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Hemlo Gold offers answer to Flanagan McAdam's woes.

Hemlo Gold offers answer to Flanagan McAdam's woes

The future of the Flanagan McAdam Group of Companies looked brighter in September with the promise of a major investment from Hemlo Gold Inc.

Hemlo Gold, which is majority owned by Noranda Minerals Ltd., signed a letter of intent to buy the mill, tailing facility, power line and other surface facilities of the Magnacon Mine, near Wawa, for $9 million.

Hemlo Gold's purchase was contingent on approval by the creditors of the Flanagan McAdam Group. The company also expressed interest in purchasing mineral rights.

The future of Magnacon and the Magino Mine, north of Wawa, were in doubt after Echo Bay Mines pulled out of a rescue plan in May.

Under the aborted plan, Colorado-based Echo Bay was to have invested up to $86 million and provided $10 million in loans to Flanagan McAdam and exchange its one-third interest in each of Muscocho, McNellen Resources Inc. and Flanagan McAdam Resources (all members of the Flanagan McAdam Group of Companies) for a 50-per-cent interest in Magino and a 37.5-per-cent interest in Magnacon.

Muscocho and McNellen each own a 50-per-cent interest in the Magino Mine. Muscocho and Windarra Minerals Ltd. of Vancouver each hold 25-per-cent interest in the Magnacon gold mine, while Flanagan McAdam holds a 50-per-cent stake in the mine.

Steve Brunelle, vice-president of corporate affairs for Muscocho Explorations, said company officials had met with officials from more than 50 investment, financial and mining groups from across the globe. He added that the company was open to either single- or multi-party offers.

Despite the uncertainty over the company's future financial picture, it remained relatively stable prior to Hemlo Gold's announcement. Brunelle said Muscocho had received enough backing to operate at reduced production levels for a limited period of time.

The Muscocho official said a jump in the company's stock price, from $11 to $21 per share in the span of three weeks in August, probably resulted from investors' beliefs that a solution was at hand.

When Echo Bay officials announced their decision to pull out of the rescue plan they cited higher production costs and lower-than-expected ore grades at the mines as the reasons for giving up a $76-million investment. Brunelle said the officials' statements were only partly true.

"Echo Bay had to say something to justify their write-off," he commented. "They were on top of operations at the mines from day one, so I don't think they could be surprised by anything."

Brunelle noted that one reason for a drop in the grades, from .24 to .20 ounces per ton, was that cut grades were introduced after the grade estimates were made in 1987.

Even though the two sites are the company's main assets, the Magnacon Mine has also proven to be one of its largest liabilities. Brunelle said the mine has never been brought to full production because the company ran short of funds.

"It cost us extra money and it cut into our cash flow," he said. "And without the funds, we couldn't develop the mine."

In September Muscocho was processing stockpiles at the troubled Magnacon Mine, while the Magino Mine was in full production.
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Title Annotation:Mining Report; Hemlo Gold Mines Inc.
Author:Krejlgaard, Chris
Publication:Northern Ontario Business
Date:Oct 1, 1990
Words:526
Previous Article:Slowdown may hurt some businesses, but others will profit.
Next Article:Exploration encouraging.
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