Great expectations still spur panhandle miners.

• Author: Pohl, Jeanine
• Position: Echo Bay Alaska Inc.; Coeur Alaska - Special Section: Slow Bore: A Tale of Obstacle Courses, Bright Prospects & High Hopes - Cover Story

In Southeast, the A-J and Kensington mines, as well as numerous other prospects, hover on the brink of development.

In a room full of miners, you'll find a room full of optimists. A cheerful outlook is what mining companies in Southeast Alaska say is needed as they continue to weather rock-bottom mineral prices and local, state and federal regulatory processes.

The two companies attempting to reconstitute underground hard-rock gold mining in the Juneau area see a light at the end of the tunnel. Two lights, actually. A general agreement that gold prices worldwide have hit a several-year low and have nowhere to go but up, and continued forward movement in obtaining permits are seen as encouraging signs for Echo Bay Alaska Inc. and Coeur Alaska.

Together the mining firms have a 50-50 split interest in the Kensington gold mine, about 45 miles north of Juneau near Lynn Canal. Echo Bay, based in Edmonton, Alberta, also is the sole owner and developer of the historic Alaska-Juneau mine just south of the Capital City's downtown area.

Echo Bay already has about $80 million invested in the two projects, the company says. In January, Echo Bay acquired a 15-percent interest in the A-J mine held by Toronto, Ontario-based Watts, Griffis and McOuat Ltd.

Industry analysts say both the A-J and Kensington gold mines require higher gold prices to be successful. John Tumazos, an analyst with Donaldson, Lufkin and Jenrette in New York, says he has examined Echo Bay's prospects and believes the operation is feasible with gold selling at $360 an ounce for 1992-1994 and at $375 an ounce for 1995-2000, even though some investors might predict a lower price of $325 to $350 per ounce.

Of the $325 to $350 per ounce price range, Tumazos says, "Clearly at such prices the development of Echo Bay's two Alaskan projects would not be justified, and under such a dire scenario, the company might choose to write off its investment in those properties."

He adds that rising mining costs in South Africa, North America and Australia are likely to prevent an extended period of such unfavorable gold prices. Tumazos notes that even at a depressed price of $360 an ounce, Echo Bay is a viable, albeit not wildly profitable business concern.

Echo Bay in the past two years has worked vigorously to reduce its debt from $415 million in June 1990 to $257 million for the quarter ending March 31. According to Tumazos, the debt-reducing measures have helped the company position itself to "build a war chest for its two Alaska projects."

Poor Prices. Tumazos reports that Echo Bay is reluctantly filing with U.S. and Canadian securities officials for a $100 million stock offering to gather more cash for debt reduction. The reluctance comes because Echo Bay's stock, at around $7 per share on markets in mid-July, was half its value of two years ago and down from a high of around $30 per share in 1987.

In addition, mining companies are not selling forward as much gold as they have in the past for fear of locking in the metal at current low prices, Tumazos says. Forward selling of future gold production, or hedging, is used by mining companies to garner cash for expansion funding, in lieu of a bank loan.

Carl Campbell, a metals analyst for A.G. Edwards in St. Louis, Mo., says it's not known when gold prices may turn around, though some analysts and gold companies believe...