Partners agree to nuptials in Nunavut

Equal partners Miramar Mining (MAE-T) and Hope Bay Gold (HGC-T) have agreed to combine the two companies via a previously announced share-swap deal based on a share exchange ratio of 0.263 of a Miramar share for one Hope Bay Gold share.

"The combination of Miramar and Hope Bay Gold is a strategic step that creates a larger, more liquid gold mining and exploration company focused on the Canadian North,” said Tony Walsh Miramar’s president and CEO. "We also expect the combined company to realize significant reductions in administrative costs through the transaction, allowing more of our dollars to be put in the ground," he added.

The two companies have been partnered at the Hope Bay gold project in Nunavut since 1999 when they acquired the project from Australian-based BHP for US$18.5 million. BHP had spent about $85 million on the project between 1991 and 1996, outlining a resource of 4.3 million ounces in three separate deposits: Boston, Doris and Madrid. The decision to sell the project came after BHP deemed gold a non-core asset and pulled out of the gold business worldwide.

On completion of the combination, Miramar shareholders will hold about 62% of the merged entity, which will have about 102.7 million outstanding shares. Hope Bay shareholders will own the remaining 38%. The new company’s board of directors will comprise five nominees from Miramar and four from Hope Bay Gold. Miramar’s chairman, Tony Petrina would continue as non-executive chairman. Hope bay’s CEO David Fennell will remain as president and CEO and will assume the role of vice chairman. Miramar’s management team will remain unchanged.

In addition to due diligence by both companies, the transaction is subject to regulatory and court approval. The deal also needs the go-ahead from Hope Bay shareholders by April 28, 2002. Miramar shareholder approval is not required. Canaccord Capital will provide fairness opinion of the deal to Miramar; Griffiths, McBurney & Partners will do the same for Hope Bay.

Miramar has a commitment from certain shareholders and Hope Bay management, who combined hold about 41% of Hope Bay Gold’s shares, to vote in favour of the transaction. The mutual fund shareholders retain the right to withdraw their support in favour of a better deal.

Miramar has also agreed to provide Hope Bay with a $2 million line of credit to allow it to meet its financial obligations until the deal closes. The line of credit, which bears interest rate of LIBOR plus 3%, may be drawn against an approved budget. The facility is secured against Hope Bay’s stake in the Hope Bay property. The loan must be repaid within 30 days (or Hope Bay can dilute its stake in the Hope Bay project) should Hope Bay’s shareholders vote down the deal.

In part to fund the line of credit, Miramar has retained two Canadian investment dealers to act as agents for a best-efforts private placement to Canadian investors of about 2.7 million shares at $1.50 apiece for gross proceeds of about $4 million. The agents will receive a 6.5% cash commission and a two-year option to acquire up to 7% of the total flow through shares sold at $1.50 per share. The offering is subject to regulatory approval.

A break-up fee of $1.5 million is payable to Miramar under certain conditions including a competing bid for Hope Bay Gold or its asset, which the company’s board of directors recommends, or if less than 55% of the shares issued vote in favour of the transaction. Hope Bay would also have to cover Miramar’s costs up to a maximum of $200,000. Any of the break-up fee not paid would be added to the principal of the line of credit.

The deal does not include Hope Bay’s assets in French Guiana. Hope Bay plans to distribute shares of a company formed to hold these assets to its current shareholders.

In early 2001, Hope Bay acquired CBJ-France, which owned the Montagnes Tortue. The company also has an option to acquire a 75% stake in several exploration permits including thr Maripa permit. Both properties are situated in northeastern French Guiana. In return, Hope Bay transferred its 50% interest in some Abitibi properties to Cambior (CBJ-T).

In mid-January, with results from drilling in 2001 in hand, Miramar and Hope Bay updated the resource estimate at the Hope Bay project. The new resource figure for the project’s three deposits — Boston, Doris, and Madrid — is 10 million tonnes grading 13.3 grams gold per tonne. (T.N.M. Jan. 21-27/02)

Looking ahead, the partners have approved an $8 million budget for 2002 aimed at completion of a feasibility study of the Doris Hinge zone, the commencement of the permitting process, and the evaluation of possible production options for the other deposits on the 80-km-long Hope Bay belt. The two will also continue the to explore the balance of the belt. Most of the funds will be spent in the first half of the year.

Plans for 2002 at the high grade Doris Hinge Zone call for an infill drill program aimed at upgrading resources to the measured and indicated reserves. Definition drilling will focus on providing data for a detailed mine plan to support a feasibility study. Development drilling totalling contemplates about 100 holes for 8,900 metres; limited step-out drilling will aim at expanding the Hinge zone to the north. Work will begin in March, with a new resource estimate slated for mid-2002 and a completed feasibility study by year-end.

The companies intend to file a preliminary project description during the current quarter, and assuming positive results from a feasibility study and financing, major equipment would arrive onsite in the summer of 2004 with production targeted for the end of 2004.

On the exploration front, March and April will see about 4,000 metres of core drilling and 2,800 metres of reverse circulation drilling. The holes will test several recently developed targets including:

• Kamik — a poorly exposed 7.5-km-long zone of iron carbonate alteration between two confining major regional structures central to the Hope Bay belt. Previous rock samples returned up to 631grams gold per tonne. About 2,400 metres of core drilling will test for a near-surface gold deposit at the Omayok portion of the area.
• Another 800 metres of core drilling will test for near-surface mineralization on the Twin Peaks area just south of Conglomerate Hill, at the north end of the belt. The target lies near a major structure and within a previously unidentified extensive alteration trend.
• Finally, 750 metres of drilling will target the QSP area, which lies in felsic rocks on the western margin of the Hope Bay Belt. The gold-rich target is hosted by altered, pyritic, felsic volcanics traced over 1 km.

Reverse circulation drilling will test five new prospective areas, including Twin Peaks. The other four targets are largely overburden covered.

This summer, fieldwork will evaluate further Timiskaming-type targets along the western portion of the Hope Bay belt. Work will also focus on small volume intrusions with potential for larger tonnage gold deposits.

The partners also say that there are possible extensions to the Hinge zone to the north. Development and mining of resources in the Doris’ Connector and Central areas could further add to the mine life. The companies are looking at sinking an exploration decline from the Hinge zone portal south to Doris Central to allow detailed underground drilling.