Dayton-Pac Rim merger targets El Dorado (January 09, 2002)

With an eye on immediately advancing Dayton Mining‘s (DAY-T) El Dorado gold-silver project in El Salvador, Dayton and Pacific Rim Mining (PFG-T) have proposed an all-stock merger.

Pacific Rim’s president Catherine McLeod-Seltzer said, “The upside potential of the El Dorado project is the primary reason behind Pacific Rim’s pursuance of this merger, but the amalgamation is further strengthened by Dayton’s asset base.”

Under the deal, which has already been approved by both boards, Dayton shareholders will receive 1.760 common shares of Pacific Rim for each common share of Dayton held. If the deal goes thru, Dayton shareholders will hold 70% the post-merger company and Pacific Rim shareholders will hold the remaining 30%.

Also under the deal, Tom Shrake, and Catherine McLeod-Seltzer will continue their respective roles as CEO and president of the merged company. Bill Myckatyn, Dayton’s president, will serve as non-executive chairman. Other directors will include Pacific Rim nominees Tony Petrina, and Dayton nominees Robert Buchan and David Fagin.

El Dorado, 65 km northeast of the capital city of San Salvador is among El Salvador’s most advanced projects. So far, Dayton has outlined a resource of 4 million tonnes grading 6.7 grams gold and 49 grams silver per tonne, from just five of the 35 known bonanza veins on the 75-sq.-km property (T.N.M. Sep. 3-9/01).

In late August, several significant changes to mining laws in El Salvador were passed. At the time, Dayton’s exploration licences at El Dorado gold-silver property were set to expire. The company had prepared an in-house feasibility study in preparation for its exploitation application. The study evaluated the viability of a 500 tonne-per-day underground operation based on existing known resources. Under the new laws, Dayton has an additional three years to come to a production decision.

The best grades cut by recent Dayton drilling were encountered at depth (about 100 to 250 metres above sea level). Higher grade mineralization has also been cut at similar depths on the Coyotera Vein, about 4 km to the north of the old mine. Most of the previous drilling at El Dorado targeted veins above this range.

The two plan to apply the proceeds from the $3.4-million, cash-and-share sale of Pac Rim’s Diablillos silver-gold project in Argentina to junior Silver Standard Resources (SSO-V) to a drilling aimed at the discovery and delineation of additional high-grade ounces. The holes will target the productive elevation across El Dorado’s vein targets.

In addition to El Dorado, Dayton brings to the table a 49% joint-venture interest in the Denton-Rawhide mine, near Fallon, Nev., and full ownership of the Andacollo mine in central Chile. Rawhide will wrap up open pit mining in July 2002, but crushing of lower grade stockpile material will continue for six months followed by several years of leaching. Over the next three years, Rawhide’s cash flow is pegged at US$8 million, based on current gold prices. Most of the mining equipment at Andacollo has been sold off. The operation has been leaching residual precious metals from the heap since August, 2000.

Pac Rim owns the San Francisco low-sulphidation epithermal gold project in Argentina’s Jujuy province. A 13-hole reverse circulation drill program in 1999 returned bonanza-type mineralization. Elsewhere in Argentina, Pac Rim owns the Prometedora porphyry-related gold-bearing alteration system.

Both companies will seek shareholder approval during meetings anticipated in early April, 2002. The merger is also subject to regulatory approval.

After resuming trade on the Toronto Stock Exchange, Pac Rim shares plummeted 9 or more than 23% to 30 by mid-afternoon. Conversely, on resumption of trade on the TSE, Dayton shares soared 15or more than 40% to $52, but still off their 52-week high of 68. Shares of Kinross Gold (K-T), which has a 32.1% stake in Dayton, were up 8 or about 6% at $1.32 in late afternoon trade.