 267,077 | 80,123 | 3.02 | 125.0 | ||
| La Terrible | 1,100,582 | 330,175 | 2.16 | 75.8 |
The tailings are not amenable to direct cyanidation due to the presence of extremely refractory iron oxidation minerals such as marosites and goethite-type hydrous iron oxides. Preliminary metallurgical testing has indicated good gold-silver recoveries can be achieved by cyanide extraction if the tailings are first roasted to temperatures in the 450-550C range.
Further metallurgical test work and a small pilot plant operation are proposed to develop a continuous bulk handling process for treating these tailings. Costs to carry out this additional metallurgical work and acquire further surface rights in the area are estimated at $130,000 (Canadian).
INTRODUCTION
In late April 1994, the writer accompanied by Mr. A. David Ross visited the Cieneguillas Mining District near the small town of Inde in northern, central Mexico. Four days were spent one examining, surveying and sampling the two major tailings deposits in the district which had been acquired by Julian Mining (Mr. A.D. Ross) under an agreement with the local mine operator-owner.
The results of the initial metallurgical test work previously completed on these tailings by Julian Mining have since been reviewed in detail along with the general mine development history of the area.
The present report prepared at the request of Golden Hat outlines the results of these preliminary investigations and recommends further metallurgical testing to prove up the viability of retreating these tailings for gold-silver recovery.
PROPERTY LOCATION, ACCESS, PHYSIOGRAPHY
The Cieneguillas Mining District is situated in mountainous terrain in the State or Durango approximately 170 kilometres by road south from the old mining centre of Parral. The nearest town, Inde, is located some 8 kilometres by road to the north, but available services and supplies are quite limited. Most major supplies would have to be trucked directly from Parral or Durango which are readily accessible by major highways with only the final 20 kilometres to Inde being on a reasonably maintained gravel road.
The general area is moderately rugged with sharp ridges and well incised ravines. Elevations range from 1700 to 2300 metres above sea level with most slopes averaging enter than 45. Natural outcrops are sparse and mainly confined to the ridges and steeper slopes. Rock rubble and shallow soil cover is predominant throughout the region.
The area is semi-arid with vegetation being limited to widely scattered scrub trees, cactus and thorn bush thickets both on the slopes and on the tailings dump. Water is plentiful at depth in the old mine workings but surface supply is limited to a few local springs.
PROPERTY DESCRIPTION AND AGREEMENTS
Minera Scorpio S.A., a private company owned by Francisco Silveyra, a local mine operator, holds a group of eight contiguous mineral claims covering most of the old production area in the Cieneguillas district. These claims are recorded in the municipal district of Inde, in the State of Durango as follows:
| Claim Name | Title No. | Hectares |
|---|---|---|
| El Estudiante Aleiandra Cieneguillas Cieneguillas Fraccion II Ernesto Ilusion Carmen Poco | 155496 164706 178596 080580 181231 181232 181233 187414 | 16 20 101 30 7 6 17 47 |
| TOTAL: | 244 hectares |
Taxes are currently overdue on these claims and must be paid by December 1994.
The major tailings areas - the Guadalupe and La Terrible, are situated within and immediately adjacent to the existing mineral claim block. Under the current Mexican mining laws, the rights to the tailings are vested in the owners of the claims from which they originated. Any conflicting surface rights over the tailings or adjacent lands are subject to confiscation by the courts at fair market price for mine development and processing. In the present case, the adjacent surface right owners have been using the land for cattle grazing and have already indicated their willingness to sell any surface rights necessary for mine development.
Under a letter agreement, Julian Mining and an associated company - Gila Equipment and Mining Inc., had acquired an interest in all of Minera Scorpio’s rights to the Guadalupe and La Terrible tailings. Under a recent formal agreement with Minera Scorpio, Julian and Gila have jointly entered into an option agreement to acquire a 55% interest in a New Mexican company to be formed with Minera Scorpio in the future to retreat the tailings. Subject to regulatory approval, all of Julian and Gila’s rights in the option have been assigned to Golden Hat.
The writer has not personally verified title to any of the property nor have the agreements been reviewed as this is beyond the scope of the present report and should be addressed by the company counsel.
MINING HISTORY
As with most of the old mining districts in Mexico, the early history is lost in antiquity and factual production records are fragmentary at best.
As noted in the old church records, gold was known in the Cieneguillas area by the Indians well before the Spanish consequent. Subsequent limited silver-gold production dating back to 1565 was reported by the Conquistadores who erected three small smelters and apparently operated over a period of 200 years.
Modern mining commenced in 1880 when an English company acquired significant claim holdings, a major gold-bearing shear structure was opened up by a series of portals and shafts, and a cyanide mill was erected on the hill above the Guadalupe tailings. By 1906, a French company had acquired some additional claims and a joint operation with the English company was commenced with a larger cyanide mill being constructed on the hillside near Cieneguillas above the La Terrible tailings. Available records indicate production rates through 1928 of up to 12,000 tons per month with average grades of 22 gmt Au and 90-110 gmt Ag. Cut off grades were reportedly in the 8-10 gmt au range.
All of the combined English-French production was from the oxide zone with the underlying sulphide material being left untouched. Test work has established that the existing mills could not achieve satisfactory gold recoveries from the unoxidized Sulphides ores at depth.
Faced with labour and political unrest and depleted oxide reserves, the English-French companies suddenly abandoned the project in December 1935 leaving the equipment intact. In 1941, the local miners seized the property and successfully operated the mine and mill on a limited basis until 1953.
The available records suggest total production over the period 1880-1953 at about 2 million metric tons with a gold grade averaging about 20 gmt with silver grades in the 100-200 gmt range (e.g.: at 90% recovery, actual gold production of approximately 1.3 million ounces).
TAILINGS DEPOSITS
A. General Description
The two major tailings deposits - the Guadalupe and La Terrible, in-fill two separate broad U-shaped valleys below the old mill sites approximately one kilometre apart. In the case of the Guadalupe deposit, the earliest tailings were simply dumped over the steep hillside and have cascaded at variable depth into a tight ravine which then broadened out downstream into a gentle relatively flat valley. Downstream, the tailings were contained by a single dam constructed of tailings material which allowed in-filling of the valley up to a depth in excess of 10 metres.
In the case of the larger La Terrible deposit, the tailings were discharged into a large broad valley with five dams being constructed in sequence downstream allowing five different levels of tailings accumulations with local depths frequently exceeding 18 metres.
All the tailings dams have been breached for drainage purposes but the tailings are well compacted and there is little evidence of any significant downstream erosion.
The surface of the deposits is quite level and open with only occasional scrub trees and grass patches. The most striking feature is an abundance of irregular vertical desiccation reach up to 3 metres in width and frequently extending to depths in excess of 15 metres these crevices formed as the tailings dried in place and now permit a reasonable examination and sampling of the tailings at depth.
The tailings are now totally dry, are well compacted and are remarkably uniform in appearance. The colour varies from pinkish to reddish orange with some brownish orange to ochre sections. Stratification, although locally evident, is not a prominent feature. Although quite competent, the material immediately breaks up on handling into a fine reddish-brown powder with considerable dust.
B. Field Work
The main areas of both the Guadalupe and La Terrible tailings were surveyed using a tape and Brunton compass at a scale of 1:2000. Random sampling was then carried out taking care that the samples were taken at varying depths throughout the piles and that only fresh material away from near surface effects were selected.
A total of 23 samples were taken from the Guadalupe deposit and 21 samples from La Terrible with each sample weighing about 2 kilograms.
Two composite samples were then prepared from the above samples by taking equal amounts of all the samples from the Guadalupe (the “G” composite) and from La Terrible (the “T” composite).
C. Sampling Results
All of the samples including the two composites were analyzed for gold and silver content by Bondar-Clegg Laboratories in Vancouver using standard fire assay techniques. The assay results were shown Table I (for the Guadalupe) and Table II (for La Terrible).
Notably, the previous metal values within the individual deposits are remarkably consistent with only a few scattered highs and lows. No discernible grade trends are evident either laterally or with depth in either of the deposits.
The assay results are summarized as follows:
| Guadalupe gmt Au gmt Ag | La Terrible gmt Au gmt Ag | |||||
|---|---|---|---|---|---|---|
| Maximum high Minimum low Average all samples Composite sample | 6.34 0.55 2.91 3.12 | 180.3 64.3 129.0 121.0 | 3.67 1.37 2.09 2.23 | 141.3 52.1 77.2 74.4 | ||
| Average | 3.02 | 125.0 | 2.16 | 75.8 | ||
| Grade (oz/ton) | 0.088 | 3.65 | 0.063 | 2.21 |
As noted above, the Guadalupe tailings are some 40% higher in gold grade and 65% higher in silver grade than La Terrible tailings.
A single test by Bondar-Clegg on a representative tailing sample yielded a specific gravity of 2.65 and screen analyses on the two composite samples gave results as follows:
| Guadalupe Composite Sample G | La Terrible Composite Sample T | |
|---|---|---|
| +80 mesh -80 to +150 mesh -150 to +200 mesh -200 mesh | 27.8% 12.4% 9.9% 49.9% | 12.7% 18.2% 12.3% 56.8% |
| 100.0% | 100.0% |
As suspected, approximately 50% of each sample is composed of very fine material but some coarse fractions do exist. As yet, no assaying has been carried out to determine whether there is any preferential distribution of precious metal grades with mesh size.
D. Trace Element Analyses
Five representative samples from the tailings were selected along with the two composite samples for trace element analyses by Bondar-Clegg in Vancouver. The results are presented in Table III.
As shown, the arsenic values re surprisingly high (0.78 to 1.69%), the lead values are quite variable and the cadmium and mercury values are moderately elevated. These four elements will require further testing and monitoring in any retreatment process to minimize any health and potential environmental problems.
E. Tailings Reserves
In view of the limited sampling to date and lack of valley bottom profiles, none of the reserves can be firmly established in the proven category.
The trades based on the available sampling appear to be fairly constant and will most probably not significantly change even with more detailed sampling. The volumes and tonnages can reasonably be estimated on the basis of the surface areas, the general valley slopes and the depths of the tailings exposed in the deep desiccation cracks.
On a very conservative basis, the writer has estimated highly probable and possible reserve son the two tailings deposits as follows:
- Guadalupe Tailings
| Area (m2) | Thickness (m) | Metric Tons | Grade gmt Au gmt Ag | |||
|---|---|---|---|---|---|---|
| Upper section | 2812 | 1.7 | 12,688 | |||
| Mid section | 3136 | 5.0 | 41,552 | |||
| Lower section | 4592 | 15.0 | 182,532 | |||
| Unsurveyed section up drainage below mill | 60,000 | |||||
| SUB-TOTAL Less: 10% crevices Total PROBABLE Reserve | 296,752 29,675 267,077 | 3.02 | 125.0 | |||
| 30% Additional POSSIBLE Reserves | 80,123 | 3.02 | 125.0 |
- La Terrible Tailings
| Area (m2) | Thickness (m) | Metric Tons | Grade gmt Au gmt Ag | |||
|---|---|---|---|---|---|---|
| Upper level | 7812 | 9.0 | 183,316 | |||
| Section level | 5232 | 10.0 | 138,648 | |||
| Third level | 5136 | 12.0 | 163,325 | |||
| Fourth level | 8032 | 15.0 | 319,272 | |||
| Fifth level | 10448 | 15.0 | 415,308 | |||
| SUB-TOTAL Less: 10% crevices Total PROBABLE Reserve | 1,222,869 122,287 1,100,582 | 2.16 | 75.8 | |||
| 30% Additional POSSIBLE Reserves | 330,175 | 2.16 | 75.8 |
The above figures suggest total production form the old workings from 1880 to 1953 as follows:
| Guadalupe: | 267,077 + 80,123 = | 347,200 |
|---|---|---|
| La Terrible: | 1,100,582 + 330,175 = | 1,430,757 |
| Total Property production | 1,777,957 metric tons |
PRIOR METALLURGICAL TESTING
On April 1992, Julian Mining submitted a composite bulk sample from the Guadalupe-La Terrible tailings to Kappes, Cassiday and Associates in Sparks, Nevada for metallurgical testing. This sample, having a grade of 2.8 gmt au, 140 gmt Ag, was subjected to standard 48 hour cyanide bottle roll tests. The material was judged to be quite refractory as the gold recovery averaged about 24% and the silver recovery about 10%.
In May 1992, a sample of this material was sent by Kappes, Cassiday to Pittsburg Mineral and Environmental Technology, Inc. for a preliminary mineralogical study. This study identified the sample as being a finely ground, highly ferruginous, siliceous tailings product with substantial amounts of carbonate, hydrous iron oxides (goethite), various jarosites (K-Pb-Fe-As-sulphate-hydroxide) and finely disseminated hermatite. Gold was found mainly as ultrafine inclusions in the goethite with the silver being associated with both the goethite and the jarosites. Both the goethite with the silver being associated with both the goethite and the jarosites. Both the goethite and the jarosites exhibit dense precipitation gel textures and are, in part, disseminated throughout or intimately intergrown with siliceous gangue.
In July 1992, Phase II of the metallurgical testing was carried out by Kappes, Cassiday involving roasting of the samples for periods of up to 2 hours at temperatures ranging from 350-1000C followed by 72 hours cyanide bottle roll tests. A significant improvement in recovery was reported with an optimum temperature for silver in the 450C range and for gold in the 500-500C range. For example, after heating for 2 hours at 450C and then bottle rolling for 72 hours, the gold recovery reported at 80.9% and the silver at 72.4%.
At both lower and higher temperatures the gold and silver recoveries are significantly reduced.
All of the Kappes, Cassiday road tests were carried out on 200 gm samples in a standard muffle furnace. To date, no test work has been carried out on a rotary kiln system which might allow a contiguous bulk feed.
CONCLUSIONS AND RECOMMENDATIONS
- The Guadalupe-La Terrible tailings are not amenable to direct cyanidation due to the presence of extemely refractory iron oxidation minerals such as jarosites and goethite-type hydrous iron oxides.
- Preliminary metallurgical testing has indicated good gold-silver recoveries can be achieved by cyanide extraction if the tailings are first roasted to temperatures in the 450-550C range. Initial test results suggest close temperature control will be required to optimize recovery rates.
- Priority should be given to additional metallurgical test work directed at developing a contiguous bulk handling process utilizing a rotary kiln or fluid bed roaster. Operating costs on similar systems elsewhere at these relatively low temperatures range from $5.00-$10.00 US per metric ton.
- The tailings reserve as outlined in the present report are reasonably assured and should await further definition pending the results of the metallurgical test work..
- At current metal prices (386 US/oz Au, $5.14 US/oz Ag) with recoveries of 80% on the gold and 60% on the silver, the probable reserves have a recoverable in place value calculated as follows:
| Guadalupe | |
|---|---|
| Au = 267,077 x 3.02 x .8 x $12.41 x 1.38 = | $11,050,560 |
| Ag = 267,077 x 125.0 x .6 x $0.168 x 1.38 = | 4,643,935 |
| $15,694,495 Cdn. |
E.g.: $58.76 Cdn. Per metric ton
| La Terrible | |
|---|---|
| Au = 1,100,582 x 2.16 x .8 x $12.41 x 1.38 = | $32,569,994 |
| Ag = 1,100,582 x 75.8 x .6 x $0.168 x 1.38 = | 11,604,628 |
| $44,174,622 Cdn. |
E.g.: $40.18 Cdn. Per metric ton
- Until recently, Minera Scorpio has been mining and operating a 150 tpd zinc-flotation mill on a separate property some 4 kilometres by road from the Cieneguillas site. This plant is currently on standby and comes complete with agitation tanks, screening and crushing equipment and a modern assay laboratory. If a small rotary kiln or roaster could be purchased on the used market, this site would be ideal for carrying out pilot scale testing on the tailings material.
- The overdue taxes on the mineral claims should be paid, a survey should be carried out to confirm the claim boundaries and additional surface rights should be purchased or optioned to cover the adjacent tailings, the potential plant sites and material deposit areas.
PROJECT COST ESTIMATE
Costs to carry out the additional metallurgical test work and surface rights acquisition on the tailings project are estimated as follows:
| $US | $Cdn | ||
|---|---|---|---|
| 1. | Land Survey | 3,000 | 4,200 |
| 2. | Land Acquisition - approximately 100 hectares @ $160 | 16,000 | 22,400 |
| 3. | Metallurgical Testing - Kappes, Cassiday - Fomento - Saltillo - Pilot Plant | 15,000 5,000 5,000 19,000 | 21,000 7,000 7,000 26,600 |
| 4. | Plant Supervision, Consulting | 10,000 | 14,000 |
| 5. | Support Expenses - travel, vehicle rentals, groceries | 8,000 | 11,200 |
| 6. | Engineering | 4,000 | 5,600 |
| SUB-TOTAL Allow approx. 10% contingency | $119,000 11,000 | ||
| TOTAL PROJECT ESTIMATE | $130,000 Cdn. |
Note: 1. The above estimated does not include payment of back taxes, future taxes and any property payments.
- All $US conversions are at a rate of 1.40.
UPDATING MEMORANDUM on the INDE TAILINGS
PROJECT, STATE OF DURANGO, MEXICO
May 8, 1998
Subsequent to my initial report dated July 15, 1994 on the Inde Tailings Project, considerable metallurgical test work has been carried out on the Inde tailings material.
As outlined in my initial report, the tailings resources at Inde is conservatively estimated at:
| Metric Tonnes Probable Possible | Grade Au (gmt) Ag (gmt) | |||||
|---|---|---|---|---|---|---|
| Guadalupe area | 267,077 | 80,123 | 3.02 | 125.0 | ||
| La Terrible area | 1,100,582 | 330,175 | 2.16 | 75.8 |
As you are aware, early metallurgical testing of these tailings indicated they were quite refractory with the raw tailings yielding only low metal recoveries from standard cyanide bottle roll tests - 23.7% of the gold values were recovered along with 8.3% of the silver. Subsequent lab test work by Kappes. Cassidy in Reno indicated the recoveries could be significantly improved by simple roasting of the material to moderate temperatures (450-550 degrees C). Depending on temperature, retention time, and leach periods, gold recoveries were reported form 62% to 80% with silver recoveries ranging from 30% to 725.
Based on these encouraging results, a 28 foot long, 4 foot diameter rotary kiln test plant was constructed by Gold Hat in Parral, Mexico to batch test the Inde tailings under a variety of conditions. Over the past two years, rotary kiln tests carried out at this facility under the supervision of A. David Ross have reports recoveries ranging from 65% to 85% for gold and from 35% to 65% for silver.
In May 1997, the writer personally supervised the collection of three fresh samples of the Inde tailings and these were run under the writer’s supervision through the rotary kiln test plan at Parral under a variety of conditions. Again these tests confirmed significant improvements in the precious metal recoveries after roasting (see memo dated September 28, 1997 attached). Although shortcomings in the existing test plant precluded precious recovery data and energy consumption information, the writer concluded the available test results suggested a minimum 75% gold recovery 45% silver recovery could be conservatively anticipated from a full scale 1000 metric ton per day rotary kiln plant.
Using the above recovery figures, the recovered value per tonne at current metal prices ($300 US/oz Au, $5.94 US/oz Ag) can be calculated as:
Guadalupe Tailings
Au - 3.02 x .75 x 9.645 x 1.46 = $31.90
Ag - 12.5 x .45 x 0.19 x 1.46 = $15.69
$47.59 Cdn. per tonne
La Terrible Tailings
Au - 2.16 x .75 x9.645 x 1.46 = $22.81
Ag - 75.8 x .45 x 0.19 x 1.46 = 9.51
$32.32 Cdn. per tonne
Subsequently to these latest rotary kiln tests in Parral, a number of metallurgical treatment systems have been reviewed and considered which have included:
a) a microwave pre-treatment system being developed by EMR Microwave Technology Corporation of Fredericton, Nnew Brunswick; and
- a proprietary closed circuit fluid bed roast system developed by Luregi - a world renowned engineering group specializing in extractive metallurgy, based in Frankfurt, Germany.
As recommended by the writer, a one metric tonne bulk sample from the Inde tailings was shipped to Lurgi in Frankfurt in late November 1997 for testing in their laboratory scale rotary kiln. Test work on this sample has only recently been completed with a final engineering report being anticipated from Lurgi in the very near future. Under the contract with Lurgi, Golden Hat is to receive all results form the tests as well as an engineering design study completed with capital and operating costs to place the tailings in production at 1000 tonnes per day using the Lurgi roast system. To date, Lurgi has indicated varying tests have produced recoveries from 80 to 88% for gold and from 42 to 69% for silver (see attached chart).
The primary advantages of the Lurgi system are:
- it is a closed circuit system which will inhibit dust production and enhance environmental protection;
- temperatures and retention times can be readily controlled;
- with minor modification, the same roast plant may be used to treat the sulphide hardrock zones located nearby on the Golden Hat claims.
The tailings material, after being treated by Lurgi in Frankfurt, is being shipped to Inco Technical Services Ltd. in Toronto, Ontario for testing using their proprietary cyanide leach system. Under the terms of the Inco contract, Golden Hat is to receive all test results as well as an engineering design study complete with capital and operating costs to leach the roasted Inde tailings at a production rate of 1000 tonnes per day. The first batch of samples have only recently being received by Inco from Lurgi with the final batch now being in transit.
Upon receipt of these two major engineering reports, Golden Hat should be in a strong position to evaluate their financial requirements, development operations and cash flow projections for the Inde tailings.
In am convinced this project, along with the adjacent sulphide target area has significant economic potential and well warrants detailed investigation and consideration at the present time.
The information set out above has been extracted from a report prepared by Ralph Westervelt, P.Eng. dated July 15, 1994 as updated by a Memorandum dated May 8, 1998. During the period of the Offering, the said report is lodged at the head office of the Company, 718 - 510 West Hastings Street, Vancouver, B.C. whereby it may be examined during normal business hours.
The Company has expended $262,033 on exploring and developing the Inde Project as at June 30, 1997.
Risk Factors - Foreign operations
Investing in the securities of issuers doing business in developing countries such as Mexico, involves a higher degree of risk than investing the securities of issuers doing business in the United States, Canada or certain other jurisdictions. The Company has interests in Mexico. The properties, in which the company has or may have interests, are in an exploratory stage of development.
Historically, the Mexican social environment has been marked by uncertainty which has resulted in periodic outbursts of social violence at a regional level. While the recent economic climate is reasonably favourable, turmoil in social conditions may cause a certain amount of dislocation. In the recent past, economic conditions have had an effect on Mexican currency and credit although at present, there is no indication of further problems in this area. The legal system in Mexico does not conform to the general legal system followed in most of the remainder of North America.
ADDITIONAL PROPERTIES
(1) Labrador - On October 31, 1995 the Company entered into an agreement to acquire a 100% interest in 22 mineral claims (550 hectares) located near Shapiro Lake, Labrador (Province of Newfoundland) from Bahamas Gold Corporation of Box 70, Cochburne Town, Grand Turks, Turks & Caicos Island, BWI. The Company acquired this property in consideration for $15,000 and 100,000 shares of the Company’s common stock. The vendor has retained a 3 1/2% net smelter return royalty.
The Company carried out an exploration program consisting of geological, geochemical and geophysical assessment on the Shapiro Lake property in 1996 at a cost of $29,200. Exploration results indicated a potential underlying mineralized zone on the property. The property is located between Shapiro Lake and Mistinipi Lake, 150 km. north of Goosebay, Labrador and 180 km. south of the Voisey Bay Diamondfields massive sulphide discovery. Access to the property is by float plane to Shapiro Lake and then by a 10 minute helicopter trip to the property.
The Company has not decided whether or not to actively pursue the exploration of this property at this time. There are no known ore reserves on the property.
(2) Northwest Territories - Pursuant to an agreement dated May 31, 1996 with Cascara Properties Limited and a transfer dated October 24, 1994, the Company acquired from Cascara Properties Limited 10% of the its 100% carried interest including all of its gross overriding royalties and net smelter return interest in the 100,717 acre Kikerk Lake project (39 mineral claims) in consideration for 70,000 shares of the Company’s stock. The Company has purchased its interest and has no further obligation in respect to the interest. The Company is fully carried in this respect. The Company has no obligation to pay exploration expenditures.
The property is located in the north-central part of the Northwest Territories, approximately 300 km. Northwest of the Lac de Gras area and 510 km. north of Yellowknife on NTS Sheet 86P. There has been no recent exploration work carried out on this property. The purpose of the exploration work carried out on the property is a search for diamondiferous kimberlite. There are no known reserves of ore or other economic assets.
(3) Manitoba - The Company holds seven mineral claims in Manitoba, described as follows:
| Claim No. | Claim Name | Area (ha) | Map sheets | Good Standing Date | Expiry Date |
|---|---|---|---|---|---|
| CB9571 | GNOMS | 130 | 52M-04N 62P-01NE | July 16, 2002 | Sept. 14, 2002 |
| CB9865 | GNOMS 1 | 259 | 52M-04N 62P-01NE | July 16, 2002 | Sept. 14, 2002 |
| CB9869 | GNOMS 2 | 65 | 62P-01NE | July 27, 2002 | Sept. 25, 2002 |
| CB9870 | GNOMS 3 | 65 | 52M-04N | July 27, 2002 | Sept 25, 2002 |
| CB9871 | GNOMS 4 | 98 | 52M-04N | July 27, 2002 | Sept. 25, 2002 |
| W59847 | HAT | 16 | 52L-14NW | April 26, 1998 | June 25, 1998 |
| W51911 | JOE 1 | 240 | 62P-01NE | July 29, 200 | Sept. 27, 2002 |
The Company has carried out work on these claims consisting of trenching, mapping, sampling, assaying and blasting at a cost of $204,847 prior to 1990.
The Company does not intend to carry out any further work on these claims during the next year. There are no known reserves of ore on this property.
ITEM 4. ELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the Company and is based upon and should be read in conjunction with the more detailed financial information appearing in the financial statements, and notes thereto, included by reference in this Annual Information form.
| Year Ended June 30th | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 1997 $ | 1996 $ | 1995 $ | 1994 $ | 1993 $ | ||||||
| Gross Revenues | 23,995 | 4,945 | -- | -- | -- | |||||
| (Net Loss) | (527,204) | (297,396) | (262,573) | (81,475) | (31,471) | |||||
| Loss per Share | 0.06 | 0.05 | 0.06 | 0.02 | 0.01 | |||||
| Total Assets | 1,687,627 | 1,754,677 | 465,315 | 434,744 | 376,417 | |||||
| Long Term Debt | -- | -- | -- | -- | -- |
Selected quarterly financial information of the 1998, 1997, 1996 and 1995 fiscal years as follows:
| Quarters ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| March 31, 1998 $ | December 31, 1997 $ | September 30, 1997 $ | March 31, 1997 $ | |||||
| Gross Revenues | 3,274 | 3,274 | 1,913 | - | ||||
| (Net Loss) | (360,815) | (262,604) | (119,251) | (350,998) | ||||
| Total Assets | 1,367,583 | 1,404,242 | 1,540,497 | 1,778,135 | ||||
| Loss per Share | 0.03 | 0.03 | 0.01 | 0.05 |
| Quarters ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 31, 1996 $ | September 30, 1996 $ | March 31,1996 $ | December 31, 1996 $ | |||||
| Gross Revenues | 15,515 | 9,963 | - | - | ||||
| (Net Loss) | (219,428) | (107,579) | (186,803) | (115,088) | ||||
| Total Assets | (1,782,646 | 1,848,122 | 616,041 | 580,818 | ||||
| Loss per Share | 0.03 | 0.02 | 0.04 | 0.02 |
The Company currently has no dividend policy.
No cash dividends have been declared at any time. There are no restrictions which would be prevent the Company from paying dividends.
ITEM 5. MANAGEMENT’S DISCUSSION AND ANALYSIS
The Company is planning to arrange private placements of its common stock to provide the funds necessary to carry forward its exploration plans on the tailings portion of the Inde project previously described. At the present time, it does not have sufficient capital to carry out its projected operations.
Upon completion of a positive feasibility study, the Company feels that it will be able to raise funds for the further development of the Inde Project in the form of debt financing. At the present time, the Company does not have any outstanding long term debt.
The Company continues to progress towards the Company’s goals which is production of the Tailings project and further drilling on the Sulphides zone. The Company’s primary property is located in Inde, Durango, Mexico. The Company’s Subsidiary is working towards gold and silver production. This project involves the reprocessing of 1,778,000 probable tons of tailings from a mine with gold production exceeding 1.3 million ounces during the year 1878 to 1953.
An additional feature of the Inde project is the presence of a highly mineralized “Sulphide Zone” below the productive “Oxides Zone” which was the object of all previous mining activity at the Inde location. Documents from the previous operations indicate a sulphide zone, open to depth with high potential for economic recovery of gold and silver
The following highlights of events mark significant progress towards the Company’s production goals.
A fully operational permanent office has been established in Parral, Chihuahua, Mexico.
Westervelt’s Engineering report on the Inde Tailings test returned to the Company was extremely favourable and stated the following: “Based on the above preliminary estimates, the Inde tailing Project appears to be quite viable even at the current low silver and gold prices”.
R.D. Westervelt, P.Eng. has recommended that additional work be carried out including submitting samples to “Lurgi Mexicana” (a German based company with offices and recovery production plants workings in locations around the world) for testing using their roasting system. He states, although the capital cost of the Lurgi system is higher, the reported lower energy consumption and higher recovery rates may warrant serious consideration. An added advantage of this system may be that with minor modifications, it may handle the sulphide ore recovery anticipated, from the later underground operation (hardrock claims to be drilled).
The Company has followed “Westervelt Engineering” recommendations entered into an agreement with “Lurgi Mexicana” to do further testing on the Tailings. A shipment of tailings and raw sulphides were sent to “Lurgi’s” head office in Frankfurt, Germany.
The Company has recently been informed by “Lurgi” of Frankfurt, Germany that the production testing of the Inca Tailings material has been completed except for one final recovery test on silver recovery. It is anticipated “Lurgi” will submit a financing proposal for the purchase of their equipment (est. capital cost between $2-$3 million U.S.) Along with their full report very shortly which the Company will release details immediately upon receipt.
Also, “Lurgi” has delivered the initial Roasted tailing material to “Inco Tech” for final cyanide testing on gold/silver recovery on April 30, 1998.
It is anticipated that complete test results with recommendations will be returned back to the Company, which at that time definite production decisions will be made.
The Company is also entertaining a forthcoming proposal from “EMR Microwave Technology Corporation” of Frederickton, New Brunswick who has been working with our tailings material for over one year with positive preliminary results.
The Company has concentrated its efforts on the Tailings project.
Both preliminary water and environmental studies have commenced at the Inde site.
Once a production decision is made it will resume work on the sulphide project. Then, the Company will plan to complete the rest of the decline to reach a level where it can drill to define the sulphide deposit.
The Board of Directors of the Company has formed a “Mining Advisory Committee” to advise and assist the board in production decisions. The members of the advisory committee are as follows:
JOHN WIGLE, P.Eng. - Mr. Wigle was recently a Vice-President and General Manager of “Kilborn Engineering Pacific Ltd.” He has more than 24 years of operations, project management, engineering and construction experience with recent responsibility, including operations of a staff of 210 people in Vancouver and 15 in Jakarta, Indonesia.
RALPH WESTERVELT, P.Eng. - Mr. Westervelt brings over 40 years of experience into the mining committee in the areas of management, detailed evaluations of producing open pit and underground mining operations, consulting and management of regional exploration programs through Canada, United States and Mexico.
MR. DON MOORE, B.S. M.S. - Mr. Moore has his B.S. and M.S. in metallurgical engineering with over 32 years experience in the mining industry.
DR. ERIC A DEVUYST, B.Sc. M.A. Sc., PhD. - Currently he is the General Manager for Inco’s SO2/Air cyanide destruction business unit, of which he was a principal author on the patents respecting the technology. Inco is presently conducting the leach optimization and cyanide destruction testwork for the Inde project; all of which will be performed under the supervision of Dr. Devuyst. The Inco SO2/Air cyanide destruction process has an established worldwide reputation of being state-of-the-art. To date, approximately 70 mine sites throughout the world have chosen this technology to serve their cyanide management needs. Dr. Devuyst is well-published and a frequent technical lecturer at metallurgical symposia. He has a world-class reputation and has served as a “technical expert” at numerous public hearings and permitting reviews.
MR. GEORGE H. ROBBINS B.Sc. - Mr. Robbins brings to the Inde project a well-established reputation in the fields of environmental management and mineral processing. His career path includes such companies as Syncrude Canada Ltd., Luscar Ltd. and Amax Inc., where he has generally been responsible for the management of environmental regulatory and public relations programs. Mr. Robbins, as marketing manager for Inco Tech Limited where he has been responsible for the commercial development of the technology. Mr. Robbins is co-author on several technical publications and has been a guest lecturer at several conferences on the subject of “Commercialization of Technology”.
This Advisory Committee will assist the Board of Directors of the Company with future production advice on the Mexican Inde Project.
The drill and other equipment the Company has purchased have been moved to Parral. The Company’s subsidiary office “Inca de Canada” in Parral, Mexico is fully functional. Once a production decision is made it will resume work on the sulphide project. The Company will then plan to complete the rest of the decline to reach a level where it can drill to define the sulphide deposit.
The cost of exploration activities for the year ended June 30, 1997 totalled $214,723.
The cost of purchase of capital assets including up-to-date office and mining equipment totalled $219,949.
ITEM 6. MARKET FOR SECURITIES
The Company’s common shares are traded on the Vancouver Stock Exchange. Information regarding the Company’s share price on the Vancouver Stock Exchange for the periods indicated below is as follows:
| Year | Quarter Ending | High $ | Low $ |
|---|---|---|---|
| 1998 | March 31 | 0.21 | 0.15 |
| 1997 | December 31 September 30 June 30 March 31 | 0.73 0.66 0.36 0.22 | 0.61 0.40 0.27 0.11 |
| 1996 | December 31 September 30 June 30 March 31 | 0.60 1.50 0.82 0.81 | 0.45 0.94 0.65 0.67 |
| 1995 | December 31 September 30 June 30 March 31 | 0.34 0.37 0.49 0.37 | 0.22 0.23 0.33 0.28 |
| 1994 | December 31 September 30 June 30 March 31 | 0.19 0.57 0.32 0.28 | 0.15 0.30 0.21 0.21 |
| 1993 | December 31 September 30 June 30 March 31 | 0.06 0.10 0.06 0.10 | 0.04 0.07 0.06 0.06 |
ITEM 7. DIRECTORS AND OFFICERS
| Name and Position | Principal Occupation or Employment | Period as a Director of the Company | No. of Shares |
|---|---|---|---|
| WALLY BOGUSKI Vancouver, B.C. Director & CEO | Independent Businessman | February 7, 1994 to present | 367,091 202,465 stock options exercisable up to October 24/99 |
| BLYTHE ROGERS Vancouver, B.C. Secretary & Director | Business Manager; Conference Co-Ordin-ator Native Investment and Trade Association | December 20, 1994 to present | 38,500 25,000 stock options exercisable up to December 1, 1999 |
| John P. POIRIER Calgary, Alberta Director | Independent Businessman; CEO 21 Century Transport | December 20, 1994 to present | 101,000 25,000 stock options exercisable up to December 1, 1999 |
| DON WILLIAMS Saanichton, B.C. Director | Independent Businessman | September 12, 1997 to present | 101,185 25,000 stock options exercisable up to December 1, 1999 |
| REES M. JONES Winnipeg, Manitoba Director | Chief Operating Officer, Aeropsace company | October 20, 1995 to present | 22,666 210,000 stock options exercisable up to December 1, 1999 |
The Company’s Audit Committee is comprised of three directors, being Wally E. Boguski, Rees Jones and Don Williams. The term of office for each of the directors expires at the next annual general meeting.
ITEM 8. ADDITIONAL INFORMATION
Information regarding Voting Securities and Principal Holders thereof, Executive Compensation, Interests of Insiders in Material Transactions, Indebtedness of Directors and Senior Officers are contained in the Company’s Management Proxy and Information Circular dated November 10, 1997 prepared for the Annual General Meeting of shareholders held December 19, 1997. Additional financial information is contained in the Company’s audited financial statements with comparative figures for the year ended June 30, 1997 and the March 31, 1998 quarterly report with comparative figures. Copies of any document or the pertinent pages thereof, incorporated by reference in this Annual Information Form, the Management Proxy and Information Circular and the audited financial statements and quarterly report are available upon request from the President of the Company at the executive office.
CERTIFICATE
Dated: May 27, 1998
The foregoing contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated herein in accordance with the requirements of this Annual Information Form or that is necessary to make a statement contained herein not misleading in light of the circumstances in which it is made.
GOLDEN HAT RESOURCES INC.
“Wally E. Boguski”
Wally E. Boguski
President & Chief Executive Officer