Great Central considers options Down Under

An attempt by Great Central Mines (GTCMY-Q) to shore up holdings in the Yandal and Wiluna mineral belts of Western Australia is faltering as the closing date for the proposed transaction approaches.

In August, Great Central offered A$3 (US$2.24) per share for Australian-based Eagle Mining. The market responded by raising Eagle’s share price to A$3.35 per share, though the price has since fallen back nearer the A$3 mark. The proposed takeover is valued at A$229 million (US$170 million).

Meanwhile, management for Eagle has distributed a booklet outlining why it believes the offer is not a “fair and reasonable” valuation of the company’s assets. The document suggests the offer is timed to take advantage of a weak gold price and that it does not reflect the company’s growth potential.

At about the same time, Great Central offered A65cents (US49cents) per share of Wiluna Mines, another Australian company with holdings in the region. (At presstime, however, Wiluna’s stock was trading at about A68cents per share). The bid to take over Wiluna is valued at A$105 million (US$78 million).

Great Central must now decide either to improve its offers, or extend them and wait for the prices to fall to the point where the original proposals are more attractive. The offers closes on Oct. 6.

The situation is not unexpected, says David Constable, Toronto-based spokesman for Normandy Mining, Australia’s largest gold producer, which pledged A$217 million (US$162 million) in financial support for the Great Central offers.

“Initial resistance by the market has already been considered, and we’re not deterred by it,” he says.

Within the Yandal belt, situated north of Kalgoorlie in Western Australia, Great Central currently owns the Bronzewing and Jundee gold mines, as well as the Mt. Joel project.

Eagle is a substantial landholder, with 2,500 sq. km in the Yandal and Wiluna belts plus another 2,500 sq. km in the Cloncurry region of Queensland. The company’s primary asset is the Nimary gold mine, which borders the Jundee operation. The mine began production in December 1995 and is expected to produce 144,000 oz. annually. Cash costs average A$222 (US$166) per oz.

Reserves at Nimary stand at 5 million tonnes grading 4.87 grams per tonne, equivalent to 791,304 contained ounces.

Wiluna’s primary asset is its namesake mine, west of the Yandal gold belt, which cranks out 116,000 oz. gold annually.

If Great Central is successful in both takeovers, its gold production could increase significantly to nearly 800,000 oz. per year, and possibly to as high as 1 million oz. by 2000. Currently, the company produces about 400,000 oz. per year.

Enter Coeur d’Alene

A dark horse in the race to win Eagle Mining is American silver-producer Coeur d’Alene Mines (CDE-N), which had been quietly acquiring shares of Eagle on the open market before Great Central’s announcement.

Since the takeover was announced, Coeur d’Alene has increased its stake in Eagle to 14.9% from 5%, rendering Coeur the largest shareholder in the company.

The Australian Foreign Investment Review Board recently approved Coeur’s attempt to gain up to a 19.9% interest in Eagle Mining. To acquire more, Coeur must make an offer to all shareholders.

Normandy became involved with Great Central when it acquired an initial 10% stake in the latter in exchange for 25.4 million shares and A$62.2 million (US$46.4 million) in cash. Normandy has since increased its stake in Great Central to about 13%.

Normandy has also agreed to provide a US$116-million loan, to be repaid through a combination of cash and securities which would result in Normandy holding up to 25% of the issued capital of Great Central.

Australian analysts speculate that this investment could be a precursor to a future takeover of Great Central by Normandy. Great Central’s production could boost Normandy into the ranks of the top world producers, with as much as 2.5 million oz. annually.

Constable says his company remains committed to its investment in Great Central regardless of the outcome of the takeover bids for Eagle and Wiluna.