Echo Bay executives appointed to board of McNellen Resources

With a $50- million investment in the Muscocho Group of companies including McNellen Resources (VSE), Echo Bay Mines (TSE) is set to play a much larger role in Eastern Canada’s gold mining industry.

Until recently all of Echo Bay’s gold production came from the Northwest Territories and the western United States; but the stage has been set for its participation in the activities of the Muscocho Group which in recent years has developed significant gold mining capacity in Ontario and Quebec.

At an extraordinary meeting held in Vancouver a week ago, two senior executives from Echo Bay (Richard C. Kraus, executive vice-president and chief financial officer, and Peter Clarke, senior vice-president operations) were elected to McNellen’s board. Echo Bay President John Zigarlick attended the meeting and reiterated his company’s confidence in Muscocho management and the group’s future prospects.

To date, Echo Bay has invested approximately $50 million in the Muschocho Group which includes: Muscocho Explorations (TSE), Flanagan McAdam Resources (TSE) and McNellen Resources.

Besides electing two new directors, shareholders also approved the conversion by Echo Bay into shares of McNellen of a $5-million loan made to McNellen earlier this year. The conversion price is $2.50 and would involve two million shares. Assuming conversion (which seems certain) Echo Bay will have a 26.6% interest (4.86 million shares) in McNellen on a fully diluted basis.

Discussing McNellen’s activities at the extraordinary meeting, J. T. Flanagan, president, emphasized the company would have no long- term debt afte r the conversion by Echo Bay. And he said McNellen would be able to draw on Echo Bay’s mining expertise which covers conventional underground and open pit mining operations, along with heap leaching.

Flanagan noted that McNellen’s Magino gold project near Wawa, Ont., is still in the tune-up phase but he predicted an eventual milling rate of 1,200 tons per day in 4-5 years for an additional cost of $2 million. At present, the mill has a capacity of 400 tons per day (although it has handled 500 tons). But he claimed it could easily be expanded to 600 tons per day at a marginal capital cost. Gold output for 1989 is expected to be 50,000 oz, climbing to 82,000 in 1990, almost 100,000 oz in 1991, and the same the following year, he pointed out.

The mill is not in “commercial production, ” he emphasized, noting that low grade material will be fed into the plant during the tune- up phase. Any future expansion will depend on the availability of working places underground.

Proven, probable and possible reserves now stand at eight million tons to the 2,000-ft level or 4,000 tons per vertical foot. Arguing the Magino discovery was analogous to the Timmins camp, Flanagan said there was good reason to believe the zone could reach depths of 5,000 ft or better.

Muscocho and McNellen each have a 50% interest in the project which will cost about $24 million to bring into production. Most of that has been spent, he said. The property is not expected to generate cash flow in the next 2-3 months and there won’t be “a gross income for 1988,” he added. Some modifications are being made to the mill which was constructed on a turnkey basis so the contractor will foot the bill, he said.