Disbelief turns to support for Witte’s bold move

Stunned disbelief is probably the best way to describe the early reaction to Royal Oak Mines’ (TSE) hostile takeover bid for Lac Minerals (TSE).

“Impossible,” said some Toronto-based mining analysts, while many others feel Royal Oak President Margaret (Peggy) Witte stands little chance of ever presiding over a Lac annual meeting.

“I think some of that initial reaction is because we caught everyone by surprise,” Witte told The Northern Miner. “But we are now seeing some positive reports from analysts, since they’ve had a few days to think about it and can see it is a serious bid.”

Witte said Royal Oak has been working on this transaction for the past four months, at a cost exceeding $10 million. The multi-front effort included obtaining binding commitments from several banks and financial institutions for the cash portion of the offer and for long-term credit facilities. An important part of this preparatory work involved establishing support for the takeover bid among Lac’s own institutional shareholders.

Support for Witte’s bold move appears much stronger in Vancouver, a mining community dominated by juniors. Many here still remember the city-wide celebrations that took place when underdog International Corona won its lengthy legal battle against Lac over one of the Hemlo gold mines. Now that the initial shock is over and Witte’s bombshell has subsided, attention is shifting more to the ideas being proposed as part of her Lac “turnaround plan.” She points out that this strategy goes well beyond eliminating the corporate jet, firing top brass and relocating Lac to more modest digs in Vancouver.

“We’ve identified US$40-50 million of synergies and profits per year that aren’t being realized on the operational side,” Witte said. “These range from increasing productivity at certain operations, improving safety, amalgamating purchasing and tightening up exploration expenditures.”

Witte also appears to have evaluated the prospects of another major company stepping up to the plate to take over Lac. She believes her chances for success increase as each day passes without a third party getting into the action.

“Not many majors are eager to engage in a high-price bidding war these days,” Witte said. “Take Placer Dome for instance; the company has gone to Venezuela, spent a few million dollars on exploration, and come up with seven million ounces of gold. I think that’s the kind of performance shareholders want to see.”