Ontex to merge with Fortune subsidiary

An agreement between four companies closes the book on a long-running property dispute between Ontex Resources (ONT-A) and Metalore Resources (MET-T), and gives Fortune Minerals (FT-T) effective control of Ontex.

The deal merges Ontex with privately owned Faymar Gold Mines, which shares management with Fortune Minerals. Private placements of Ontex shares to Fortune and Metalore will complete the reorganization of Ontex.

Under the agreement, Metalore receives $2.7 million in cash and a 1% net smelter return on the Brookbank property, a package of leased claims in Irwin Twp., west of Beardmore, Ont. Drilling at Brookbank has delineated a resource of 1.25 million tonnes with an average grade of 9 grams gold per tonne.

Metalore gives up its right to acquire a 60% interest in Brookbank, and grants Ontex an option on surrounding claims covering 36 sq. km in Irwin Twp. and adjacent Sandra Twp. These claims contain the Cherbourg and Fox Ear prospects, which lie along strike from Brookbank.

The option entitles Ontex to earn a half-interest by spending $750,000 over four years, and another 10% if it spends an additional $250,000 in the same period. Once Ontex has earned its interest, the two companies will form a joint venture with provisions for dilution of each company’s interest if either fails to meet its share of the exploration budget. If either company’s interest falls to 10%, the working interest will be converted to a 1.5% net smelter return.

Also in the agreement is an option deal on claims in Walters and Leduc twps., east of Irwin Twp. Ontex can earn a 70% interest in the 66-sq.-km property by spending $500,000 on exploration over four years. The deal converts to a joint venture once Ontex has earned in, and has similar dilution provisions except that a 10% interest automatically converts to a 1% net smelter return. A smaller leased parcel of 1 sq. km in Walters Twp. is retained by Metalore, but Ontex will have a right of refusal if Metalore wishes to sell the property.

In the second part of the deal, Ontex takes over Faymar Gold Mines in a share swap, with Faymar shareholders receiving 1.4286 shares of Ontex for each Faymar share.

The amalgamation of Ontex and Faymar Gold Mines brings the Faymar gold property in Deloro Twp., southeast of Timmins, into the company. Faymar itself produced 29,000 oz. gold from 112,000 tonnes of ore between 1940 and 1942, and the adjoining Nakhodas mine, on the same property, produced just over 7,000 oz. from 40,000 tonnes of ore shipped to the Faymar mill.

The agreement, scheduled to close Dec. 15, has yet to be approved by shareholders of Fortune, Metalore and Ontex; it is also subject to regulatory approval.

Along with the realignment of ownership, Ontex gets a new board, with three representatives from Fortune, three from the old Ontex board, and one representative from Metalore. Salvatore Fuda of Ontex remains as chairman, with Robin Goad of Fortune as president and Gary Conn, also of Fortune, as executive vice-president. As well, the agreement provides that Fortune’s management will vote Metalore’s Ontex shares.

Fortune management will be directing Ontex’s exploration work on the properties.

To finance Ontex’s exploration commitments, Fortune will take a 5.7-million-share private placement of Ontex shares at 35 cents, for proceeds of $2 million. Attached to each share is a warrant exercisable at 38 cents in its first year, 65 cents in its second, and 75 cents in its third year. Metalore takes up 3.6 million Ontex shares at 35 cents, for proceeds of $1.3 million, and the merger with Faymar brings in $2.5 million in cash.

Ontex and Metalore go way back — to a lawsuit stemming from a 1981 option agreement. Under the agreement, Metalore was to earn either a full or a 60% interest in the property from Brookbank-Sturgeon Mines, a company absorbed by Ontex in 1983.

The agreement was superseded and the property transferred to Metalore in 1983, with Ontex retaining a 10% net profit interest. Ontex filed suit in 1986, charging that Metalore had withheld vital information when the 1983 agreement was negotiated.

A 1990 trial decision awarded the property to Ontex, but in 1993 the Ontario Court of Appeal overturned the trial decision and reinstated the 1981 agreement. As a result, Ontex was left with a 40% interest, and when it tried to take over operation of the project, the dispute returned to the courts. In a final out-of-court settlement in 1997, Metalore agreed to pay $1.1 million to Ontex.

Fortune plans to drill on strike and downdip extensions of the Brookbank zone once it has compiled the available technical data. Further testing of the Cherbourg and Fox Ear prospects, along strike from Brookbank, is also scheduled. Over the whole land package, Fortune says it will be doing geological mapping and airborne geophysics.

Work continues on Fortune’s claim blocks in the Mazenod Lake area of the Northwest Territories, where the company reported a new resource from the Sue-Dianne deposit. The measured and indicated resource is now estimated at 14.9 million tonnes grading 0.78% copper, 3.22 grams silver and 0.02 gram gold, based on a cutoff grade of 0.25% copper. The figure includes a core high-grade zone, based on a cutoff of 0.5% copper, with 9.7 million tonnes at 1.01% copper, 3.44 grams silver and 0.02 gram gold.

Fortune is earning a 50% interest in Sue-Dianne from Noranda (NOR-T). It also has 80% of the Nico claim group, where a deposit has been outlined with an inferred resource of 128.6 million tonnes grading 0.07% cobalt, 0.08% bismuth, 0.05% copper and 0.54 gram gold.