Deak Resources joining metal producer ranks

Milling will take place in Virginiatown at the old Kerr mine.

Current mineral inventory from four properties — West MacDonald, Magusi, Hebecourt and Aldermac — in the Rouyn-Noranda area totals 8.6 million tons averaging 3.51% zinc, 1.21% copper, 0.02 oz gold per ton and 0.76 oz silver.

Initial plans call for mining all of the reserves at the West MacDonald (1.5 million tons) and Hebecourt (790,600 tons) mines, as well as about 1.4 million tons grading 6.54% zinc, 0.056 oz gold and 0.94 oz silver from Magusi. The Aldermac property is to undergo further exploration.

In order to expedite its plans, Deak has made contractual agreements with Noranda Inc. concerning the Quebec properties, whereby Deak will acquire a 100% interest in all of the properties and pay all of the exploration and development costs.

Under the agreements, Noranda Exploration obtains a 25% net profits royalty in the properties (excluding the West MacDonald but including certain other Deak properties in the same area). Noranda Exploration also becomes the exploration operator, except on the Aldermac property. Operator of all production properties will be Deak.

The agreements give Noranda the right to back into 50% of any property, excluding the West MacDonald, upon payment of 200% of Deak’s cost.

The West MacDonald mine, a former zinc-gold-silver producer, is owned by Les Mines Gallen, in which Noranda has a 51% interest and MacDonald Mines Exploration (COATS) a 49% interest.

The mine was closed in 1982 by Noranda and briefly re-opened in 1984. MacDonald Mines sued Noranda unsuccessfully because of the closing. MacDonald Mines all but fell apart in late 1987 when its officers and directors resigned. Last year a group of MacDonald Mines shareholders revived the company, electing a new executive.

Deak says both MacDonald Mines and Noranda have agreed to sell their respective interests in Les Mines Gallen. A 2-stage option agreement has been drawn up with MacDonald Mines, while Noranda has retained a 15% net profits royalty on production from the West MacDonald mine.

In Ontario, Deak has an option to acquire a 90% interest in GSR Acquisition, which is negotiating to take over the assets of the Kerr mine and other area properties belonging to Golden Shield Resources, which was placed into bankruptcy this past summer.

The Kerr mill, with three circuits and the capacity to process 4,500 tons material per day, was operating on a single circuit and treating only gold reserves prior to the bankruptcy announcement.

Plans by Deak call for one of the circuits to be modified to treat the base metal ores from the Quebec properties at a rate of 1,500-1,700 tons per day. The circuit previously treating gold will be left in place, leaving open the third circuit for possible custom-milling work.

Total cost to rehabilitate the mill is estimated to be $10 million; Slack said in an interview the mill could be operational in 4-5 months. GSR has been negotiating with the Ontario government for a loan guarantee to cover the mill rehabilitation expense.

In addition to the Golden Shield gold exploration plays in the area which could provide future feed to the Kerr mill, Deak (through GSR) has been granted an option to acquire a 49% interest in the Armistice Resources (ME) property lying adjacent to the Kerr mine.

The plan calls for Deak (through GSR) to spend $5.5 million exploring the Armistice property from underground by extending an existing drift from the Kerr side at the 3850 level.

While putting its property package together, Deak investigated using the former Quemont mill at Rouyn-Noranda for the processing of its base metal ores. Consequently, Deak has made an agreement with Noranda whereby Deak may deposit tailings in one of Noranda’s active tailings areas a short distance from the Quemont mill.

Slack has been named chairman of Deak Resources. Gerry Cooper, soon to be leaving Mining Corp. of Canada, is slated to become Deak’s president. Doug Towers is vice-president of finance, George Archibald is vice-president of exploration, and Andrew Taylor is secretary-treasurer.

Named to the board of directors are Slack, Cooper, Archibald, Taylor and Douglas Hume. Subject to shareholder approval, two additional directors, Ivor Orchard and Peter Bradshaw, will be added to the board.

Deak reports arranging for financing worth $5 million. Flow-through funding with a syndicate of private investors (at $1.10 per share) has raised $1 million. A private placement involving a fixed and floating charge convertible debenture raised the other $4 million, the debenture convertible into Deak common shares at 90 cents per share.

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