Falconbridge Gold pursues Canamax assets

Falconbridge Gold (TSE) has signed a letter of intent to purchase the 25,000 oz.-per-year Bell Creek gold mine and mill near Timmins, Ont., from Canamax Resources (TSE), for $5 million.

Toronto-based Falconbridge Gold is also negotiating to gain control of two former gold mines and a basket of exploration assets by purchasing Amax’s (NYSE) 42% stake in Canamax via a put-call agreement involving 10.4 million common shares.

As Falconbridge’s Hoyle Pond mine and discontinued Owl Creek tailings project (which produced 82,018 oz. last year) are within about a mile of Bell Creek, President Brian Ferguson sees a myriad of opportunities in the Canamax assets. If the transaction closes as scheduled later this month, Falconbridge will pay Canamax $3 million in cash and a $2-million subordinated unsecured 8% promissory note with a 3-year term for the Bell Creek complex. While Ferguson declined to say exactly how much Amax will receive for its Canamax shares, which traded recently at 35 cents in a 52-week range of $1.38 and 29 cents, he indicated terms would be close to market price. If the deal goes through, Falconbridge would also receive warrants to purchase an additional 1.5 million Canamax shares in return for exploration carried out by Falconbridge on Canamax properties.

Although that could give Falconbridge approximately 53% of the 22 million shares outstanding, there is no intent to have Canamax disappear, President Wayne Lenton told The Northern Miner.

Low gold prices and unforeseen operating problems have forced Canamax to close its Ketza River, Yukon, and Wawa, Ont., gold mines in the past two years. As the Vancouver outfit has been able to generate sufficient income from Bell Creek to service $14.7 million in bank debt, proceeds of the deal should enable it to clear its books and continue as an exploration company. Ironically, Noranda (TSE), which owns 50% of Falconbridge Gold’s parent Falconbridge Ltd., is drilling on Canamax’s Golden Highway claims, east of the Freewest Resources (TSE) discovery at Harker-Holloway, Ont. However, Lenton indicated the agreement will entail more layoffs at Canamax even though the company has reduced its exploration and administrative staff due to the mine closures and the slump in metal prices.

Ferguson said the acquisition of the 450-ton-per-day Bell Creek mill would enable his company to reduce costs at Hoyle Pond because ore could be processed at the Canamax facility rather than at Falconbridge Ltd.’s Kidd Creek, Ont., complex.

Falconbridge Gold, which expects to extract about 65,000 oz. this year from Hoyle Pond, could eventually use the Bell Creek shaft to conduct underground exploration on adjacent properties, added exploration Vice-President David Comba.

The transaction is conditional on execution of a definitive purchase agreement, settlement of certain banking arrangements by Canamax and regulatory approval.

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