Montana Tunnels sale final

By JOHN HARRINGTON, Independent Record | Posted: Sunday, March 14, 2010 12:05 am

The sale of the Montana Tunnels Mine in Jefferson County was completed last month — ahead of schedule and on different terms than when the deal was first announced last fall.

Elkhorn Goldfields, which already held a 50-percent stake in Montana Tunnels in addition to owning a prospective gold mine near the town of Elkhorn, recently completed its purchase of the rest of Montana Tunnels from Denver-based Apollo Gold.

Originally proposed as a series of cash payments followed by a metal royalty once mining resumed at the idle pit, Elkhorn instead swapped its interest in a Colorado mine for Apollo’s share of Montana Tunnels.

The transaction was necessary from Elkhorn’s perspective because that firm intends to process ore from its gold mine at the Montana Tunnels facility, an arrangement that could have become troublesome if Apollo had sold its stake in Tunnels to someone else.

Neither mine is currently active. Permits are in hand but dirt has yet to be moved at Elkhorn, while the Montana Tunnels pit has been idle since late 2008, with the processing equipment quiet since last April.

Patrick Imeson, chairman of Elkhorn Goldfields, LLC and manager of Black Diamond Financial Group, both based in Colorado, said it will cost between $65 million and $75 million to get both mines into production, but only about 10 percent of that is needed to start producing ore at the Elkhorn project.

“Our first step is to get Elkhorn into production,” Imeson said.

Once that happens, he believes it will become easier to find the investors needed to finance the expansion of the Montana Tunnels pit and resume production of zinc, lead, silver and gold at the Jefferson County mine.

“I think we’re targeting that we can start the Elkhorn process within the next couple of months, and Tunnels could follow three to four months behind that,” Imeson said.

Tim Smith, general manager of the Montana Tunnels mine, said third-party investors have checked out the property.

“Montana Tunnels is a very lucrative operation, but it still needs that $70 million cash injection to get it kick-started,” Smith said.

Montana Tunnels ceased production a little over a year ago, and its milling operation ran through the surplus of ore last April, resulting in layoffs for around 200 workers. The mine acquired the state and federal permits necessary for a large-scale expansion, but fluctuating commodities prices and a challenging environment for credit made it difficult to find investors to pay to expand the pit.

Imeson believes the global finance markets are stabilizing, and metals prices remain high enough to make Tunnels attractive to major mining firms and/or financiers.

“Both lead and zinc have improved off their lows,” he said. “Tunnels makes sense at anything north of 60-cent zinc and $750 gold.”

Gold traded around $1,100 an ounce this week, with zinc just over $1 a pound.

Reporter John Harrington: 447-4080 or john.harrington@helenair.com.