By Jon A. Nones
24 Aug 2005 at 06:59 PM GMT-04:00
Canyon Resources has watched its shares fall from $4.75 to 70 cents in the past year. Can a revived uranium project help offset the 11 million ounces of gold reserves still in the ground untouched in Montana?
St. LOUIS (ResourceInvestor.com) -- After a disastrous turn of events in Montana, Canyon Resources Corporation [AMEX:CAU] is once again trying to regain some of its former value by going back to its roots. The company announced earlier this week that it plans to reopen its 20-year old uranium program in Wyoming – just south of Montana.
Canyon Resources has acquired mineral rights on approximately 3,500 acres by claim staking in three separate locations, located along the southern end of the Powder River Basin in Wyoming.
"The reactivation of one of Canyon's prior uranium programs represents an opportunity for the discovery of uranium deposits in Wyoming. While the Company will continue a focus on gold, we are pleased to be able to develop value for our shareholders from prior exploration activities conducted. We are considering our options for this program, which may include seeking a joint venture partner to fund and continue the uranium exploration program," stated James Hesketh, President and CEO of Canyon Resources in a company press release.
In the early 1980s, well before the famous Montana Supreme court ruling, Canyon conducted an aggressive uranium exploration program in the western United States. Recently, the company made the decision to review its historic files and reactivate one of its prior projects in Wyoming.
The Powder River Basin
In 1981 and 1982, Canyon and a prior joint venture partner, Aquintaine Mining Corporation, drilled 88 holes for approximately 69,000 feet in the program area. Uranium drill hole intercepts showed a range of grades of up to 0.43% equivalent U3O8. This program identified the potential for multiple uranium roll fronts, according to the company.
In addition, a separate third company drilled out a reported three million pounds of uranium oxide material in the program area. It is believed that they drilled approximately 114 drill holes for about 68,000 feet, the company said.
Uranium mineralisation in the program area is hosted in the Chadron Formation, a rock conglomeration composed of sandstones, conglomerates, and red to green siltstones and claystones.
The Crow Butte uranium deposit, currently being mined by Crow Butte Resources Inc., a subsidiary of Cameco Corporation [NYSE:CCJ; TSX:CCO], is also hosted in the sandstones of the Chadron Formation. Crow Butte is located in Nebraska about 80 miles to the east of the Company's project area in Wyoming, and has been producing uranium for over a decade from a deposit originally reported to contain up to 30 million pounds of U3O8.
Canyon obviously hopes for the same type of success. However, let’s revisit what happened in Montana last year before we get ahead of ourselves.
The Montana Law
In 1998, Montana passed ballot initiative I-137, banning the use of cyanide recovery technology - a form of mineral extraction that is highly amenable to gold recovery. This initiative was then re-enforced with the defeat of I-147, designed to repeal I-137, on 2 November 2004.
The initiative silenced the Canyon’s massive McDonald Gold Project in Montana, plummeting the company’s stock, and thus started the long, arduous, expensive court battle. And the battle did not end well for Canyon.
On 3 November, Resource Investorreported on this blow to Canyon: “I-147 was supposed to restore the right of miners to use cyanide to recover gold and silver, reversing a duplicitous six-year old initiative that sterilized Canyon’s McDonald Gold Project. Early indications favoured I-147 to win, but it was drubbed 42% to 58%.”
Canyon then pressed ahead with a $500 million damages lawsuit against the State of Montana because of the earlier cyanide ban enacted through ballot initiative I-137.
On 8 June 2005, the Montana Supreme Court upheld the anti-cyanide initiative, affirmed the conclusion of the Montana Department of Natural Resources and Conservation (DNRC) with respect to termination of the company's mineral leases with the State of Montana and denied the Company's compensation claim. Talk about a triple whammy.
According to an article in the Billings Gazette, Canyon Resources President James Hesketh said he was disappointed, but not surprised by the decision. He also said the high court's ruling may not be the last word on the matter.
Canyon now intends to pursue the matter in federal court and will seek compensation for the value of the mine from Montana - an estimated lost of roughly half a billion dollars.
The Court's Decision
The I-137 initiative exempted operating cyanide leach mines. Canyon did not have a mining permit when voters approved the ban. Instead, the company had a 10-year mineral lease with the state and was working toward a permit. However, in 1998, Canyon ran out of money and stopped making payments to the state for the exhaustive environmental study required to get a mining permit. A few months later, the state called off the study, stalling Canyon's permit application.
Additionally, the DNRC alerted the company that it had only 17 months to open the mine or the 10-year lease of state mineral rights would expire.
The high court ruled 6-0 that Canyon Resources Corp. did not have a mining permit when voters approved the cyanide ban in November 1998. Consequently, the company had no right to mine and lost nothing when Initiative 137 passed.
And that’s the way the gold sparkles - about 11 million ounces of it still underground.
The McDonald Gold Project
The McDonald Gold Project is a 10.9 million ounce gold deposit, near Lincoln, Montana, that represents one of the largest undeveloped gold deposits in North America, according to the company.
The deposit contains 1.13 billion tonnes of ore and sub-ore grade material. In addition to 10.9 million ounces of gold, the deposit contains 56.5 million ounces of silver.
The Seven-Up Pete Gold Project, also near Lincoln Montana, contains over 850,000 ounces of mineralised gold inventory. And a third gold occurrence at Keep Cool, which is less well drilled but estimated to contain 2 million ounces of gold.
As we already know, these deposits are highly amenable to gold recovery utilizing cyanide recovery technology with heap leaching. The last update on extracting the precious metal by other means comes from a statement by Canyon’s former President, Richard De Voto, almost a year ago.
“Research and testing of a number of technologies have advanced their potential applicability to the McDonald and Seven-Up Pete deposits in the past few years,” he said.
Conclusion
Canyon has seen its share value all but disappear since last year. What was once trading at $4.75 is now down to a dismal 70 cents on AMEX. After the company announced the reopening of its uranium project in Wyoming, the stock shot up 5%, which is a whopping 3.5 cents. Two days later, it corrected itself.
On 5 August, Canyon announced a second quarter 2005 net loss of $11.0 million, or $0.32 per share, compared to a net loss of $2.4 million, or $0.09 per share for the second quarter of 2004.
For the six months ended June 30, 2005, the company recorded a net loss of $13.3 million, or $0.41 per share, compared to a net loss of $6.3 million, or $0.23 per share, for the six months ended June 30, 2004.
Granted, the company does have other projects that are not in Montana or Wyoming. However, the only one producing is the Briggs Mine in California, expected to produce approximately 7,468 ounces of gold this year. Nothing compared to the potential of the McDonald deposit.
So, to sum up, Canyon definitely has its hands full, even with the revival of its uranium project in Wyoming. But at least its taking a step in a different direction.