Musacocho bucks market trend with $18 million offering

While the Black Monday market debacle has forced other companies to cut back on their equity financing activities, Toronto-based Muscocho Explorations is going ahead with a plan to raise $18.87 million for work on a number of properties.

Muscocho says a prospectus has been accepted by both the Ontario and Quebec securities commissions for a public offering of 4.8 million Muscocho treasury shares at $3.70 per share.

Scheduled to close on Dec 21, the offering contains a “Greenshoe” allowance for an additional 300,000 shares to accommodate any oversubscription.

According to President Terry Flanagan, the decision to go ahead with the offering despite an uncertain market climate, was based on four key factors:

* The reduced share price enabled institutions in Canada and Europe to get a better deal on their investment. Before October 19, the Muscocho issue was trading at around $6 in a 52-week range of $8 and $3.30. At presstime it had slipped back to $3.65.

* A steady gold price which climbed above the $500(US) per oz barrier this week.

* Since Muscocho operates the Montauban gold mine 50 miles west of Quebec City, the offering qualifies under the Quebec Stock Savings Plan allowing investors a 100% writeoff on amounts they pay for new treasury stock issues.

Under rules set by the Quebec government, the stock must be placed in a layaway plan and left there for two years.

* Progress at Muscocho’s Magnacon gold project 50 miles from Wawa, Ont. and the Magino joint venture northeast of Wawa which Flanagan hopes to have in production by mid-1988.

As reported (N.M., Nov 23/87) underground assays at the Magnacon joint venture are 40% higher than those determined from drill core and the latest reserve calculations indicate 443,913 tons in the main zone grading 0.4 oz.

With a $13.8 million exploration program in progress, Flanagan says a production decision could be made at Magnacon in early 1988. The project is owned by partners Muscocho (25%), Flanagan McAdam Resources (50%) and Windarra Minerals (25%).

Reserves at Magino where Muscocho and McNellen Resources are involved in a 50%/50% joint venture stand at close to two million tons averaging 0.25 oz gold per ton to a depth of 500 ft.

But initial results from a 3-hole deep drilling program could change the Magino reserve picture. Results from the first hole indicate that gold vein occurrences exist in a granodiorite structure at a depth of approximately 2,000 ft, Muscocho says.

That view was supported by a second hole drilled to the same depths at a point 1,000 ft to the west. According to Muscocho, this hole encountered a number of vein intersections, four of them carrying visible gold.

Intersections from the first deep hole include 0.25 oz over 7.3 ft starting at a depth of 992.7 ft, 0.57 oz over 3.4 ft starting at the 1,127.5-ft level, 0.37 oz over 4.5 ft beginning at 1,164-ft, 0.14 oz over 10.6 ft at 1,236.5 ft, 0.16 oz over 3.7 ft at 1,988.3 ft and 0.56 oz over 1.8 ft at 2,635 ft, Muscocho says.

“A preliminary prospectus for a public offering of around five million shares was filed before Oct 19. But underwriters Burns Fry Ltd. and Levesque Beaubien Inc. wanted to wait and see if market interest would support the offering,” said Flanagan.

Although the Muscocho share price has forced the company to downsize its offering from pre-Black Monday levels, Flanagan says the offering is already fully subscribed. “We’ve been taking phone calls from a number of brokers who haven’t been able to get any of the stock,” said Flanagan.

However, he says the proceeds will be sufficient to bring both projects to a production stage.

A significant portion of the $18.87 million will be spent on a 400-ton-per-day test mill currently under construction in the Goudreau area of northern Ontario.

Some of the proceeds will also be spent on Muscocho’s exploration projects in the Chibougamau area of Quebec.