Crude buying 75% of Magnacon mill

After months of negotiations, Central Crude (TSE) has signed a letter of intent to purchase 75% of the Magnacon mill and related infrastructure near Wawa, Ont., from debt-ridden partners Flanagan McAdam Resources (TSE) and Muscocho Explorations (TSE).

Representing a substantial discount to the $9 million offered by Hemlo Gold Mines (TSE) in September, 1990, and again by Belmoral Mines (TSE) in January, the assets will be sold for $2 million plus 600,000 Crude shares. Crude, trading recently at $1.40, is 43% owned by Hemlo Gold. Hemlo also has a 30% stake in Windarra Minerals (TSE), which owns the remaining 25% interest in the Magnacon mine and mill. After its owners fell into financial ruin, Magnacon was placed on care and maintenance in late 1990.

Crude intends to use the mill to process ore from its 40% owned Eagle River gold deposit, about 12 miles away, at a rate of 500-750 tons per day. Hemlo, which owns the remaining 60% of Eagle River, is expected to announce whether or not it will participate in the mining venture by the end of the year. Although environmental problems associated with the Magnacon tailings pond prompted Hemlo to withdraw its purchase offer, Crude President Richard Nemis says work completed by the Muscocho group over the past year plus additional improvements after the sale will solve those problems. Terry Flanagan, president of both Flanagan McAdam and Muscocho, could not be reached for comment.

In February, Hemlo recommended that production at Eagle River be deferred until gold prices improve and/or costs are reduced. Its feasibility study, which indicated an 18% rate of return, is based on US$375 gold per oz. and a capital cost of $21.5 million.

Although gold prices have since dropped below US$360, Nemis says he’s now looking at a capital cost of about $8 million. The estimate includes the $2-million mill purchase price, $5 million for mine development and $1 million to refurbish the mill and its tailings facilities.

Nemis, who is looking at several financing alternatives including a bank loan, has five months to raise money for the mill purchase. Because Eagle River is already partially developed, including a ramp to three levels, he believes the deposit could be producing at 500 tons per day within 4-5 months of a production decision.

Eagle River hosts proven, possible and probable reserves of 2.87 million tons averaging 0.25 oz. gold per ton, cut and fully diluted.

The transaction is subject to a formal agreement, regulatory and other approvals, and the consent of partner Hemlo Gold.