Pegasus buying into Pioneer Metals by David Duval

Pegasus Gold Inc. (TSE) recently concluded an agreement to purchase a $12 million convertible debenture from Pioneer Metals (TSE) which, for the debenture itself, would give Pegasus an approximate 14% interest on a fully diluted basis.

Robert Willis, Pioneer president, says that Pegasus has the right to maintain that interest level if any external funding is required by his company. Pioneer is also planning to proceed with an $8 million rights offering with warrants which will be underwritten by First Marathon Securities. Any rights not taken up by existing shareholders could go to Pegasus, he said.

Proceeds from the two financings are expected to total $18-$20 million which he said would be used to “fully fund Pioneer’s capital requirements with respect to its 40% interest in the Premier Gold project in British Columbia and its wholly-owned Puffy Lake gold mine in Manitoba.”

“I think it’s going to be a benefit to both our companies and I would expect to see an escalation of exploration and development projects in North America between both of our companies,” he said. Pegasus will also appoint two members to the Pioneer board in the near future.

Most of the initial $12 million will help cover the remaining cash call for the Premier Gold project. Its share of expenses is $32 million. At least $2 million of the rights offering will be spent at its Puffy Lake project in Manitoba for additional underground mining equipment.

“We are changing our mining method there and are going to a more mechanized method as opposed to a labor intensive jackleg/ slusher method. We also need to put in a second opening, whether it be a skipway, shaft, or another decline, although it’s not an absolute immediate need,” he said.

A new mine manager is employed at Puffy Lake and changes have been made to the gravity circuit in the mill which Willis said has increased gold production

During September the mill operated for 17 days but he said the plant was run at 1,200-1,250 tons per day, much higher than before.

“Running the mill at 1,200 tons for 17 days, we can mill as many tons as we did in August at 900 tons per day for 30 days,” he emphasized.

Willis said maintenance and alterations to the mill will be done during scheduled down time. Head grades are averaging about 0.12 oz gold per ton and “we will be increasing that as per our schedule through the rest of October and November.”

“In December we are scheduled to be mining in an area where it looks like it’s 6 g (0.17 oz) but here again that is subject to our original mining plan. We will be in this start-up mode for the 1988 calendar year and expect to meet our commercial production standards by the end of the year.”

Willis said the balance of the money raised will go into working capital and towards a drilling and underground program at the company’s Bonito project in early 1989.

Pegasus President Jim Foreman said this is Pegasus’ third year of taking equity positions in companies. “We take equity participation in these companies as long as there is some mutual benefit so one and one has some synergistic effect and may end up as three.

“We are mine builders and they are mine finders primarily” he emphasized, adding that he sees “some upside potential of us working together. It’s a double-barreled benefit to us to work with people in Canada and get established there and I think it’s a good fit.”