Doug Ashbury
Northern News Services

NNSL (May 10/99) - For the Lupin gold mine, dormant for 16 months, 2000 could mean a return to production.

"We are confident we will be able to re-open (Lupin), hopefully in the first half of 2000, and enjoy another good run operating the gold mine that was our historic building block," Echo Bay Mines chairman and CEO Bob Leclerc said in the company's annual report.

"At Lupin, faced with operating costs that approximated the spot price for gold, we elected at the beginning of 1998 to suspend operations temporarily," he said.

"The profitability of Lupin now looks significantly better as a result of our re-engineering program."

If Echo Bay decides to re-start Lupin, the decision must be made in time to get supplies up the winter road. The ice road is open for about two months. Missing this window of opportunity means the company will likely have to wait another year if the mine is to return to production.

To make the mine, located 300 kilometres southeast of Kugluktuk, more efficient, Echo Bay will lower ore transportation costs. In the past, ore has been trucked from the mine's lower levels to crushing level via a spiral underground ramp. The further the mining was from the crusher, the higher the transportation costs.

When Lupin re-opens, an underground hoisting system known as a wince will cut trucking costs.

Lupin is expected to produce 150,000 ounces of gold a year. Reserves are estimated at 543,000 ounces.

Echo Bay expects Lupin's cash operating costs to come in around $250 US an ounce, down from $284 US an ounce in 1997.

The mine was mothballed because gold prices were at an 18-year low and production costs were high. In the North, the closure caused job losses in Kugluktuk and Cambridge Bay.

"If one faces the prospect that gold prices might persist at a level low and be unattractive, there are two things that could be done," he said.

"One is to emulate the ostrich, head in the sand, and hope time will cure the commodity price plague.

"The other is to accept the proposition that hedging, if available and well- utilized, can significantly reduce the effect of low commodity prices," he said.

Hedging is a strategy used to offset risk.

In April, Echo Bay entered into gold forward sales and purchased gold put options on 610,000 ounces at an average price of $335 US an ounce, scheduled for delivery in the five years through 2004.

The company also sold 185,000 ounces of gold call options at $340 per ounce expiring in 2004 and 2005.

Echo Bay's gold hedge book for 1999 assures the company a price of at least $349 US per ounce for over 90 per cent of its production. As well as Lupin, Echo Bay owns 100 per cent of the Round Mountain mine in Nevada and 100 per cent of the Kettle River mine in Washington and a 50 per cent stake in McCoy/Cove mine in Nevada.