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| | Thu Aug 21, 1997
Tracker 1997-23: Canalaska - Wow, the rock type changed!
Publisher: Kaiser Research Online
Author: Copyright 1997 John A Kaiser
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| | Kaiser Bottom-Fish Tracker 1997-023
August 21, 1997
Intl Canalaska Resources Ltd (ICA-V: $0.77)
Tel: (800) 667-1870
Wow, the rock type changed!
When a Canalaska spokesman informed me last week that it was the spirit and intent of the Falconbridge agreement that "net profits" should mean "cash flow", I got that sinking feeling somebody screwed up badly. Canalaska has since had its lawyer, Peter Jensen, review the agreement between Falconbridge, Canalaska and Columbia-Yukon, and in his view, the term "net profits" is supposed to mean net proceeds before deduction of depreciation. Since I was not given his reasons for this view, and the agreement apparently does not include a definition of "net profits", it would be nice to hear from Falconbridge that it shares Jensen's interpretation. Does it matter which it is? Worrying about it now is like putting the cart before the horse, because at this point the promoters behind Canalaska and Columbia-Yukon are busy hoping that there will be a reason to worry about the meaning of the agreement. If something substantial is found on VBE-1, Falconbridge could take the view that in the absence of a specific definition within the agreement, "net profits" means what it normally does in the context of mining agreements. Depending on the deposit size and production plan, the two juniors could be stuck sharing 20% of net profits for a period that extends far beyond the point at which Falconbridge has recovered its capital cost. However, such a definition would generate illogical elements within the agreement, such as the question as to whom does ownership of the "depreciation" deduction from cash flow actually accrue. A court might also reject a hard-nosed interpretation of "net profits" as totally inconsistent with the intent of a provision which creates a preferential cash flow split to facilitate payback of capital costs. At worst the parties to the agreement would receive a scolding for signing a sloppy agreement. The thing that will keep nagging at the back of my mind is the implausibility that a major mining company like Falconbridge, which has done numerous mining deals, would sign an agreement that might create an unintended confusion down the road. One conclusion I am tempted to draw is that Falconbridge never took the agreement very seriously because it had little optimism anything economic would be found on VBE-1. This may be one more reason why the deep drilling program at VBE-1 has failed to stimulate much speculative market activity. Incidentally, a important fact that has been brought to my attention is that Canalaska and Columbia-Yukon retain 1.5% and 1.0% net smelter royalties respectively in the VBE-1 claim.
Hole #3 was supposed to be finished today, but apparently Falconbridge has recommended that drilling be continued when an abrupt rock type change was encountered at a 1,450 metre depth. We have not yet heard what sort of rock this might be. Hole #4, which targets a a magneto-telluric anomaly at 800-1,000 metre depth in the central part of the property, was started three days ago and was at a depth of 456 metres Wednesday morning. Barring any technical problems, we should have an idea early next week what is causing the anomaly. The Canalaska/Columbia-Yukon JV on the VBE-2 claim reported drill results on August 21. Each of the six holes intersected narrow intervals of 1-2 metres grading 2.4-7.4 g/t gold over a 275 metre strike. The widths of the mineralization are inadequate for this remote part of the world. Management's statement that they "will complete a full evaluation of these results prior to the next phase of work" is another way of saying that nobody is clamouring for a followup drill program. |
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