Agnico, Dumagami merger can’t stop takeover talk

At a special meeting in Montreal, 90% of Dumagami shareholders present voted in favor of the merger which is designed to create a company capable of producing 200,000 oz gold annually in 1991.

The exchange deal of 1.7 Agnico- Eagle shares for one Dumagami share has been approved despite opposition from a group of minority shareholders led by Jacques Forget.

Forget, who held a 6.3% stake in Dumagami through his Montreal investment firm Invesfor, has argued that his shares were worth at least two shares of Agnico. While he expects to hold one million shares of the merged company, he did not attend the Montreal meeting.

During an interview with The Northern Miner, Agnico President Paul Penna attributed the overwhelming vote in favor of the merger to the company’s huge U.S. following. According to Penna, Agnico has more individual U.S. shareholders than any other gold producer in Canada.

“Our strength is in the public,” said the Agnico president who promised not to stray from his conservative business approach which does not include forward gold sales.

While Penna says the merger would strengthen Agnico by expanding the company’s reserves and revenues, Forget claims that it will also be a prime takeover target for other companies with interests in Quebec.

Only 12% of the merged company’s 25.8 million shares are held by management, including about 900,000 by Penna, and 2.8 million by Mentor Exploration (TSE). About 1.5 million warrants would bring the number of Agnico shares out to 28.4 million if exercised.

However, current management is protected by a poison pill or shareholders’ rights mechanism that triggers excessive dilution of the Agnico stock should the company be subjected to an unwanted takeover bid.

Under the plan, if a hostile company amasses more than 20% of Agnico’s shares, shareholders other than the buyer can exercise their right to buy shares at a 50% discount to prevailing market prices.

“If anyone wants to take a shot at us, they had better have a lot of money,” said Penna.

Based in Toronto, Agnico-Eagle already operates two separate gold and silver divisions in Quebec and Ontario.

After suffering the effects of ore dilution and shaft renovations, Agnico’s Telbel mine at Joutel, Que., is expected to produce 72,200 oz gold this year, up from 60,371 oz in 1988. As a result of last year’s low production levels, Agnico reported a net loss of $5.1 million in 1988.

The company’s silver mines in Cobalt, Ont., which produced 1.34 million oz silver last year, are on hold pending an upswing in the price of silver.

By merging with Toronto-based Dumagami, Agnico-Eagle assumes direct control as well as management of Dumagami’s Donald J. LaRonde gold mine at Cadillac, Que. With a $12.6 million expansion program in progress, Donald LaRonde has produced 80,687 oz gold, 128,764 oz silver and over 1.3 million lb copper during its first year in production.

Expansion is designed to increase the underground production rate to 2,000 tons per day from 1,500 tons.

Dumagami recently increased its reserves to seven million tons grading 0.14 oz gold, while the Eagle and contiguous Telbel mine have reserves of 2.2 millon tons of average 0.19 oz gold. Looking toward 1990, Agnico- Eagle is already committed to spending $3 million this year on exploration at a number of Quebec properties including Dundee- Palliser Resources’ (TSE) Vezza Twp. project and a joint venture with Cominco Ltd. (TSE) at Joutel and Casa-Berardi.

Agnico’s 26% owned affiliate Goldex Mines (TSE) is proposing to spending $1.7 million program at its 60% of the Val d’Or, Que., gold project shared with Ormico Explorations (ME).

Some of those assets, including the two gold mines, may prove attractive to Quebec gold producer Cambior Inc. (TSE) In a recent interview published in The Montreal Gazette, Cambior President Louis Gignac indicated that he hoped to boost the company’s gold output to 300,000 oz by 1991.

He said he may aim for the half- million-oz level “by acquiring operating mines.”

]]>