Hemlo offers $9 million for Magnacon mill

Cash-rich Hemlo Gold Mines (TSE) has dug into its deep pocket with a $9-million offer to Flanagan McAdam Resources (TSE) and Muscocho Explorations (TSE) for their interests in the mill and surface facilities at the Magnacon mine near Wawa, Ont. A letter of intent for the sale was recently signed by the three companies. It remains subject to the execution of formal agreements, and regulatory approvals as well as settlement with Flanagan’s creditors.

J.T. Flanagan, president of Muscocho, says the letter of intent with Hemlo also provides for access to the mill for processing ore from the Magnacon mine when required.

In addition, the companies are contemplating negotiations for an exploration agreement whereby Hemlo would earn an interest in the mineral rights in return for expenditures on the Magnacon property.

The refurbished 600-ton-per-day mill serves the existing underground mine where production is continuing on a reduced basis utilizing stockpiles.

The mine is 50% owned by Flanagan McAdam with Muscocho and Windarra Minerals (TSE) each holding a 25% interest.

Flanagan McAdam has been in serious financial trouble for several months following the collapse of a refinancing deal with Echo Bay Mines (TSE) last April. The junior company owes about $2 million to its bank and nearly $8.3 million under the Magnacon joint venture to partners including Muscocho.

The previous refinancing agreement that was cancelled by Echo Bay would have seen the latter company inject nearly $9 million into Flanagan McAdam, along with an additional loan of $5 million over several years.

Back in July, 1989, the Magnacon mine was heralded as the first gold producer to enter commercial production in the Mishibishu gold camp. But since then, its underground ore reserves have been downgraded and the mill has been besieged by technical problems that led to lower than expected output.

Elsewhere in the Mishibishu belt, Hemlo Gold is putting the finishing touches on a feasibility study for its Eagle River gold deposit owned jointly with 40% partner Central Crude (TSE).

Shares of Muscocho rose 6 cents to 21 cents after the letter of intent with Hemlo was announced, while shares of Flanagan McAdam were steady at 21 cents.