Merger proceeds smoothly between Homestake, Corona

The proposed merger between Homestake Mining (NYSE) and International Corona (TSE) is moving steadily toward completion, Corona President Peter Steen told shareholders at the company’s recent (and possibly last) annual meeting.

Steen said financing is in place, fairness opinions have been completed and are being considered, and only a few issues remain such as regulatory approvals and the approval of the offer by Homestake shareholders at that company’s annual meeting.

“We will need 51% approval and (Homestake Chairman) Harry (Conger) assures me he can achieve that,” Steen said, adding that the business combination between the two companies would create North America’s largest gold mining company.

The deal would be concluded by an offer of 0.35 of a Homestake common share for each Corona common share. The pooled resources of the companies would mean annual production of about 1.8 million oz. gold and reserves of 20 million oz. gold.

Assuming all goes as planned, Steen will move to San Francisco to become Homestake’s new president and chief operating officer. Conger will remain chairman and chief executive officer.

In his new position, Steen will oversee work aimed at developing Corona’s largest undeveloped asset; Eskay Creek north of Stewart, B.C. Corona holds an approximate 46% net interest in this project where mining reserves were recently calculated to be 1.15 million tons averaging 1.86 oz. gold and 75 oz. silver per ton.

This estimate, calculated late last year, uses a cutoff of 0.4 oz. gold and gold equivalent and a 90-to-1 conversion ratio for silver to gold equivalent. It also allows for mining recovery and about 27% dilution.

According to a preliminary engineering study, the final feasibility study will be ready later this year _ Corona estimates capital costs will be about $210 million for a 400-ton-per-day operation.

Annual production is projected to be 250,000 oz. gold and 10 million oz. silver, or 360,000 oz. gold and gold equivalent, over an 8-year period. Production costs are estimated to be under US$150 per oz.

“We have placed further exploration of Eskay Creek on hold until the road is completed to the property because of the high costs of helicopter-support exploration,” Steen said. (The first phase of 24 miles of road has already been built, leaving only 15 miles to reach the property site.) But Steen said Corona’s 1991 underground program established the continuity of high-grade gold in the main contact ore zone. Ground conditions were found to be good, he added, and a modified cut-and-fill is considered the most likely mining method. The deposit is metallurgically complex, however, and will require pressure oxidation to get higher recoveries.

After the Corona meeting, Conger said he initially approached Corona with a view to participating in development of Eskay Creek because of his company’s experience with metallurgically complex deposits.

“That’s what got the ball rolling,” he said.

Steen said Homestake’s subsequent merger offer was carefully considered in view of Corona’s debt obligations which left the company without the financial resources to develop Eskay Creek on its own. Although now a “pure-gold” company, Corona’s financial position was weakened by previous attempts to diversify into other ventures, primarily base metals and oil and gas.

Also after the meeting, a group of Corona shareholders told The Northern Miner they intend to write to the Securities and Exchange Commission to protest amendments of loans to certain directors and officers of Corona. As an example, Ned Goodman’s interest-free loan of $2.25 million to buy Corona shares was amended during 1991 to provide that it is not required to be repaid until the later of 1995, or until the pledged securities are equal in value to the loan. (After last year’s reorganization the shares were exchanged for 106,750 common shares of Corona, 45,750 Dundee Class A subordinate voting shares, and 38,125 Dundee warrants.)