Nuinsco: back from the brink

The future appears much brighter for Nuinsco Resources (TSE) now that it has settled its lawsuits, resolved its debt situation, obtained new financing and had its trading suspension lifted.

The junior’s principal properties are situated in northwestern Ontario’s Lake of the Woods district. Following the discovery in 1983 of a significant gold occurrence at Cameron Lake, about 50 air miles southeast of Kenora, the company endured a series of major setbacks.

In February, 1985, the company entered into an agreement with Echo Bay Mines (TSE) fashioned to bring a gold mine into production at Cameron Lake. Financing for the work was arranged through the sale of flow-through treasury shares to Echo Bay.

From 1981 to the present, expenditures on the Cameron Lake property have exceeded $20 million, of which about $15 million was furnished by Echo Bay. Acting on a feasibility study prepared by consultants, Echo Bay decided to close the project down, stating the deposit would not be economic until the gold price exceeded US$500 per oz. Under terms of the agreement, H.D. Hume, G.F. Archibald and Echo Bay held mutual first rights of refusal on the disposition of respective shareholdings.

Echo Bay agreed to sell its control position of 7.65 million shares (more than 50% of outstanding shares). Management of the company found a buyer for the Echo Bay block in Deak International, a large currency trader and bullion refiner and trader, with head offices in Toronto. (Deak International is controlled by Jarden Corp. of New Zealand).

An agreement with Deak International was struck Nov. 23, 1988. Deak International purchased additional treasury stock, in all aggregating about 8.6 million shares.

Two flow-through financings of $1 million each from the Middlefield and NIM funds were arranged for further underground work. Additional cash was provided by Deak International in September, 1989, for exploration and development of the Cameron Lake mine via a 1-year, $1.4-million convertible debenture secured by the company’s assets.

Efforts by the company, Deak International and Echo Bay produced more than 3 million tons of reserves in all categories and paid for a production scale (12 ft. x 16 ft.) ramp to a vertical depth of 850 ft., with development drifts on three levels. Exploration and development work at Cameron Lake was suspended in 1990.

While a positive feasibility study by Watts Griffis & McOuat of Toronto resulted from these efforts, Deak International was unable to supply additional funding (mainly because of the worldwide recession). The main liquid assets of Deak International were sold by its parent, with the exception of its mining interests, which included, its convertible debenture and shareholdings in the company. In the depressed mining environment, no buyers could be found for its investment in the company. In August, 1990, the company had exhausted its liquid resources and was deeply in debt to Echo Bay, Deak International, trade creditors and Dynatec Mining, the contractor which had conducted the last phase of underground work. In August, 1989, a suit was launched against the company by Echo Bay, alleging unpaid obligations, followed a year later by a suit by Dynatec against the company and Deak International for failure to remit lease payments on the Cameron Lake mine camp and equipment. The company had no financial resources to maintain assets, pay staff or defend itself. Management organized a rescue effort. From personal resources, Hume paid taxes and other vital obligations to ensure that key assets such as properties, road permits, equipment, etc., would be preserved. The company’s financial situation deteriorated progressively and the market for the company’s shares totally collapsed to the 1 cents level and ultimately were suspended from trading on the TSE in January, 1993.

Positive aspects were (1) the company could hardly fall further and (2) Deak International Resources Holdings Ltd. (DIRHL), a subsidiary of Jarden, as a result of its inability to help the situation, agreed to give up its interest in the company and for that interest to be used to save the company, as well as to release them from consequences of the lawsuits.

DIRHL holds about 8.6 million shares of Nuinsco plus a convertible debenture for $1.42 million, convertible at 47 cents, plus accrued interest. Jarden eventually agreed to provide its holdings in the company. In exchange, management agreed to take measures to clear Jarden totally from any and all obligations in any way associated with the company.

The idea for the restructuring of Nuinsco was triggered in September, 1991, by news of a new gold discovery in the district by Western Troy Capital Resources (ASE). The plan required holding the company’s creditors at bay, acquiring additional exploration properties to enhance the potential of the Cameron Lake mine and, at the same time, preserving and maintaining all assets vital to future development of the mine.

A group of individuals was enlisted by directors, from former Nuinsco consultants and former staff, market and financial consultants and other friends. Some individuals contributed cash while others donated only services. The rescue plan, and its progress, was disclosed in considerable detail in a brief to the TSE, prepared Oct. 5, 1992, for a hearing on eligibility for trading of the company’s shares held Oct. 8, 1992. The company’s petitions for extensions of time, spread over several months, were disregarded and shares were suspended from trading on Jan. 28, 1993.

In October, 1991, the Troy gold discovery in the Rainy River district was brought to the company’s attention by two prospectors. The pair had information to the effect that high-grade gold had been discovered in Menary Twp., about 20 miles southwest of Cameron Lake.

A “hand shake” option, followed by a definitive agreement to acquire mining claims, including a claim purchase agreement, was struck at this time between the prospectors and a grubstake syndicate called the Rainy River Exploration Syndicate. The prospectors’ consideration for staking and land acquisition was payment of out-of-pocket expenses and a 2% net smelter royalty plus 250,000 shares of a listed company.

A land-staking program, financed by the Syndicate (comprising 32 individuals), was immediately implemented. At present, more than 830 claims (about 32,000 acres) have been staked on behalf of the Syndicate. About 5,000 acres of mineral rights under patented farmlands were optioned as part of the acquisition program.

On May 29, 1993, an option agreement was executed by the company with the Syndicate for the purchase of its interest in the Rainy River mining properties. At present, the purchase agreement covering Syndicate properties has not been consummated because the sale from the prospectors has not been closed.

Through negotiation, the Echo Bay suit was settled in December, 1991, at no cost to the company.

The Dynatec suit was more complicated. The company was unable to raise cash to effect a settlement. However, in October, 1993, the company did complete a tax-structured financing agreement with Canadian investors.

Under the terms of the agreement, the company sold an interest in its Cameron Lake gold property to a subsidiary corporation for $9.6 million, subject to an 8% profits interest in favor of the company. To finance the sale, the subsidiary issued a combination of guaranteed subordinated debentures, guaranteed preferred shares and common shares. The subsidiary is owned 97% by Nuinsco and less than 3% by the investor group.

This initiative provided $800,000 in non-dilutive cash funding, which broke the logjam frustrating the company’s funding efforts. Part of the cash proceeds of this financing was used to settle the $1-million lawsuit filed against the company and Deak International by Dynatec. Terms of the settlement, reached in September, 1993, included a cash payment of $300,000 plus the issue of a $553,775, 3-year, non-interest-bearing debenture, convertible at 47 cents per share. The balance of the funds was used to pay
the financing costs and $400,000 was required to be set aside for exploration. The company closed a financing agreement with Wincro Ltd., a private investment corporation, controlled by the family of F.J. Crothers of Nassau, the Bahamas. Conditional approval was granted in December by the TSE filing committee for the lifting of the trading suspension order imposed in 1993. Trading recommenced Feb. 11, 1994.

Brawley Cathers, which acted as the company’s agent for the private placement, was granted an option to purchase 500,000 common treasury shares of the company at 50 cents per share for a period of 18 months. Total proceeds contributed or committed by Wincro of up to $1.1 million will be added to the company’s consolidated working capital and used to advance development of the company’s Cameron Lake gold deposit, completion of the acquisition of the Syndicate properties, and to provide exploration funding for work programs in progress on exploration properties.

Upon completion of the Wincro private placement and rights offering guarantee plus earlier financings, the company’s consolidated working capital deficiency will have been reduced from $3.5 million as at Dec. 31, 1992, to a positive working capital position of about $800,000.

— Cathy Hume is a communications consultant who has expereinced the struggles of Nuinsco at close quarters: her father is company president Doug Hume.