Queries Faraday Resources’ link with Hemlo

Faraday Resources recently hit new highs on the TSE. What’s the story? K.D. Montreal, Que.

Toronto-based Faraday Resources new-highed on the TSE at $4.10 shortly following the formation of the new public company which has as its asset the Golden Giant mine in the famed Hemlo gold camp.

You may well ask why a company whose main interests are in oil and gas would benefit from something happening at Hemlo. For the answer, look no further than Faraday’s connection with Conwest Exploration.

As you may recall, the partners in the new public company formed to hold the Golden Giant mine are Noranda Inc. with 62.4%, Golden Sceptre Resources and Goliath Gold Mines each with a 14.2% interest and Hemglo Resources, a private company, with 9.2%. The Hemglo stake is further broken down 75/25 with 6.9% going to the original prospecting syndicate of John Larche, Donald McKinnon of Timmins and Toronto lawyers Rocco Schiralli and Claude Bonhomme. The remaining 2.3% interest ends up with Conwest.

Faraday owns, on a fully diluted basis, approximately 19% of the equity and 49% of the voting rights of Conwest, following Faraday’s amalgamation with Marcon Canadian Holdings, which was reported in this paper early in the fall.

Besides giving Faraday effective control of Conwest, the amalgamation also means that for each Faraday share outstanding, Faraday now owns 0.37 of a Conwest share.

On the news of the new public company, which we now know will be named Hemlo Gold Mines Inc., the market reacted favorably. Hence, the A shares of Conwest advanced and enjoyed a new-high at $11.25, with the shares of Faraday advancing to $4.10.

In the latest third quarter report from Faraday, President John Lamacraft writes that based on current estimates by investment analysts of the market capitalization of the new Hemlo company, Conwest’s interest will be worth between $30 million and $45 million. Of course, besides its holding in Conwest, Faraday does have oil and gas operations. For the nine months ended Sept 30, the company produced 165 bbl of oil per day, down from the 192 barrels per day produced in 1985. Gas production was 1,740 mcf per day compared to 1,300 mcf in 1985.

At the end of the 3-quarter period, Faraday posted a profit of $983,000, down from the $1.3 million a year earlier. The company’s cash position at the end of the period was a healthy $3.4 million versus $2.4 million at the end of the year-earlier period.