Environmental hitch killed deal for Magnacon

Environmental concerns associated with the Magnacon mill are the main reason why Hemlo Gold Mines (TSE) called a halt to purchase negotiations (T.N.M., Jan. 7/91), John Harvey, president of the large gold producer, said. Although Harvey was reluctant to elaborate, a spokesman for Ontario’s Ministry of the Environment said discharge treatment at the mill does not meet ministry standards.

Last September, Hemlo began negotiating with Flanagan McAdam Resources (TSE) and Muscocho Explorations (TSE) to purchase the juniors’ combined 75% interest in the mill, related infrastructure and surface rights at the Magnacon mine, near Wawa, Ont. Hemlo intended to use the mill to process ore from Eagle River, a nearby gold deposit shared by 40% partner Central Crude (TSE).

To the surprise of the debt-ridden juniors, Hemlo announced that it was pulling out of the negotiations at the end of December, 1990.

“The chief concern is that there are some environmental problems with the mill,” said Harvey. “It is going to cost us more than we were originally led to believe.”

Proceeds from the $9-million Magnacon sale were supposed to finance a plan of arrangement recently approved by Muscocho and Flanagan creditors.

Government officials are worried about the danger of the tailings pond overflowing, said Bruce Cave, senior field officer for the environment ministry in Sault Ste. Marie, Ont. Because it lies just north of several trout sanctuaries, the Magnacon mill poses a serious threat to the local environment.

The mill, originally certified in May, 1989, will not be eligible for recertification until the treatment problems can be resolved, Cave said. With several proposals in hand, Muscocho and Flanagan are discussing the situation with ministry representatives.

“We think the demands can be met and so does the ministry,” said Terry Flanagan, president of both juniors.

Harvey said he would be willing to return to the negotiating table if the problems were resolved. In the meantime, Hemlo is considering alternate milling arrangements for ore from its Eagle River project. “Magnacon does not look as though it’s the best alternative anymore,” Harvey said.

Hemlo owns an indirect interest in Magnacon through 30%-owned Windarra Minerals (TSE), which has a 25% stake in the property. The decision to terminate the Magnacon negotiations had nothing to do with the viability of the Eagle River deposit, Harvey added, although uncertainty about milling costs for the proposed mine are holding up feasibility results.

Exploration at the Eagle River project, which hosts preliminary reserves of 1.77 million tons grading 0.25 oz. gold per ton, will resume in the spring.

The balance sheets of the two juniors were critically wounded when Echo Bay Mines (TSE) pulled out of a refinancing deal last April. Had the refinancing been successful, at least $14 million, including a $5 million loan, would have been added to Flanagan’s coffers.

When Magnacon became the first gold mine to enter commercial production in the Mishibishu camp, it gained recognition as a regional success story. But since then, a series of production shortfalls and technical problems have plagued the producer. In Oct. 1990, the mine was placed on care and maintenance.