HELENA - In the wake of a 1998 voter-passed law stopping its development, operators of the proposed McDonald gold mine have laid off all but two part-time workers, shut down their Helena office and pared down operations to a minimum.

Richard DeVoto, president of Canyon Resources Corp., said that Tuesday's decisions were made in recent weeks to trim staff and shift to a bare-bones operation at the company's Lincoln office, the headquarters for the proposed McDonald mine. He said it is now illegal for the McDonald mine to go forward, and unless that changes, the Golden, Colo.-based company must continue to cut costs.

He said the only two remaining workers of what had been a 12-person crew at the McDonald mine are project manager Jim Volberding and office manager Phyllis Ward. Both were shifted to part-time recently.

Bill Snoddy, the public and governmental relations manager for McDonald, was laid off as of May 30.

Snoddy, who had been with Canyon since July 1996, said the layoff is disappointing, but not unexpected given the passage of Initiative 137, the 1998 ballot measure prohibiting any new or expanded open-pit gold or silver mine using cyanide to process ore. The initiative, approved by a 52-48 percent margin, halted permitting of the McDonald mine, a cyanide heap leach operation.

"It's unfortunate that things have developed this way for Canyon Resources," said Snoddy. "It's an excellent company working hard to be a productive part of Montana society by permitting the McDonald gold project, but because it was denied that opportunity by I-137, things like this were inevitable."

DeVoto said the company is under financial constraints and the only thing it can afford right now is paying rent to state and private landowners to hold onto the mine property. On the state level, the price tag for the McDonald mine's six mineral leases equals nearly $10,000 a year.

"The only costs we can afford to maintain is keeping our mineral rights together," said DeVoto.

DeVoto said he doesn't expect much change for McDonald in the future, unless a lawsuit filed last year by the Montana Mining Association against the state to overturn I-137 is successful. Also, he said, Canyon is considering filing its own suit against the state to recover its investment in the McDonald mine the company argues was stripped away when the ballot measure passed.

"Consider the $70 million invested over 10 years by the Seven-Up Pete Joint Venture," said DeVoto. "Then the state turns around and bans the use of a process that's been used for 100 years. The rules have been changed and therein lies the basis for any potential takings lawsuit."

DeVoto couldn't say when such a lawsuit would be filed, but said the company is trying to put together enough money to finance the court battle. The company has said it's considering suing the state for up to $600 million, for the value of the McDonald mine taken when voters approved I-137.

The McDonald project hasn't been without its financial problems, even before the passage of I-137. Last year, the company fell behind on its bills for an ongoing environmental review of the mine, necessary for the firm to receive a permit to operate the mine.

At that time, work on the environmental study was put on hold and Canyon laid off seven of its 12 employees. It later laid off another worker and was down to just three workers overall.

Warren McCullough, chief of the state Environmental Management Bureau, said Tuesday Canyon is now paid up with the state, but the officials aren't doing any work on the project.

"There's no place for the permit to go at this point," he said.

McCullough said for now, Canyon's permit application information is being archived and stored. Still, he said the state will keep its eye on the company, given it still has some reclamation obligations for exploration work done at the mine site.

Wednesday - 6/9/99

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