Shareholders vent frustrations at Muscocho group meetings

Questions about what went wrong at the Magino and Magnacon gold mines in northern Ontario took centre stage at the annual meetings of Flanagan McAdam Resources (TSE), McNellen Resources (TSE) and Muscocho Explorations (TSE) this year. At two separate meetings held in Toronto, shareholders of Flanagan McAdam and McNellen Resources voted their approval for a major capital restructuring and financing agreement with Echo Bay Mines (TSE), but not before grilling management with a barrage of questions about why the two gold mines have failed to meet expectations.

The Magnacon mine, in the Mishibishu Lake area of northern Ontario, was officially opened last summer, but has failed to achieve full commercial production.

Management explained how a series of debilitating setbacks at the two mines forced the junior firms to the brink of insolvency, and led them to seek the financial rescue and technical expertise of Echo Bay Mines.

“There was a very serious insolvency problem,” explained Terrence Flanagan, vice-president of Flanagan McAdam Resources. “The Echo Bay deal is a real bailout for our companies and it’s a very generous offer under the circumstances.”

Echo Bay will now take over as operator and 37.5% owner of the Magnacon mine, with the remaining interests held 25% by Flanagan McAdam, 12.5% by Muscocho, and 25% by Windarra Minerals (TSE).

Jack McAdam, president of Flanagan McAdam Resources, said there was “a constant series of breakdowns at the Magnacon mill,” which in December created “a major emergency” for the company. Everything that could go wrong did go wrong, he said, including delays in powerline construction, problems with filters and mechanical breakdowns in the mill, and lower-than-expected gold grades in the complex orebody.

Reserves at the Magnacon mine have been revised downward and are restated as follows: 0306,0400,0400 Gold Grade Category Tons (oz/t) Stockpile 76,226 0.16 Proven 110,352 0.35 Probable 86,716 0.31 Possible 83,889 0.26 Inferred 1,115,515 0.17 Total 1,472,698 0.20

The assays for the above estimate have not been cut. Production for this year is expected to be at a rate of 600 tons per day with an annual gold output of 60,000 oz., according to the company.

Echo Bay will also take over as operator and 50% owner of the Magino mine, near Wawa, Ont. McNellen Resources and Muscocho Resources will each retain a 25% interest in the mine which produced 23,000 oz. of gold last year, well below its target level of production.

Reserves at the Magino mine have been restated as follows: Category Gold Grade Tons (oz/t) Stockpile 63,000 0.03 Proven 118,425 0.17 Probable 128,964 0.15 Possible 270,000 0.07 Inferred 1,034,391 0.18 Total 1,614,780 0.15

Flanagan said that during March, the Magino mill was operating at 440 tons per day, and that the gold recoveries had improved to 96- 96.5%.

“At the current gold price, we’re operating at around the break-even point, but our work force has stabilized and we’re working on bringing costs down.” But, he said, the price of gold is still the biggest variable affecting the success of the mine.

He said there will be more underground development work done to increase stope flexibility, and longhole stoping will be used to bring costs down, too. “We’ve now switched mostly to longhole stoping at Magino,” he said.