Just out from willp:
Camphor Ventures Inc - Street Wire
Camphor blames collapse of magnesium deal on dilution
Camphor Ventures Inc CFV
Shares issued 9,736,665 Aug 30 close $0.66
Thu 6 Jan 2000 Street Wire
BACK TO BASICS FOR CAMPHOR
by Will Purcell
Camphor Ventures Ltd. surprised its shareholders Wednesday with the news
that its proposed purchase of BoMc Technologies Ltd. would not be
completed. The deal had been announced at the end of August, and would have
amounted to a reverse takeover of Camphor. Under the terms of the proposed
deal, Camphor would have acquired all of the shares of BoMc and its
subsidiaries, for a purchase price of $18-million, to be paid through the
issue of 30 million common shares at a deemed value of 60 cents. Concurrent
with the purchase, Camphor announced plans to complete a private placement
of 3.5 million units, consisting of one common share, and one
share-purchase warrant per unit. The private placement, expected to raise
$2.1-million, will proceed as planned.
BoMc owns a 50-per-cent stake in Magnesium Technologies Ltd, which holds
the rights to a carbothermic process for the production of magnesium metal
and magnesium oxide. The environmentally friendly process is substantially
simpler and more cost effective than existing magnesium production methods.
The process has been in development since 1990, and has apparently been
tested successfully in a batch mode pilot plant. At the time of the
announcement of the deal, Camphor said it had hopes the technology would
allow it to become a major player in the magnesium metal industry. The
purchase would also have given Camphor the right to explore and develop the
entire mineral resources of Equatorial Guinea, excluding oil and gas.
For the vendors of BoMc, Jean Raymond Boulle, and Michael McMurrough, the
attraction to Camphor appeared obvious. Along with Robert Friedland, the
principal promoter, Mr. Boulle and Mr. McMurrough were involved in the
takeover of Rutherford Ventures Corp., which was subsequently renamed
Diamond Fields Resources Ltd. Diamond Fields spent a few years acquiring
and promoting African diamond properties, and conducting preliminary
diamond exploration in Labrador. The Labrador play was apparently a
favourite of Mr. McMurrough, and it ultimately paid off when the company
stumbled upon the major nickel deposit at Voisey's Bay. Diamonds were all
but forgotten, but the connection reappeared when Diamond Fields
International rose from the remains left behind after the Inco takeover of
Diamond Fields Resources. Headed by Mr. Boulle, the Namibian offshore
diamond assets were once again in play.
Camphor's major holding is a 10-per-cent stake in the Kennady Lake diamond
project, now led by Mountain Province Mining Inc. A De Beers subsidiary,
Monopros Ltd., is earning a 60-per-cent stake in the project, which would
reduce Camphor's interest to 4 per cent, should Monopros place the property
into production. In mid-August, trading in Mountain Province implied a
market capitalization of $125-million for its potential 36-per-cent stake
in Kennady Lake, which would have translated into a share price of $1.45
for Camphor. With a Camphor share trading for a mere 65 cents at the time,
the company's valuable diamond asset would have appeared attractive indeed.
Camphor spokesman, Jason Van Bergen, said, commenting on the collapse of
the deal: "I don't think there was anything specific that was a problem
necessarily. It was really a culmination of a number of factors, timing
probably being a significant factor. It wasn't necessarily the right time
to do the deal from both companies point of view. Certainly from Camphor's
point of view the dilution of the existing stockholder base was a concern,
and I'm sure there were some concerns on the other end as well." He went on
to say that many Camphor shareholders were involved in the company because
of the diamond asset. He stated: "We didn't want to jeopardize that in any
way. That was a concern all the way through. The cancellation of the deal
will be positive news for some, and negative for others, depending on their
point of view." The issue of more than 30 million new shares would
certainly have swamped the existing shareholder base of the company, which
currently has just under 10 million shares outstanding.
Mr. Van Bergen said that the dilution of the diamond asset was the primary
problem, but added that there were some other worries that were typical of
any potential deal. He said that the early stage of development of the
magnesium process was a concern. "Of course there is no guarantee that the
technology would proceed to the next level of development and ultimately
commercialization, so in that sense you're taking somewhat of a gamble on
new technology," he said. In the end, the high degree of risk involved did
not appear to be worth the potential dilution to the existing shareholders.
Camphor is now back to where it was in the summer. Mr. Van Bergen said that
the company was definitely looking at other projects as potential
investment opportunities. He added, "That was the major reason we entered
into discussions with this private company in the first place, for the
purposes of diversifying Camphor away from its small passive investment in
the diamond play." He stated that Camphor still considered its diamond play
to be a valuable asset, and one the company had no intention of abandoning.
Nevertheless, he said, "The company is definitely looking for a change of
direction, or a broadening of its asset base."
Camphor demonstrated an interest in new technology through the aborted
deal, but Mr. Van Bergen said the company remained committed to the natural
resource sector. He stated: "I would say that the focus of Camphor
traditionally has been in the natural resource industry, so I think we
would follow through with that. The nice thing about the technology that we
were looking at acquiring is that it brings us into more of a high-tech
sector, and we would definitely be looking at some sort of a combination of
the two, if we could." For now, Camphor does not appear to be in any
particular hurry to strike another deal. Mr. Van Bergen said: "There's
really no rush, from Camphor's perspective, to push a deal through just for
the sake of getting something happening. If something does come along, then
we'll take a look at it." He went on to say that Camphor would take a close
look at any high-tech process that had a direct application in the resource
sector, much like the aborted deal offered.
Camphor has long held an interest in diamond exploration. The company was
formed through a change of control and share consolidation of Sierra Madre
Resources Inc. in 1993. The new crew, led by Raj Chowdhry, Praveen Varshny,
and Hari Varshny, quickly joined the search for Canadian diamonds. Camphor
began the search in southern Alberta, teaming up for a time with Marum
Resources Ltd., and then moving to central Saskatchewan, in a joint venture
with Mountain Province. The connection with Mountain Province would pay off
in the summer of 1994, when Camphor struck a deal to acquire a 10-per-cent
undivided interest in the Kennady Lake claims. Camphor issued 400,000 of
its shares to Mountain Province to earn its share. As well, Camphor was
required to contribute 20 per cent of the exploration program costs, to a
maximum of $200,000. Thereafter, the company was required to contribute 10
per cent of the costs. With the arrival of Monopros, Camphor and Mountain
Province were no longer required to contribute to the exploration program,
and are carried to production.
The joint venture discovered the AK-5034 kimberlite pipe early in 1995, and
Monopros has subsequently discovered several additional kimberlite bodies
in the vicinity. Of these, the Tuzo and Hearne pipes appear to be
potentially economic, along with the AK-5034 pipe. In 1999, Monopros
extracted minibulk samples from the three bodies by reverse circulation
drilling, to better determine the grade and value of the diamond deposits.
The partners released the revised grade estimates during the summer months,
and the market viewed them as somewhat disappointing. Monopros recently
released the diamond valuation data for the AK-5034 pipe, and the results
were more encouraging. The weighted average grade for the body as a whole
remained relatively unchanged, at 1.64 carats per tonne, but the diamonds
carry a value of $63 (U.S.) per carat, which appears to be a significant
increase over the earlier estimate of $51 (U.S.) per carat. As a result,
the AK-5034 kimberlite is valued at $103.50 (U.S.) per tonne, a 27-per-cent
increase in the earlier estimate. The pipe contains an estimated 12 million
tonnes of kimberlite.
The partners await the formal valuation results from the
seven-million-tonne Hearne pipe, which are expected next, and from the
15-million-tonne Tuzo pipe. The grades of these two bodies appear to have
dropped somewhat, but an increase in diamond valuation may compensate for
the change. The Kennady Lake project now contains a resource of more than
34 million tonnes of kimberlite, which may carry a value of approximately
$100 (U.S.) per tonne. The valuation of the lower grade Tesla pipe diamonds
is also expected, and Monopros continues to drill the Faraday body, which
was discovered last year. Monopros is expected to make the decision to
complete a formal feasibility study on the project, when all of the data is
available.
Mr. Van Bergen said that Camphor also has a minor interest in an oil and
gas property, but he described it as "pretty insignificant in the grand
scheme of things," adding that it provides a bit of cash flow.
Diamond fever carried Camphor shares from less than 50 cents to above the
$5 mark in the spring of 1995, and again in April, 1996, reaching an all
time high of $5.75. As the Kennady Lake play became old news, Camphor
shares drifted lower, but still traded for over $2.50 as late as the fall
of 1997. With the resource sector in the grips of a major downturn, a
Camphor share could be had in late December, 1998, for a mere 37 cents.
Camphor reached a 1999 high of $1.20 in July, in anticipation of good news
from Kennady, but had returned to below $1 a month later. Camphor closed at
66 cents on August 30, when trading was halted pending the BoMc purchase
announcement. Trading has remained halted since that time, pending a review
of the purchase documents, but that review should no longer be required and
the main impediment to the resumption of trading appears to have been
removed. No word has yet been offered as to when Camphor shares will
actually resume trading, but a resumption will come as a welcome relief to
many shareholders. A resumption in trading may not be welcome to all,
however. In recent months Mountain Province shares have drifted
significantly lower on the less than stellar news from Kennady Lake. With
Mountain Province now trading for $1.75, Camphor's interest in the play
would appear to be worth 84 cents per share, although it has traditionally
traded at a substantial discount to that value.
(c) Copyright 2000 Canjex Publishing Ltd. canada-stockwatch.com
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