Muscocho officers report low group equity holdings

While the names Terry Flanagan and Jack McAdam are almost synonymous with the Muscocho Group of companies which includes Muscocho Explorations (TSE), Flanagan McAdam Resources (TSE) and McNellen Resources (VSE), their equity holdings in the group appear surprisingly low.

In a recent prospectus it is revealed that on Nov 30, 1987, directors and senior officers of Muscocho Explorations owned directly or indirectly less than 0.6% of the company’s 22.9 million outstanding shares.

According to the Ontario Securities Commission, President Terry Flanagan holds 54,025 Muscocho common shares (around 400 are tied up in Registered Retirement Savings Plan certificates) and his partner owns only 43,527.

The Chibougamau prospectors retain share options which could bring their Muscocho holdings up to over one million shares.

They also own only 404,000 (with options on 290,000) of Flanagan McAdam’s 10.7 million outstanding shares, the OSC says.

But even though their holding will be diluted by a recent agreement which allows Edmonton- based Echo Bay Mines (TSE) a significant share in the three companies in exchange for $50 million, Flanagan and McAdam say they will still get rich from their exploration successes.

The group has one gold mine — the Montauban 50 miles west of Quebec City — and two exploration gold properties — the Magino near Wawa, Ont., and the Magna- con at Mishibishu Lake — nearing the production stage. “I would rather have a small slice of something big than have it the opposite way around,” said Flanagan who expects an aggressive push to production to be reflected in the company’s share price.

Muscocho shares were trading recently on the Toronto Stock Exchange at $3.65 in a 52-week range of $7.25 and $2.80 Flanagan shares were slightly better at $3.85 in a $4.50, $1.80 range.

The Muscocho management team doesn’t own any McNellen shares but if the Muscocho and Flanagan McAdam issues fail to live up to Flanagan’s expectations, he and his partner could fall back on management fees.

As indicated by the same Muscocho prospectus, Flanagan and McAdam are the principal officers in an Ontario numbered company 140125 Canada Inc. which charges a fee for “certain geological work, exploration and administrative services under normal commercial terms.”

The value of these services in 1986, the prospectus says, was $396,000 and for the six months ended June 30, 1987, it added up to $309,000.

“You could equate this to a mining company paying for the expertise of an independent consultant,” said Merrill Lynch analyst Catherine Gignac. “Because they are so experienced, they can provide that (consulting) service themselves,” she said.

According to Ian Park, President of Toronto-based Greenstone Resources (VSE), management fees are part and parcel of the mining business. As a joint venture partner with Flanagan McAdam and Muscocho at the Gwillim gold project in Chibougamau, Greenstone pays a management fee to Flanagan and McAdam.

While Park wouldn’t reveal how much he is paying to the former prospectors, he says management fees usually range from 5% to 15% of expenses incurred during a given exploration program. But they can be much higher.

“I have seen agreements where managers charge 15% of every flow- through dollar spent on exploration,” said the Greenstone president.

Nevertheless, most mining sources say the Muscocho executives are worth their weight in the percentage they charge on every dollar spent on their exploration projects.

“They are two of the top operators in the business and I’m glad to have them working with me,” said Park.

Barry Simmons, who heads Syngold Explorations (TSE) in the Aur Resources (TSE) group agrees with Park’s analysis.

“The Flanagan McAdam team is highly regarded in a technical sense and that is one of the reasons why Echo Bay took a look at them”, he said.

However, for the moment at least, most of the funds in the (“140125”) treasury are being spent on drilling costs, says McAdam. “Since the income is taxable Jack (McAdam) is wondering when we will see some money from it,” he said.