Hemlo buys into Windarra for Mishibishu-area play

Under two separate agreements Hemlo Gold Mines (TSE) has agreed to finance Windarra Minerals’ (VSE) participation in a major new gold project (N.M., March 21/88) near Wawa, Ont. Ultimately the pact could see Hemlo Gold firmly in control of Windarra and lead to an extension of its mining activities outside the Hemlo area.

Windarra has a 25% interest in the Magnacon property where Muscocho Explorations (TSE) is operator with 25% and Flanagan McAdam Resources (TSE) controls 50%. Hemlo Gold will provide Windarra’s share of development costs through a gold loan which is repayable out of 80% of Windarra’s cash flow from the project. At present, Windarra’s share of costs for a 600-ton-per-day operation is estimated at $7.5 million; but any additional expenditures will be covered by the pact.

The Magnacon agreement also calls for an exchange of 1.5 million Windarra shares for 150,000 Hemlo shares which at today’s prices represents an almost even exchange in terms of value. Hemlo has agreed to arrange financing for any cost overruns and plant expansions, all of which are repayable on the same basis as before.

Besides the Magnacon property, Windarra’s Mishibishu Lake holdings include the adjoining Eastern property which could host any strike extension of the Magnacon deposit. The gold-bearing horizons extend for over four miles across the length of the Magnacon and Eastern groups. The latter property is held 50% by Windarra, 25% by Muscocho, and 25% by Flanagan McAdam.

The agreement for the Eastern property will see Hemlo underwrite two million Windarra shares at $2 each, $3.5 million of which will be applied to future exploration costs. The balance will go into Windarra’s treasury. After that exploration expenditure has been made, Hemlo will have earned half of Windarra’s 50% interest in the property.

As before, project funding will be organized by Hemlo and be repaid on the same basis. It will also receive a one-year warrant to purchase one million shares at $3 each plus a 2-year warrant to purchase another one million shares at $4 each. The two parties will enter into a 6-year voting trust and Hemlo has agreed not to increase its share holding to over 33% for that period. Hemlo will also place one member on the Windarra board.

Fully diluted, Windarra will have 22.6 million shares outstanding with no further capital requirements and approximately $15 million in cash and negotiable securities.

Windarra intends to transfer all its remaining property interests in the Mishibishu Lake, La Ronge (Saskatchewan) and other areas to a wholly-owned subsidiary which would eventually go public. By exercising all its options, Hemlo would hold a 24.3% interest in Windarra.

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