Deak debentures to fund mine property acquisitions

Subscriptions for $3.85 million in principal amount of prime plus secured convertible debentures have been received by Deak Resources (TSE), which is consolidating a number of gold and base metal properties in northwestern Quebec and northeastern Ontario for production purposes at Virginiatown , Ont.

The debentures bear an interest rate of prime plus 1% and are convertible into Deak shares at an initial price of 90 cents per share, subject to anti-dilution provisions. Subscription funds have been placed in escrow pending completion of required documentation and registration of appropriate security instruments against Deak’s Quebec assets.

Proceeds of the private placement will be used to close various agreements:

* with MacDonald Mines Exploration (COATS) and Noranda (TSE) to acquire the West MacDonald mine, a former zinc-gold- silver producer;

* payment of all obligations of Deak’s agreement with Noranda Exploration to acquire the Iso Magusi massive sulphide deposit;

* acquisition of the old Kerr Addison mine and mill at Virginiatown and adjacent gold properties under an option with GSR Acquisition (Deak is acquiring a 90% interest in GSR).

The owner of the Kerr mine and mill, Golden Shield Resources, declared bankruptcy last year. GSR has been negotiating with the trustee involved in the bankruptcy to acquire the property.

GSR Secretary-Treasurer Andrew Taylor says Golden Shield has made a proposal to the trustee for its unsecured creditors, for its discharge from bankruptcy.

Under the terms of the proposal, Deak will acquire a 70% interest in the Kerr property; the creditors must formally approve the proposal.

Taylor says GSR and Deak have had discussions with the United Steelworkers of America, and subject to a ratification vote, have obtained the approval of the employees, the largest group of unsecured creditors, to convert their debts to equity in the new venture.

Deak has also entered into a verbal agreement with Dejour Mines (TSE), Muscocho Explorations (TSE), CS Resources and corporations owned by prospectors Mike Labchuk and Frank Tagliamonte for the purchase of the net smelter royalty interests of each in the Hebecourt mine northwest of Rouyn- Noranda, Que.

Deak proposes to issue treasury shares in exchange for the royalty interests. Deak reports one of the vendors has also suggested selling its working interest in the mine.

A preliminary reserve estimate for the four Quebec properties — West MacDonald, Magusi, Hebecourt and Aldermac — Deak is consolidating totals 8.6 million tons grading 3.51% zinc, 1.21% copper, 0.02 oz. gold per ton and 0.76 oz. silver.

Planned rehabilitation of the Kerr mill, involving in part modification of one of the three circuits to treat the base metal ores, will cost an estimated $10 million.

Deak (through GSR) has an option to acquire a 49% interest in the gold property of Armistice Resources (ME) lying adjacent to the Kerr mine at Virginiatown. A $5.5-million underground exploration program is planned for that property by Deak.