Teryl Resources Corp

Teryl Resources’ main gold property near Fairbanks, Alaska has recently been the subject of a takeover bid from Kinross Gold, and Kinross demonstrates continued interest in the property.

The primary asset of Teryl Resources is the Gil Venture, a gold exploration and development joint-venture with Kinross Gold (80% Kinross, 20% Teryl). It is located about 36 km northeast of Fairbanks, Alaska, off the Steese highway and 18 km directly east of Cleary Summit. Kinross (President: Tye Burt) made an offer to buy out Teryl’s (President: John Robertson) interest in November, 2009.

Although figures are hard to come by, in the 19 years that Kinross and Teryl's Gil joint venture has been exploring, indications are that very roughly 1.5-2.0 million ounces of gold have been found in open-pit bulk-mineable deposits extending down from the surface. A 1998 estimate from Kinross based on only a small portion of the property (very limited exploration had been done) calculated 433,000 ounces, although in the time preceding their offer for Teryl, Kinross has downplayed the resource. Some have projected 2.5 million oz. or more, although this remains to be determined as exploration and deposit delineation is continuing.

About $9.2 million has been spent so far on about 500 holes drilling 140,000 feet. A 2010 exploration program is likely, whether or not another buyout bid is made before the drilling season is underway.

The relationship of the properties is shown in figure below (image credit: Gordon Friesen):

The original 1998 Kinross gold estimate was based on the Main Gil and Gil North zones. Since then, three zones have been added in the Sourdough Ridge area of the Gil: the Northern, the Central and the Southern Sourdough zones. In addition, gold discoveries have been located in relation to the Main and North Gil zones (between them, at the intersection of them, and north of them), 700 feet south of the Main, west of the Main, in a parallel lineation east of the Sourdough, and in the Too Much Gold, All Gold, Slippery, Lohr and Last Chance creek drainages. Although there is some overburden interleaving between zones, the Main Gil apparently averages 1.4 g/t, the Gil North a similar figure, and the Sourdough 2.4 g/t. Figures for the other findings have not been forthcoming.

Kinross operates the close-by Fort Knox mine and mill (first gold: 1996), pouring more than 1,000 ounces of gold per day and in turn producing a large portion of Kinross’ global income. It is expanding the old Fort Knox pit, though at very low grades, and Kinross also mined out their nearby True North pit. A heap leach operation was recently established (first gold: 2009) allowing high extraction rates, as great as 90% even from low grade ore. Mining at Kinross’ property here is becoming restricted to low grade ore for the mill with an emphasis on stockpiling and placement on the heap leach.

Per Kinross’ website, the Fort Knox pit is due to have its last activity in 2014 with the heap leach winding up 2018, unless Kinross extends mine life by developing more resources such as the Gil. Kinross in communication with the Alaska Government has expressed its intentions to do this by combining low grade ore from its Fort Knox pit with higher grade ore from the Gil. These plans were put on hold during a period of lower gold prices and then while approval for the heap leach was awaited, but the heap leach is now in full operation at production costs of about $250/oz and the price of gold has set new highs, improving the economics dramatically.

Kinross’ "first bid" offer price to Teryl was not released but the best informed estimations of their shot across the bow appear to be about 30 cents per Teryl share. Kinross’ offer was rejected by Teryl, most likely on price but technically because information Kinross was due to deliver at the end of the 2009 season had not been provided; Kinross has been parsimonious with information. Teryl’s 59 million shares have previously traded as high as 75 cents per share, dropped considerably during the general market crash and have bounced off lows to trade recently at between roughly 20 and 25 cents per share.

With Kinross' facilities, mill and heap leach already in operation and pouring gold, a price for the Gil Venture's gold in the ground somewhere north of the usual $80-$125/oz is probably appropriate. At a reasonable $160/ounce (similar deposits have been purchased for $250/oz), Teryl's 20% interest in a possible 1.75 million ounces, over 59 million shares, would be 95 cents per Teryl share. As the gold price rises and economics improve even further, the price should improve. Some recognition would probably have to be given for the fact that the property has not nearly been fully explored, and that has not been factored in, although of course something would have to be left on the table for Kinross. In preparation for mining Kinross would more fully delineate the resources.

The 20-year joint venture agreement between Kinross and Teryl expires in May 2011, and without a buyout, Kinross would likely be burdened with a higher legal duty of care to Teryl. While Kinross may stall buyout bids in the hope of obtaining the lowest price, there are incentives for Kinross to obtain 100% ownership of the Gil Properties going into production, including maintaining Fort Knox gold production levels in an environment of higher gold prices, more efficient gold extraction by blending in the richer Gil grades, time required for development of the necessary infrastructure and pit at the Gil, and a tax holiday that flows from extraction from a new pit.