Placer promises $53 million to gain stake in Mt. Milligan

Perhaps taking a cue from rival Corona’s wheeling and dealing in the Eskay Creek saga, Placer Dome (TSE) has secured a lockup agreement with certain shareholders of Continental Gold (TSE) whereby they would tender their shares to Placer in the event of a takeover bid. Should Placer Dome make a bid on or before Oct. 22, the shareholders agreed to tender to Placer some 2.67 million shares, or about 30% of Continental Gold’s outstanding shares on a fully diluted basis.

Four of the shareholders — Robert Hunter, Robert Dickinson, Jeff Franzen and Douglas Forster — are also directors of Continental Gold whose key asset is a 70% interest in the advanced Mt. Milligan gold- copper project north of Prince George, B.C. The remaining interest in the project is held by BP Resources Canada (TSE).

If Placer makes a bid for Continental, the shareholders would receive not less than $20 cash per Continental share, or alternatively, one Placer Dome common share for each common share of Continental.

Placer Dome said it is only obligated to make the offer if it is able to arrange for the settlement of outstanding litigation between Continental and BP Resources. A trial date is slated for November this year to hear BP’s claim to a greater interest in the Mt. Milligan property relating to the original agreement between it and a predecessor company to Continental Gold.

So far, BP has informed Placer that it will not enter into any discussions or agreements with any third party relating to the Mt. Milligan project or the resolution of the litigation (at least until the end of August).

It is also expected that any takeover bid would be conditional on Placer Dome acquiring a majority of Continental shares and on no material adverse change occurring in Continental’s affairs. The agreement is also subject to certain other conditions, including the obtaining of regulatory approvals.

Rio Algom (TSE) and Hemlo Gold Mines (TSE) each has minor equity interests in Continental Gold. At this stage, it is not known if Placer Dome is involved in discussions with either major company.

Goepel Shields & Partner will act as Continental Gold’s financial adviser should Placer Dome make a bid for the company and its key asset, Mt. Milligan.

Viewed as a potential open pit mining operation with low stripping ratios, the Mt. Milligan project is reported to contain minable reserves (at a 0.2% copper equivalent cutoff grade) totalling 550 million tons grading 0.57% copper equivalent. If a 0.4% copper equivalent cutoff grade is used, the minable reserves total 330 million tons grading 0.75% copper equivalent. In addition, a starter pit is reported to contain 104 million tons of 0.90% copper equivalent.

These calculations were based on 441 drill holes. A total of 750 holes has now been completed, with the most recent work focused on infill drilling of the main Mt. Milligan and Southern Star deposits. Bob Dickinson, president of Continental Gold, said this work will result in “a substantial increase in reserves.” He also said the deposits are still open to expansion and other targets on the property remain to be tested.

Last year Placer Dome acquired the Kerr copper-gold project north of Stewart, B.C. More recently, it acquired about a 45% interest in Stikine Resources which owns 50% of the Eskay Creek project, also north of Stewart.

Corona secured a similar interest in Stikine, but it also acquired a strategic 45% voting interest in Prime Resources Group (VSE) by way of a lockup agreement with certain Prime shareholders (Murray Pezim and several associates). Prime is operator and 50% of the Eskay Creek project.