Agnico-Eagle offers shares to buy Riddarhyttan

Agnico-Eagle Mines (AGE-T) has offered to exchange 0.1137 shares of Agnico for each outstanding share of Swedish-based Riddarhyttan Resources.

The agreement calls for Agnico to issue 10.3 million shares to Riddarhyttan shareholders for 86% of the company. Last year Agnico spent $14 million for a 14%-interest in the company.

The offer values Riddarhyttan shares at US$1.42 apiece, for a total value of US$150 million at May 11.

The deal places a 27.3% premium on Riddarhyttan shares, based on the closing New York stock exchange price of Agnico-Eagle one day prior to the offer and that of Riddarhyttan on the Stockholm stock exchange at closing on the same day.

The premium sits at 36.5% if the average closing prices for the 30-day trading period prior to the offer are calculated.

The offer has been unanimously supported by Riddarhyttan’s Board of Directors and also by Riddarhyttan’s financial advisors.

The offer is conditional upon Agnico acquiring at least 90% of Riddarhyttan’s outstanding shares, and upon the offer passing regulatory and governmental approvals. Within the next two weeks the offer will be submitted to U.S. and Swedish regulatory authorities. Once the offer has passed this review, it will be mailed to shareholders.

At March 31, Riddarhyttan had US$6 million in cash and no debt. Riddarhyttan’s main asset is the 17.25 sq.-km property that hosts the Suurikuusikko gold deposit, 885 km north of Helsinki, Finland.

The deposit is in a greenstone belt comparable to the Abitibi and has an indicated resource of 9.6 million tonnes grading 5.6 grams gold per tonne (or 1.7 million oz.). In addition there is an inferred resource of 7.6 million tonnes grading 4.4 grams gold per tonne.

Both estimates were prepared according to the Australasian Code for reporting mineral resources and ore reserves, and used a cutoff of two grams gold per tonne.

Suurikuusikko is a gold-bearing disseminated-sulphide deposit. Agnico has been working on the property for three years and believes it has a sense of the potential, as well as the technical difficulties associated with the project.

Agnico’s president Sean Boyd said: “We have the expertise, not only in exploration, but in mine building, in underground mining and processing, which we feel will add significant value to the Suurikuusikko project.”

Agnico wants to become a multi-mine gold company and has decided the size and geology of the property suggest that the area has potential to be a major gold camp. In addition, “Finland is a very pro-mining country,” Boyd stressed.

The property has good access to infrastructure; there is a power line nearby, a paved highway accesses the site, and 10 km from the site is the town of Kittila (population 3,000). A larger town with a population if 60,000 is about 100-km distant.

Riddarhyttan submitted a feasibility study for an open pit mine and applied for operating and environmental permits in 2001. Prior to mining, all that is needed now is a construction permit from the municipality of Kittila.

Exploration drilling is ongoing to test the deposit at depth and to convert resources from the inferred category to an indicated status. The deposit has potential to become an underground operation and consultations with government officials suggest an amendment to the existing permits, rather than an entire re-application, would be needed for underground mining to proceed.

Riddarhyttan is in the process of updating its resource estimate. In addition the metallurgy of the deposit is being studied. Previously most of the testwork focussed on bio-oxidation, however improved results are resulting from the pressure oxidation treatment method.