Environmentalist asks tough questions about Redcorp

Last week, Redcorp Ventures Ltd. announced that it had entered a $90-million gold-sale agreement. The money will help finance the increasing costs…

Last week, Redcorp Ventures Ltd. announced that it had entered a $90-million gold-sale agreement.

The money will help finance the increasing costs of reopening the Tulsequah Chief mine just south of Atlin, BC, along the Taku River.

It should also help the company clean up the acidic pollution that is draining into the important salmon river.

“We’re pretty excited about this transaction with Gold Wheaton,” said Salina Landstad, Redcorp’s manager of corporate communications.

“It’s a win-win for both companies.”

However, to environmental groups the transaction is another desperate move by a struggling mining company.

“I’d be a little bit worried about mortgaging my future,” said Chris Zimmer from Rivers Without Borders.

“They’re basically spending money that’s not theirs, contingent on some future sale of product that looks to be very questionable.

“Especially with the schedule here.”

Redcorp plans to have the mine up and running by mid-2009.

“That’s extremely optimistic and it’s based on getting their permits along the timeline they’re saying,” said Zimmer.

“Clearly I don’t think this is going to happen.”

The $90-million gold deal is also contingent on receiving these permits and will then be made in incremental payments.

In exchange, Gold Wheaton Corp. will purchase 100 per cent of the gold produced in the mine at the bargain price of US$400.

Now for a little math — don’t worry, it’ll be over in a minute.

Redcorp has forecasted extracting 50,000 ounces of gold per year over the eight-year life of the mine.

That’s 400,000 ounces.

And if you include the $90 million in initial investment, Gold Wheaton will be spending about $625 on each ounce.

Gold prices could rise or fall over the next eight years, but let’s just use the current price of roughly $900 an ounce.

So with gold at today’s prices and Gold Wheaton paying a $275 discount, the company will be making $110 million out of the deal.

The money is needed to cover increasing costs in all areas of the project such as fuel, labour and technology.

“At this point of time we don’t need any funds,” said Landstad.

“We have enough funds to continue in the project for the next little while but in order to make up for that shortage we have this $90 million that we’re able to draw from.”

Along with the 50,000 ounces of gold, each year the Tulsequah Chief is expected to produce 40,000 tonnes of zinc concentrate, 9,000 tonnes of copper and 1.7 million ounces of silver.

The original proposal for reopening the mine included building a road as the main route out to the site.

However, this idea was scrapped because of environmental concerns from First Nation groups and the public.

The next plan was to use an Amphitrac — a tow vehicle that is still in the design phase — to tow a hover barge up the Taku River.

“However due to various different circumstances we’ve had to put that on hold,” said Landstad.

The latest plan involves a combination of Rolligons and commercial articulated vehicles.

These low-impact tractor-like machines will push and pull the hover barge up the river in the fall, winter and spring.

“This is a whole new proposal,” said Zimmer.

“Instead of reconvening its permitting process that (the Alaskan Department of Natural Resources) suspended in February, I think they’re going to start over from scratch.”

The proposal was stalled in February because the company was not providing enough concrete information about the project.

In the summer months, when the water level is high, the company plans to access the site using conventional tugs and barges, as it began doing last year.

It believes that it will be able to make over 200 trips per season in this fashion, said Zimmer.

“But this is based on last year’s water levels, which were record high.”

This year the water is much lower.

And the barge has actually run aground in the very shallow water, said Zimmer.

“It really raises the question, does this company have their act together?”

Redcorp is in shallow water financially, as well.

The company has more than $91-million of investor money stuck in the asset-backed commercial paper debacle.

The once short-term paper is being restructured into a long-term investment that Redcorp will then be forced to sell at a loss.

The mining company has written down its books — telling investors that they expect to lose over $23 million in the deal.

However, this 25 per cent write down may be a little optimistic.

Many analysts are prophesizing losses of closer to 40 per cent.

“We believe that we will get more than half — if not more,” said Landstad.

“We’ll see what happens over the next little while with the settlement and the issues that come out of the court hearings and then we’ll be in a better position to know.”

The Tulsequah Chief mine was never properly cleaned up after it shut down in 1957.

Since then, acids have been slowly leaching out of the unearthed rock, seeping into the Taku River watershed.

When Redcorp bought the mine in the 1990s, it also bought the cleanup liability.

However the company has told environmental regulators on both sides of the border that it will not be able to do the cleanup until the mine is back up and running.

“We have built half of the required amount of road within the site,” said Landstad.

“Once that road is complete, we will be able to access the acid-generating rock.”

“They were always able to get into this site via helicopter or these barges and they could have cleaned up a lot of that acid-mine drainage that way,” said Zimmer.

“So, really, this was a blackmail thing and an avoidance of their responsibility under Canadian law.

“I flew up there in October, and you can clearly see the acid mine drainage.”

The Taku is one of the most valuable salmon rivers in Alaska, added Zimmer.

“Alaska is not simply going to allow that to be the experimental proving ground for this junior mining company to play around with this technology that’s never been used together and never used in a river like this.”

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