Eldorado board rejects Glamis bid

After assessing the unsolicited takeover bid of Glamis Gold (TSE), the board of directors of Eldorado (TSE) has unanimously rejected the offer as being “inadequate and not in the best interests of Eldorado and its shareholders”.

Eldorado’s directors say shareholders will realize more value by retaining their shares than by tendering to the Glamis bid.

Hugh Morris, a director of Eldorado, says he doubts that the company’s major shareholders will tender their shares. “They should not,” he adds, as Eldorado offers “more growth and inherent value than Glamis”, which he believes is overvalued.

Morris says Eldorado is exploring all alternatives in order to increase shareholder value, and it has received several inquiries from other interested parties.

In a circular to shareholders, the directors say the timing of the offer is “opportunistic” and does not reflect the fair value of its shares nor the “superior growth prospects which exist for Eldorado” relative to Glamis.

Acting as financial adviser to Eldorado, Richardson Greenshields of Canada also concludes that Glamis’ bid is inadequate from a financial point of view.

Eldorado owns and operates the Colorada gold mine in Mexico’s Sonora state. During its first full year of operation in 1994, the open-pit, heap-leach producer yielded 19,900 oz. gold at a cash cost of US$191 per oz. Production for 1995 is projected to increase to 30,000 oz. at an operating cash cost of US$189 per oz.

Proven and probable reserves stand at 20 million tons grading 0.033 oz. gold per ton, with an additional possible resource estimated at 20 million tons averaging 0.033 oz.

The exploration potential is considered excellent, and already Colorada is the focus of a mine expansion study which is addressing a gold production rate of 75,000 to 100,000 oz. per year by 1998.

Other assets include a 51% interest in La Trinidad (a gold project in Mexico’s Sinaloa state), a joint venture with Almaden Resources (VSE) and a half interest in the Andes project in Argentina (a joint venture with Vancouver-listed HRC Development).

La Trinidad, which is in the final stages of feasibility and permitting, hosts a minable resource of 2.8 million tons grading 0.062 oz.

Glamis, which recently distributed its offer to Eldorado shareholders, is seeking to buy all the common shares, 8.25% convertible debentures and special warrants of Eldorado. It is offering $1.20 in cash and 0.4 of a Glamis share for each outstanding common share of Eldorado and for each common share into which the special warrants and convertible debentures may be converted.

Based on the June 5 close of $11.63 per Glamis share, the last closing price prior to the announcement, the offer represents a value of $5.85 per Eldorado share for a total bid value of $134 million.

The offer is subject to 75% of Eldorado’s shares being deposited on a fully diluted basis and the shareholders’ rights protection plan being declared null and void, or its applicability being waived. Glamis’ bid is open for acceptance until July 6, unless extended or withdrawn.

Eldorado’s board of directors contends the offer is not within the parameters of its shareholders’ rights plan, which was ratified in early June at its annual meeting. Glamis’ 21-day time frame falls short of the 75-day waiting period as called for by the rights plan.

The plan, commonly referred to as a “poison pill,” comes into effect if a party acquires 20% or more of the company’s shares without complying with the permitted bid provisions, or without approval of the board of directors. Each right, upon exercise, entitles shareholders (other than the acquiring party) to buy shares at half the market value.

Eldorado has more than 14.5 million shares outstanding, with directors and senior officers holding 13.6% of the shares on a fully diluted basis.