Arimetco may manage restructured Breakwater

Management of Breakwater Resources (TSE) is expected to pass into the hands of Arimetco International (TSE) following a cash injection of about $5 million into Breakwater’s treasury by the Shipes family group of Tucson, Ariz.

The investment is part of an overall debt and equity restructuring of Breakwater, and will result in changes to the board and the granting of a voting trust in favor of the Shipes group over Breakwater shares held by Ned Goodman’s Dundee Bancorp (TSE).

The Shipes group is headed by Arimetco President Roy Shipes, and includes members of his family and business associates. Shipes is a former president of American Pacific Mining which merged with Breakwater in 1990. Shipes was involved in American Pacific’s 1987 acquisition of the El Mochito base metal mine in Honduras from a unit of Amax.

According to a recent agreement-in-principle, Arimetco is to assume management of Breakwater and its operations under a management services contract with a base fee of US$750,000 per year, together with certain expenses and costs. It’s expected that Breakwater’s offices will be moved to Tucson, and the company will assume some sharing of expenses relating to the time of Arimetco’s management team and technical personnel.

The Shipes group then extended an option on its Breakwater share block to Arimetco, at no cost or obligation to the company, callable upon successful completion of Breakwater’s restructuring.

Before those deals can be closed, however, Breakwater must reach an agreement with the holders of Breakwater Swiss bonds (over $35 million was raised in the late 1980s) to convert the bonds into common shares of the company. Upon the successful restructuring of the Swiss bonds, the Shipes group will convert the El Mochito net smelter royalty and the Breakwater note it holds into about 20% of the then equity of Breakwater on a fully diluted basis. Dundee Bancorp agreed to convert $6 million of its Breakwater debt into a similar 20% equity in Breakwater, and also agreed to grant an option to the Shipes group to buy 14.5 million Breakwater shares held by Dundee at 40 cents per share for a 2-year period.

Assuming successful completion of the debt restructuring, it is expected that about $38 million of existing Breakwater debt will be converted into equity. Breakwater still has other financial liabilities resulting from its ambitious expansion program into zinc during the late 1980s and early 1990s. During this period, the company opened several zinc mines which had to be closed because of operating problems and low zinc prices. Breakwater’s original asset was a 49% interest in the still-producing Cannon gold mine in Washington state.

Arimetco is interested in Breakwater’s zinc projects as the company hopes to complete an ongoing testing program for the application of its leach, solvent extraction and electrowinning technology to the production of cathode zinc from zinc sulphide concentrates (thereby bypassing transportation of concentrates and smelting costs).

“This is viewed by Arimetco as an extremely important opportunity for long-term corporate growth,” stated Roy Shipes.

Once the restructuring is complete, Breakwater’s new management team intends to pursue other Latin American base metal projects, especially zinc and copper. Arimetco’s focus will remain primarily on expansion of its North American presence in base metals production using its solvent extraction and electrowinning technology. The company is already using this technology on copper projects in the western U.S.