Govt. watchdog reviewing Northgate, Westfield deal

A determined effort by some shareholders of Westfield Minerals (TSE) to persuade regulatory authorities to review the sale of Westfield’s interest in a Chilean gold mine to Northgate Exploration (TSE) has been successful. Frederick Sparling, director of companies branch at the Department of Consumer & Corporate Affairs, said the matter is under review and he has had discussions with the companies involved.

After receiving “a great many complaints about the transaction,” a spokesman at the Ontario Securities Commission said the OSC is also reviewing the matter.

“We have put a lot of effort into this and we are pleased with the way things are going,” said Mike Cahill, a Toronto real estate broker and member of the Westfield minority shareholders’ committee.

He and other committee members believe the $24.5 million which Northgate paid Westfield for its 35% stake in the Choquelimpie gold mine and a basket of exploration assets didn’t represent fair value.

As a result of the sale, Westfield is left with $24.5 million in cash and a 10% stake in Northgate.

As Northgate and Westfield’s parent company American Resource of Bermuda are both connected to Hees International Bancorp, the shareholders believe the sale wasn’t conducted at arm’s length.

Northgate has said the transaction was justifiable because according to President John Kearney, all of the money that Westfield invested in Choquelimpie was borrowed from Northgate.

But Rachel Larabie-Lesiur, director of compliance at the Department of Consumer & Corporate Affairs, says it could be some time before a decision is taken on whether a formal investigation should be launched.

“We want to make sure the minority shareholders received fair and equitable treatment,” she told The Northern Miner.

The issue is complicated because the transaction also involved the purchase by Northgate of Westfield’s 51% stake in (Norwest Holdings) a company set up to hold the combined interests of both companies in Australian gold producer Whim Creek Consolidated. Norwest became a wholly owned Northgate subsidiary after the latter paid $6 million to Westfield, while forgiving an $8.5-million loan.

Last February, Norwest sold its 15% interest in Whim Creek to Dominion Mining Ltd. of Australia for $39 million in cash after a disagreement involving directors of Westfield, Northgate and Whim Creek.

The Whim Creek directors didn’t approve of the way Westfield was being managed by Northgate, said OSC Chairman Robert Wright, who at the request of Whim Creek, sat briefly on the Westfield board. He later resigned after the Whim Creek sale was completed.

According to Larabie-Lesiur, there are three possible courses of action open to her department. The directorate could decide to launch a formal investigation if the company involved is found to have been oppressive to shareholders.

“A shareholders’ meeting could be called at which a vote would be taken or we could issue a statement saying that everything is sound,” she said.