Echo Bay move raises questions
Drew Hasselback -- Financial Post
Franco-Nevada Mining Corp.'s anticipated profit from the proposed sale of Normandy Mining Ltd. isn't a secret, but some investors are unclear how the company will profit from the refinancing of Echo Bay Mines Ltd.
On Wednesday, AngloGold Ltd. of South Africa announced a surprise US$2.3-billion bid to buy Normandy of Australia.
Franco-Nevada bought a 19.9% stake in Normandy only three months ago. It stands to make a profit of just under US$100-million from the sale of its shares.
Less clear is how Franco-Nevada will profit from its offer to refinance Echo Bay by converting debt with a face value of US$72.4-million into equity.
The offer, subject to the approval of shareholders, would result in Franco-Nevada holding 49.5% of Echo Bay's equity.
Franco-Nevada has been buying up the tradable debt from lenders who lost patience with Echo Bay's inability to pay interest on the debt.
Kinross Gold Corp. has also offered to convert its share of the tradable debt, which has a face value of about US$16-million, into an 11.4% stake in Echo Bay.
Yet Franco-Nevada has not disclosed its purchase price, expect to say that it acquired the capital securities for less than face value.
"We're going to be low-profile on this. We haven't made decisions on how we're going to go forward with this asset until the shareholders of Echo Bay make up their minds," said Franco-Nevada's David Harquail.
That leaves open the question as to how much Franco-Nevada will make from the proposed transaction, notes David Mallalieu, an analyst with Scotia Capital. "The two questions are: What price did they pay? And who did they buy from?"
nationalpost.com
Echo Bay Chart:
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Kinross Chart:
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Franco-Nevada Chart:
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