Battle rages for Arizona Star

Vancouver — A disgruntled major shareholder in Arizona Star (AZS-T) is trying to wrestle control of the junior miner away from its affiliate, Bema Gold (BGO-T), through a heated proxy battle that was to have been decided Dec. 16.

In what appears to be an effort to realize more value for Arizona Star’s shares, Albert Friedberg initiated the battle for votes after his first attempt at replacing board members was not allowed (catching those at the company’s annual general meeting, on Nov. 3, by surprise).

Friedberg owns 12.1 million shares (nearly a third of Arizona Star’s shares) through his family’s private bank, Pan Atlantic Bank and Trust.

Arizona Star’s recent annual meeting (the company’s first) was adjourned after the chairman disallowed Pan Atlantic’s proxy. Pan Atlantic then filed a petition to enforce its voting rights at a reconvened annual meeting, which was to have taken place Dec. 16.

The dispute centres around the financing and development of the Cerro Casale copper and gold project in northern Chile, in which Arizona Star has a 25% stake. Bema Gold has a 24% stake, whereas Placer Dome (PDG-T) holds 51%.

Discovered by Bema in 1995, Cerro Casale is one of the world’s largest undeveloped porphyry copper projects. It occupies a portion of the Aldebaran property, 30 km south of Bema’s Refugio mine.

Friedberg believes independence from Bema, which owns a 5% stake in Arizona Star, would better serve the shareholders of Arizona Star. But Clive Johnson, Bema’s president, who is also a director of Arizona Star, strongly defends the direction Arizona Star is taking in line with Bema.

While Friedberg acknowledges Bema is responsible for finding and advancing the Cerro Casale deposit, he believes more value could be realized for Arizona Star’s shareholders with a new board that includes himself. The two companies currently have three board members in common.

The feasibility study confirmed proven and probable reserves of 23 million oz. gold and 6 billion lbs. copper, and called for a large open-pit operation.

The study suggested Cerro Casale is capable of producing 975,000 oz. gold and 130,000 tonnes copper annually over a mine life of 18 years. Cash production costs are estimated at US$111 per oz. gold; total costs, at US$225 per oz. gold (assuming copper credits of US95 per lb. and a silver price of US$5.50 per oz.).

Placer is responsible for financing $1.3 billion of the estimated $1.6-billion cost of Cerro Casale’s development. The agreement pertaining to the financing and development of the mine was re-negotiated after Bema accused Placer Dome (PDG-T) of not making enough of an effort to arrange the financing.

Friedberg believes Arizona Star’s shares are undervalued and would be trading closer to net asset value if the company were independent.

The two are airing their concerns and positions publicly through several open letters to Arizona Star’s shareholders. Johnson accuses Pan Atlantic of wanting to delay development of Cerro Casale and calls into question the reputations of two of Pan Atlantic’s nominees, saying they may hamper Arizona Star’s financing efforts if voted in.

Friedberg fired back saying that he has no intention of delaying the project; on the contrary, he says, it should move forward now, when prices for gold and copper are high.

Johnson says Arizona Star’s share price will not reflect true net asset value until Placer Dome makes a definitive production decision. Friedberg argues that this is a matter of marketing Arizona Star to institutions and retail investors.

Friedberg believes a higher share price is necessary to help minimize equity dilution when it comes time to fund its share of the project.

Friedberg assures shareholders that the company will work with Placer Dome to ensure the project is put into production under the best possible financing terms for Arizona Star’s shareholders if it succeeds at changing Arizona Star’s board and management.

Rudi Fronk and James Anthony are the two Pan Atlantic nominees Johnson believes could jeopardize Arizona Star’s ability to secure financing. Fronk was in charge of a failed mining venture owned by the former high-flyer and now-defunct Greenstone Resources.

In their defence, Friedberg points out that the two have been running Seabridge Gold (SEA-V) over the past few years. Seabridge has been able to raise money even in tough times, and the company has performed more successfully than both Bema and Arizona Star. Friedberg has a significant stake in Seabridge as well.

Placer Dome is arranging the financing for what will be one of its cornerstone projects. The Vancouver-based company is looking to minimize country risk and capital risk as well, and sees Chile as a safe bet.