Claude spices its offer for St. Eugene

Claude Resources (CRJ-T, CGR-X) has sweetened its all-share proposal for St. Eugene Mining (SEM-V).

The Saskatoon-based company has now offered to buy all the shares it doesn’t already own in the Toronto-based junior for $19 million – a $4-million top off to its initial offer in July.    

Under the new transaction, St. Eugene shareholders will receive 0.0789 of a Claude share and 0.25 of Spinco, a newly formed St. Eugene subsidiary, for each share held.

St. Eugene will transfer its 100%-owned Tartan Lake gold mine project in Manitoba to Spinco, which will also hold $800,000 in cash.

The offer values St. Eugene at 14.5¢ a share, a 28% premium to its 20-day volume weighted average price on Oct. 24, 2011.  

More importantly, it’s a 53% premium to St. Eugene’s 20-day volume weighted average share price on July 8, the last trading day before Claude made its first move, which fell short of pleasing the junior’s board. Claude originally approached St. Eugene offering it 0.0601 of a Claude share, which implied a value of 12.5¢ per St. Eugene share or a total of $15 million on a non-diluted basis.

But this time around Claude had more luck as St. Eugene’s board unanimously applauded its offer.

Under the improved bid, Claude will keep its pro-rata interest in Spinco, but will lower its existing net smelter return (NSR) royalty in the Tartan Lake project to 2% from a sliding scale. Spinco can buy the NSR royalty for a total of $2 million.

Based on a November 2010 resource estimate, Tartan Lake has 1 million tonnes grading 4 grams gold per tonne for 130,000 oz. gold in indicated, and 1.9 million tonnes at 3.9 grams gold for 240,000 oz. in inferred.

Claude says the main reason for the acquisition bid is it’ll allow the company to consolidate the Amisk gold project in Saskatchewan, of which it owns 65%, while St. Eugene holds the remainder.

Situated in the prolific Flin Flon greenstone belt, Amisk hosts an indicated resource of 30.1 million tonnes grading 0.95 gram gold equivalent per tonne for 921,000 gold-eq. oz., plus another 28.6 million tonnes at 0.70 gram gold-eq. for 645,000 gold-eq. oz.

“We wanted to own 100% of that project,” says Philip Ng, Claude’s senior vice-president of mining operations. “We like it at 65%, so we’ll sure like it at 100%.”

Ng explains the company will be getting about 548,000 gold-equivalent oz. from the transaction, which translates into an “attractive” acquisition cost of $36 per oz. gold

If the deal is approved, Claude will issue about 10.5 million shares, which will inflate its current shares outstanding by 6.5%, says Ng, noting it will also be increasing its NI 43-101 gold inventory by 18%. For that reason, “we think it’s an accretive transaction,” comments Ng.  

Currently, Claude’s main asset is the 100% owned Seabee gold mine in northeastern Saskatchewan. It also wholly owns the past-producing Madsen property in the Red Lake gold camp of northwestern Ontario.

The transaction still requires two-thirds of St. Eugene’s shareholders to vote in favour of the offer, which is expected to close before the New Year.

If St. Eugene walks away from the deal it will need to pay Claude $800,000.

On the offer update, St. Eugene shares shot up 30% to 15¢ during intraday trading.