Mazarin confident that market for asbestos about to improve

The new controlling shareholder of Asbestos Corp. (TSE) is projecting rising sales and prices for asbestos.

Societe d’Exploration Miniere Mazarin (ME) says that for Quebec producers of asbestos, the market is on the increase in volume and price after troughing in the mid-1980s.

In 1991, Quebec’s asbestos producers shipped 610,000 tonnes of the mineral, the best provincial performance since 1985. Members of the LAB partnership (producers from the Thetford Mines, Que., area, including Asbestos Corp.) accounted for 362,000 tonnes of the 1991 total.

The top global asbestos producer used to be the former USSR, followed by Canada’s Quebec producers. The main buyers of asbestos produced by LAB are nations in Asia (50-60%) and in Europe (25%), with the Middle East, Africa and the Americas purchasing the balance.

Mazarin says the drop in North American and western European consumption has been more than compensated for by increased sales in Asia and Eastern Europe, where asbestos is used mainly to make concrete.

Quebec City-based Mazarin and a group of Thetford Mines business persons (known as Amiante 2000 or Asbestos Group 2000) recently agreed to pay $34.4 million for the asbestos assets of the Quebec government’s Societe nationale de l’amiante (SNA). Purchased were 54.6% of Asbestos Corp., 100% of Bell Asbestos Mines and 100% of Atlas Turner, which is inactive.

Asbestos Corp., owner of three open pit mines and three mills, is operating currently with two open pit mines and one mill, while Bell is operating with one underground mine and one mill.

Mazarin President Regis Labeaume, in an interview with The Northern Miner, said the cost to Mazarin of the three companies was minimal. “The main aspect of the deal is that we bought the debt these companies owed to the government,” he said.

SNA had made advances to the three companies totalling $133 million. It is that debt that Mazarin and associates are acquiring, through a $2-million down payment.

(The Quebec government created SNA in 1978. The assets of Bell were acquired by SNA in 1980 and a control position in Asbestos Corp. in 1982. Cost to the province to nationalize and maintain its asbestos industry since 1978 is estimated to have been $500 million.)

The $2 million down payment was raised by Mazarin through the issue of convertible debentures, which have a maturity period of five years and are redeemable at the option of the buyer up to a maximum of 20% per year. Some warrants are attached to debentures. The maximum dilution, if all debentures are converted and all warrants exercised, is about 5.5 million shares (20% of Mazarin’s issued stock).

As owner of the $133 million worth of advances, Mazarin will be reimbursed with the cash flow generated by the companies. Labeaume said the balance of the sale price ($32.4 million) is payable to SNA during the next 10 years, only if cash flow is generated by the three companies purchased. “During the first five years, after providing for its income taxes and interest and the sinking fund for the debenture, Mazarin will pay SNA a portion of the cash received from the three companies purchased and keep the balance,” Labeaume said.

“During the next five years, if the balance of the sale price is not paid up, SNA will receive a nominal amount of cash flow generated by Asbestos Corp., Bell and Atlas.”

Asbestos Corp. and Bell each has a 20% interest in the LAB partnership (the other two partners are Lake Asbestos of Canada Ltd. and Jean Dupere, each with 30%). LAB’s net profit in 1991 was $24 million on revenue of $166 million; Labeaume estimates LAB’s net profit in 1992 will be $28 million. The four LAB partners share profits at a variable percentage; at current profit levels, Asbestos Corp. and Bell claim a combined 32% net profits interest.

Labeaume projects a profit for Mazarin of 18 cents for the fiscal year ending March 31, 1993, based on the company’s current 27.7 million shares outstanding.