Muscocho group set to approve Echo Bay deal

Shareholders of related companies Muscocho Explorations (TSE), Flanagan McAdam Resources (TSE) and McNellen Resources (TSE) are expected to approve an important restructuring and financing agreement this week with Echo Bay Mines (TSE). If approved, the deal could bring about a turnaround for the problem- plagued junior firms which have been struggling with startup problems at their Magino and Magnacon gold mines near Wawa, Ont.

As announced in January, the agreement with Echo Bay is designed to get the cash-strapped juniors back in a sound financial position and allow Echo Bay to take over as operator of the two mines. Under the deal, the senior company will end up with a direct 50% interest in the Magino mine and a 37.5% interest in the Magnacon mine.

Total reserves in all categories at Magino above the 500-ft. level are estimated at 1.6 million tons averaging 0.15 oz. gold per ton. At Magnacon, reserves in all categories are calculated at 1.47 million tons averaging 0.18 oz. gold per ton (cut to 1.0 oz.). Both mines are considered high-cost producers with cash costs of more than $350 per oz.

The deal will inject nearly $20 million into the three juniors, allowing them to eliminate their short- term debt load, and maintain minority interests in the Magino and Magnacon mines.

At present, Muscocho depends on the continued support of its banks and creditors, and if the proposed transaction with Echo Bay is not completed, the company might not be able to arrange the financing necessary to stay in business.