Hemlo backs away from Magnacon mill, leaves Flanagan floundering

To the surprise of management at Flanagan McAdam Resources (TSE) and Muscocho Explorations (TSE), Hemlo Gold Mines (TSE) has decided to back away from a proposal to purchase an interest in the Magnacon mill and related assets. Under a letter of intent, Hemlo was expected to pay $9 million for the two juniors’ combined 75% interest the mill, related infrastructure and surface rights at the Magnacon mine near Wawa, Ont. The remaining 25% interest is held by Windarra Minerals (TSE), which in turn is 30% owned by Hemlo Gold.

“This decision came as a complete surprise to management of the companies, who were working diligently toward completion of the proposed transaction with Hemlo,” the debt-ridden juniors said in a press release.

Flanagan McAdam and Muscocho recently received court approval for plans of arrangement under the Companies’ Creditors Arrangement Act, including the sale of the Magnacon assets. The juniors owe several million to the bank and other creditors.

Hemlo says the decision to terminate negotiations was prompted by “a number of problems in connection with acquiring the mill assets and their future operation.” Management could not be reached for comment.

Hemlo had intended to use the mill to process ore from the Eagle River deposit, about 20 km to the south. Along with 40% partner Central Crude (TSE), Hemlo says it is continuing feasibility studies on Eagle River, for example, finding other milling alternatives.

Preliminary reserves at Eagle River stand at 1.77 million tons grading 0.25 oz. gold per ton. Exploration is ongoing.