Deak’s backers show confidence with share purchase

On paper, it sounds like a great idea.

You combine the assets of three exploration companies with holdings in an established northern Ontario mining camp.

You acquire an aging gold mine and 4,500 ton-per-day mill and plan to restore the mill to its original capacity and build in a base metal circuit to enable you to custom mill ore from undeveloped deposits in the area. You also hire a high profile mining engineer with proven credentials to manage the day-to-day operations of your new concern as it takes shape. But can you make the plan pay? That was the question confronting Deak Resources (TSE) and affiliate GSR Mining when they bought the old Kerr Addison mine and mill from bankrupt Golden Shield Resources for $10.6 million in 1989.

Under Chairman Malcolm Slack, Deak planned to rehabilitate the mill at Kirkland Lake, Ont., to enable it to treat 3,000 tons of gold ore daily and install a base metal circuit to handle 1,000 tons of base metals. As the grade of ore at Kerr and nearby Armistice and Arntfield deposits was in the range of 0.12-0.16 oz. per ton, many expected Deak to suffer the same fate as Golden Shield. But if recent share purchases by parent Deak International Resources Holdings are any indication, Deak Resources appears to be impressing its backers.

Last month, the parent increased its stake in Deak Resources to 31.4% from 26.7% after completing a private placement that reduced the latter’s debt load by about $1.9 million. By agreeing to acquire an additional 1.8 million shares at 30 cents per share, Deak Holdings will up its stake in Deak Resources to 36.3%. Deak currently has 17.1 million shares issued. Slack was in New York when The Northern Miner at-

tempted to reach him for comment; however, director Douglas Hume said he regards the transactions as a powerful vote of confidence in the ultimate success of the enterprise.

By mid-year, the Kerr mill had processed 202,000 tons of ore, including 118,000 tons grading 0.144 oz. from the Kerr mine, 27,000 tons from the Buffonta open pit and 57,000 tons from the Francoeur mine (a custom-milling job).

Having accelerated the mill rate to 1,265 tons-per-day at June 30 from 965 tons in December, Hume expected the operation to be processing 2,200 tons daily by mid-September.

As mill throughput has expanded and economies of scale have come into play, Deak was able to report a second-quarter profit of $1.3 million compared to a loss of $1.1 million for the same period last year. Production for Deak’s account is targeted at 50,000 oz. this year compared with 13,773 oz. in 1990. However, Hume says Deak’s long-term profitability depends on the company’s ability to complete its Kerr expansion plan and finance its base metal properties including Magusi, West MacDonald, Hebecourt and Aldermac. The company received $2.1 million from the Northern Ontario Heritage Fund to finance the mill expansion, but it requires another $7 million to install a base metal circuit in the mill and complete its plan.

Development of the Hebecourt and MacDonald deposits, which are ready and waiting to be mined, hinge on the installation of a base metal circuit. Although Deak was unable to purchase from Noranda (TSE) the 50.15% stake in West MacDonald it doesn’t already own, Hume says it can easily be financed to production. “All we have to do is dewater the pit and truck the ore to Kerr,” he said.

With a positive feasibility complete, the project hosts 1.2 million tons grading 7.5% zinc, 0.2% copper, 0.037 oz. gold and 0.93 oz. silver per ton. (Under its agreement with Noranda, Deak would be required to provide a $4-million guarantee to indemnify Noranda from any lawsuits relating to the property.)

At a similar stage of development, Hebecourt hosts 725,000 tons grading 2.8% copper of open-pittable reserves.

Deak eventually hopes to draw ore from the Magusi deposit located west of Hebecourt where an 18-hole definition drilling program is in progress. Preliminary reserves at Magusi stand at four million tons grading 1.79% copper, 3.02% zinc, 0.026 oz. gold and 0.84 oz. silver. According to a prefeasibility study, future development would entail the installation of a 1,000-ft. ramp. “The plan is to take a metallurgical sample and see what the rocks look like,” Hume said.

As drilling continues at Magusi, Slack is talking with financial groups in New York in a bid to raise the money Deak needs to finish rehabilitating the Kerr mill. Hume belives some sort of commodity-based loan is a possibility.