Northair control war is nearing its climax

The winner in the battle for control of Northair Mines will be decided at the annual meeting July 9. But in the meantime, Northair and its suitor, Nor- Quest Resources, are engaged in an information campaign designed to attract shareholders to their respective sides.

A recent salvo in the exceedingly hostile takeover bid was fired by Nor-Quest which prepared a statement of projected returns from Northair’s Willa gold project. The analysis was written by Norquest’s secretary, Selwyn B. Jones, past president of Consolidated Cima Resources. The calculation concluded that the comparative return for each Northair share would be $1.13 under Nor-Quest control versus 1 cents with Northair remaining independent.

Northair has taken exception to several assumptions made in the Nor-Quest an alysis, a few of which are obviously inaccurate. Describing Nor-Quest’s potential cash flows, production costs and after- tax profits for the Willa joint venture as misleading, Northair President Donald A. McLeod claimed that Nor-Quest had “neglected to take into account certain substantial tax credits, such as resource allowances, and they have not given any consideration to other costs which can be written off against production revenue.”

Also, Nor-Quest’s analysis assumed it would have 15.5 million shares issued after the takeover was completed, compared to 15 million for an independent Northair after Willa reaches production. The latter calculation by Nor-Quest included the somewhat unusual qualifier: “After further flow- through share issues (at $2.50 per share) to finance capital costs of bringing Willa to production.” (This would be an impossible scenario because flow-through shares are restricted to exploration only and not mine development). “This is not only illegal, but misrepresents the pre-tax recovery of capital costs,” Mr McLeod stated.

He also took exception to Nor- Quest’s assumption the Willa property can be mined at 1,200 tons per day, concluding the production rate would lead to massive dilution, low head grades and render the orebody uneconomic. (The Carolin gold mine near Hope, B.C., fits this scenario exactly and it’s one with which Mr McLeod and his staff are quite familiar.)

He added that no professional mining engineering group “has in any way endorsed or substantiated any of the false and misleading assumptions that Nor-Quest is relying on to solicit proxies from Northair shareholders.”

Mr McLeod disputed Nor- Quest’s assumption that it will cost $20 million to develop the property, claiming a $7-million figure was more accurate for a 500-ton- per-day milling operation. He said that Northair has obtained a firm quotation of approximately $2.2 million to dismantle, transport, recondition, erect and install the company’s Brandywine mill at the Willa property near New Denver which is 500 miles from Squamish, rather than the 900 miles Nor- Quest has assumed. That price would include the upgrading to 500 tons per day.

Describing the now dormant Brandywine operation as “very successful,” he noted it generated revenues of $60 million and paid dividends during the production period. Commenting on Nor- Quest’s allegation that shareholder failure to support Nor- Quest’s takeover bid “could result in Northair management embarking upon another Scottie Gold Mines disaster,” Mr McLeod argued that Scottie’s assets have been preserved for shareholders. (The company has been reorganized and is now Royal Scot Resources.) He confirmed the company’s goal was to prove sufficient reserves to reopen the mine.