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month of the mines production, costing approximately $4 million.

In order to position Similco as a long-term, competitive copper producer, facilities at the mine are being upgraded. Mine development to accommodate the five-year mine plan has also been initiated. Production in the mill has been improved and, at year-end, it was operating at a level of 25,000 tons per day — up 25 percent from the average rate before our purchase. Additional haulage and loading equipment has been purchased to increase mine production to match the higher mill throughput.

Cassiar Mine Achieves Record Production

Record production of 106,085 tonnes of fibre was obtained from the Cassiar open pit mining operation. Sales have increased by about 10 percent over 1987 levels, while operating costs for the year were 11.5 percent lower than plan. Cash flow from the mine operation was 43% higher than in 1987.

An accelerated mining plan was implemented to finalize ore extraction from the open pit prior to spring break-up. The additional ore removed is being stockpiled and will supply the mill feed until late 1990, by which time the

McDame mine will be operating. Because waste and ore mining will be completed in early 1989, mining costs will be reduced for the balance of the year.

McDame Development Underway

Development of the McDame deposit began in May and is proceeding on schedule and slightly above budget. Additional ground support being installed in the main access headings is projected to add approximately $5.0 million to total development costs. We expect this amount will be offset by planned cost reductions in other areas. During 1988, the Company spent $8.6 million on the project. Arrangements for financing the mine development have been completed with the B.C. Government and the bank.

Underground development is expected to be finished in March, 1990, well ahead of the originally projected completion date of October, 1990. The mine should achieve its full production rate of 5,500 tonnes per day by the end of that year, making it one of the largest underground mining operations in the province.

Sixteen million tonnes of ore, grading 5.6 percent recoverable fibre, will be mined at McDame, which will support the operation to at least the year 2000.

Further exploration is to be carried out to define additional reserves indicated by drilling in 1984.

Wet Milling Plant in Production In early August, the wet milling pilot plant went into operation. Costs for this test facility are being shared with the Federal Government, under an agreement reached in 1987. A marketable product is being produced from the plant at a rate of 1,000 tonnes per year. Additional equipment to be installed in early 1989 will increase the annual plant capacity to 4,000 tonnes.

Rea Gold Investment

In January, 1989, the Company entered into an agreement, subject to regulatory approval, to invest in Rea Gold Corporation through the sale of our gold assets in Bissett, Manitoba. Cassiar will receive 2.3 million common shares of Rea Gold. At the time of the transaction, the value received for the sale of the Manitoba assets was approximately $8.0 million. Cassiar has arranged a loan of $4.0 million to Rea Gold for development purposes, secured by a convertible debenture bearing interest at 10 percent.

If this loan is made and converted, Cassiar will own approximately 22