Inco taking gold operations public via TVX merger

Nickel producer Inco (TSE) is making good on a promise to go public with its gold-mining operations by merging its wholly owned unit Inco Gold with producer Consolidated TVX Mining (TSE). The new company, to be called TVX Gold, would come into being in mid-January with interests in six mines in Canada, the U.S., Brazil and Chile.

Inco and Consolidated TVX say that in 1991, TVX Gold’s share of production would be about 350,000 oz. gold and gold equivalent, rising to more than 400,000 oz. in 1992. (The forecasts include silver production converted into gold equivalents at an 80-to-1 ratio.)

As part of the transaction, Consolidated TVX would issue about 71 million shares to Inco, bringing to about 122 million the number of outstanding shares of Consolidated TVX.

The acquisition agreement is subject to due diligence by both parties and it requires regulatory and Consolidated TVX shareholder approval.

Inco would have a 58% interest in the new company. About 25% of the new company’s shares would trade on the open market. The remaining 17% would be owned by Consolidated TVX Chairman E.F. Batista and associates, down from the current approximate 40% interest the Batista group owns in the existing TVX.

(Batista, at a press conference, joked that his father once told him it is better to be “the tail of a whale than the head of an ant.”)

Batista will be the chairman of TVX Gold, with Martin Robinson, president of Inco Gold, assuming the presidency of the new company. The initial TVX Gold board will be composed of six Inco representatives and five existing Consolidated TVX directors.

“We’re excited about the potential TVX Gold would have,” said the president of Consolidated TVX, Ian Telfer, who will become a vice- president of the new company. “TVX Gold would be a major new producer operating in some of the most promising gold regions in North and South America. It would have low-cost production and significant growth potential.”

Inco Executive Vice-President Walter Curlook said the transaction will give existing TVX shareholders exposure to attractive North American gold assets. It is not definite, but Curlook said the intention is to vend potential future Inco gold projects to the new company.

Curlook said the new company would have access to Inco Exploration and Technical Services, a subsidiary recognized for its expertise in exploration, property development and mine and processing plant operations.

Telfer said a nickel project in Brazil, the subject of a possible joint venture (T.N.M., June 25/90) between Inco and Consolidated TVX, will be turned over to Inco, leaving TVX Gold to pursue its precious metals interests. Telfer said the nickel venture may have facilitated the TVX Gold transaction by getting the companies together. Talks about forming a new gold company, he said, date back to March of this year.

While Inco Gold is “virtually debt free,” Telfer said Consolidated TVX will enter the arrangement with a debt of US$50-60 million. The large, developing La Coipa gold-silver mine in northern Chile is being financed by Consolidated TVX’ project partner Placer Dome (TSE); TVX’ share of the development costs are to be repaid from the profits over a 5-year period beginning in 1992.

While Consolidated TVX’ cash cost this year is expected to average US$240 per oz., Telfer said the cash cost for the new company should average below US$200 in 1991 and US$185-190 in 1992.

Under the agreement, Inco Gold would transfer to TVX Gold a 60% interest in the Casa Berardi operations in northwestern Quebec, a joint venture with Golden Knight Resources; a 50% interest in the Mineral Hill project in Montana, a joint venture with Homestake Mining; and a 50% interest in the Crixas mine in Brazil, operated by a Brazilian affiliate of Anglo American Corp.

Inco Gold would also transfer a majority interest in the Wilanour properties in northwestern Ontario, a 32% interest in the Musselwhite deposit in northwestern Ontario, and a 35% equity interest in High River Gold Mines (TSE) and management rights for the Nor-Acme property in Manitoba.

From Consolidated TVX would come a 50% interest in La Coipa (TVX will raise its interest in La Coipa from 40% to 50% by swapping 3.6 million of its shares and assuming certain debt obligations for the 10% interest owned by a group of South American investors); a 23% interest in the Brasilia mine in Brazil operated by an affiliate of RTZ Corp.; and a 49% interest in Brazil’s Novo Astro mine operated by CMP, a Brazilian mining company in which Consolidated TVX has a major interest.