On the topic of takeovers/mergers, I posted the following to another thread this morning and thought it might be of general interest here:
canoe.ca
Saturday, February 14, 1998
More gold juniors forced to merge
By PAUL BAGNELL
Mining Reporter The Financial Post
Low bullion prices continue to drive gold producers into each other's arms, and
experts
say the turmoil isn't over.
Two mergers among junior gold producers were announced this week, just days after
Kinross Gold Corp. and Amax Gold Inc. joined to create North America's fifth-largest
producer.
Analysts say depressed gold prices are creating buying opportunities for stronger
companies and a desperate search for support among their weaker sisters.
The gloomy gold market has also forced mine closings and bankruptcies in the
industry.
On Wednesday, Toronto-based Black Hawk Mining Inc. said it was buying Triton
Mining
Corp. of Vancouver in a one for one share swap worth about $13 million.
Black Hawk has a producing gold mine in Manitoba, but the mine has only 2 1/2 years'
worth of gold reserves remaining, said chief financial officer Ian Shaw. In Triton, Black
Hawk gets the Limon gold mine in Nicaragua, which has roughly 10 years of life
remaining.
Together, the two mines will produce about 128,000 ounces of gold this year.
Shaw said Black Hawk must cut costs at the Nicaraguan mine, where the cash cost of
mining is about US$265 an ounce. "It
needs some work," Shaw said. Black Hawk believes it can push Limon's costs down
to US$235 an ounce, he said.
On Friday, Claude Resources Inc. of Saskatoon said it was buying Toronto-based
Madsen Gold Corp. in a share exchange in
which each Madsen shareholder will get one share of Claude for every 3.5 shares of
Madsen. Claude Resources owns the
Seabee gold mine in Saskatchewan, which produces about 60,000 ounces of gold a
year at a cost of US$210 an ounce.
Madsen owns the idled Madsen gold mine in Red Lake, Ont., and has been trying to
restart the mine, a job estimated to cost
$15 million.
A condition of the takeover is that Claude raise at least $10 million in a special warrant
financing.
Gold expert John Ing, president of Maison Placements Inc. in Toronto, said tough
times in the gold industry are forcing small
companies to understand the benefits of getting bigger and slashing unnecessary costs.
"It's a natural evolution of the business. This is a period of consolidation, and we're
going to find a lot fewer companies."
Claude shares (CRJ/TSE) rose 25› Friday to $2.25, while Madsen stock (MGF/TSE)
climbed 28› to 75›.
Shares of Triton (TTM/TSE) rose 2› to 42› on Wednesday, when the news was
announced, and closed Friday at 38›.
Black Hawk shares (BHK/TSE), meanwhile, fell 4› to 45› on Wednesday and
finished at 47› on Friday.
northernminer.com
The Northern Miner Vol. 83 No. 51 February 16-22, 1998
Kinross plans to merge with Amax -- Will create fifth-largest gold producer in North
America
By Ted Worthington
Denver - Like a father arranging his daughter's dowry, the parent company of Amax
Gold (AU-N) has brokered a deal that will
pair it off with a Canadian producer.
Colorado-based Cyprus Amax Minerals (CYM-N), which owns 59% of Amax Gold,
has arranged the latter firm's merger with
Toronto-based Kinross Gold (K-T), thereby creating the fifth-largest gold producer in
North America.
Under the terms of the deal, each Amax share would be convertible to eight-tenths of a
Kinross share. Current Kinross
shareholders would hold 43% of the new company, while Cyprus would own a 31%
stake in Kinross and other Amax
shareholders would hold 13%.
The deal would see Kinross more than double its outstanding shares, to just over 290
million shares, essentially writing down
Amax's debts at the expense of Kinross shareholders through dilution.
The merger, structured to be tax-free for those Amax shareholders who are U.S.
residents, is subject to 50.1% shareholder
approval. It is expected to close in June.
Canaccord Capital analyst Larry Strauss said that while Kinross's balance sheet would
remain relatively healthy after the merger,
he views the increase in shares as "somewhat onerous." He notes, however, that
Kinross "has much better potential for long-term
growth with three core mines than with just one."
The debt load has been considered the main stumbling block in any merger with Amax.
The company incurred huge cost overruns
during the construction of the Fort Knox gold mine in Alaska. Initial cost estimates for
construction were US$256 million, but
because of additional site preparation and construction, the final price tag was closer to
US$400 million. The company also saw
significant overruns in the construction of the Kubaka gold mine in Russia.
According to the company's year-end financial statement, Amax's total liabilities came
to US$592 million, including US$346 million
in long-term debt, and US$73.3 million on loan from Cyprus. All of that debt was
guaranteed by Cyprus.
The merger would eliminate US$335 million of that debt in the following manner: *
Cyprus agrees to cancel inter-company debt
totalling US$135 million in return for 35 million shares of Kinross.
* Kinross will also apply US$100 million of its own available cash to further debt
repayment.
* Another US$120 million will be raised through a "bought deal" in Canada, whereby
Kinross will issue nearly 35 million
subscription rights at a price of $5.05 each. These rights are convertible to one
common share from treasury upon closing of the
merger.
If the deal falls through, shareholders have the option to receive their money back, or
50% of their investment in shares and 50%
in cash.
Milton Ward, chairman of both Amax and Cyprus, said that practically all the debt will
be taken off Cyprus's balance sheet, except
the project loan for Kubaka and a bond issue for Fort Knox which total US$130
million.
Kinross Chairman Robert Buchan and Ward both said they want to transfer these
loans over as soon as is appropriate.
Commenting on the merger, Buchan told The Northern Miner, "Good assets are hard
to come by, and a balance sheet is easier to
fix than a bad asset."
Amax's two flagship gold mines -- Fort Knox and Kubaka -- are what drew Kinross
to the merger, Buchan said in a conference
call.
Besides Fort Knox and Kubassa, the new Kinross would hold interests in 10 other
mines: the Hoyle Pond and Macassa mines in
Ontario; the Denton-Rawhide and Candelaria mines in Nevada; the DeLamar
silver-gold mine in Idaho; a 50% interest in the
Refugio gold mine in Chile (Bema Gold [bgo-t] holds the other 50%); and the Blanket
gold mine in Zimbabwe.
The new Kinross would boast annual production of nearly 1.2 million oz.
gold, ranking it fifth among gold producers in North America. In 1997, Amax
produced nearly 730,000 oz.; Kinross cranked out
nearly 430,000 oz. Average cash costs would be about US$210 per oz. Buchan said
plans are already in place to increase
production at Fort Knox, Refugio and other operations.
The new company would have reserves of 10.1 million oz. gold. When resources are
included, that figure jumps to 27 million oz.
The company would have a strong balance sheet, with working capital of US$170
million, though it would carry a debt load of
about US$200 million -- the debt transferred from Amax plus Kinross's own
convertible debenture.
Future asset writedowns are a concern, says Strauss, because of high non-cash
charges, especially at Fort Knox and DeLamar.
The new board would consist of ten members, five from Kinross, three from Cyprus
and two from Amax. Buchan will remain
chairman and Ward will become vice-chairman.
The new company would be based in Toronto, with its shares traded on the Toronto
and New York stock exchanges. |
