Letters to the Editor (August 08, 1988)

As a McNellen shareholder, I am a little disappointed at the skepticism you imply as to the latest estimates of McNellen’s ore reserves (now eight million tons of 0.25 oz gold per ton) and thought to be much more below 2,000 ft. Your skeptical note in the front page story, July 18 issue seems strange, because you reported the results of several deep holes in March, 1988. You could at least have reviewed these, and then obtained the latest deep and intermediate drilling results from Mr Flanagan, McNellan president. Speaking for myself, I do not doubt the reserves, especially when an experienced mining man such as Flanagan believes the reserves, at 4,000 tons per vertical foot, extend beyond 5,000 feet of depth (N.M., July 25/88). This would indicate possible reserves of 20 million tons.

The fact that Echo Bay Mines, who have recently invested $50 million in the Muscocho Group (which includes $11 million in McNellen) has every confidence in management, and have satisfied themselves as to the potential of the Magino reserves, ought to mean something as well.

The outstanding achievement at the Magino (McNellen’s joint venture with Muscocho) has been to bring the mine into production for only $24 million, in contrast to the approximate $40 million spent on the nearby Kremzar by Canamax. Also, in contrast with the Kremzar, the Magino has two million drill- proven tons of 0.25 oz per ton above the 500-ft level. How many other mines are so fortunate as this one?

Your skepticism is discordant compared with the front page euphoria over Madeleine Mines and Neptune Resources. The operating margins for both these mines will be very low. You fail to mention Neptune’s stripping ratio of 3.35:1 (waste-to-ore) which indicates high operating costs. You also fail to mention the low platinum content of Madeleine’s ore at 0.023 oz per ton.

It should be noted that with so much ore above the 500-ft level, the Magino does not need a lot of deep drilling at this time. It has all the capital it needs to build a major mine and intends to expand with cash flow income. It does not need promotion. It is in production, and as it grows, the investment community will realize its true worth and exciting future.

Your skepticism contrasts sharply with the optimism and confidence of the McNellen shareholder, the Muscocho Group, and Echo Bay’s management. Your doubts would have been better kept for the more marginal propositions such as Madeleine and Neptune. J.H.J. Morgan, M.A., M.B.A. Toronto, Ont.