Hemlo’s Harvey likes idea of Noranda gold asset deal

Speculation that Noranda (TSE) is attempting to pare down debt by offering to sell its gold assets to 50.8%-owned affiliate Hemlo Gold (TSE) was confirmed recently by Hemlo Gold President John Harvey. But Harvey, who is also president of Noranda Exploration, says rumors that Noranda will look for around $200 million before agreeing to sell its gold assets, are based purely on speculation.

“We are considering an offer from Noranda and if Hemlo wants to pursue it any further the offer will be presented to a committee of independent Hemlo Gold directors to review in detail,” Harvey said.

“There have been no discussions between the two companies regarding a possible selling price,” he said.

Analysts say the transaction makes sense because Noranda’s gold assets, including 55% of the Silidor gold mine in Quebec and three advanced North American exploration projects, would give Hemlo Gold a growth multiple it has never had before.

“Hemlo’s Golden Giant mine is a tremendous asset, but at the moment the market doesn’t seem to care,” said Michael Jalonen, a precious metals analyst at Midland Walwyn Capital Inc. in Toronto. Located at Hemlo, Ont., the low-cost operation is expected to produce 440,000 oz. this year for about US$125 per oz.

According to Harvey, the transaction would benefit Noranda because it is unable to realize the full value of its gold assets without spinning them out to either Hemlo or a publicly listed gold company. As reported (T.N.M., Feb. 4/91), Noranda is suffering from a severe downturn in the forest industry and it had paid out $359 million by Sept. 30 last year to service debts of $3.9 billion. “I like the concept,” he said.

However, the $200-million price rumor is believed to have driven Hemlo’s 87.5 million issued shares down by 50 cents to $9.13 on March 12. Harvey said any purchase price could entail stock or cash or a combination of both.

While Noranda’s interest in the Silidor mine near Rouyn would add only 30,000 oz. annually to Hemlo’s gold output, three advanced exploration projects could make the company a much larger gold firm.

The exploration projects include:

— A potential 60% interest in Crown Butte Resources’ (TSE) New World deposit in Montana where preliminary reserves stand at eight million tons of 0.2 oz. gold per ton and 0.75% copper.

— The right to earn roughly 60% of the Freewest Resources’ (TSE) and Teddy Bear Valley Gold Mines (OTC) projects at north of Kirkland Lake, Ont., where reserves are so far estimated to be five million tons of 0.25 oz. gold

— A 25% interest in the Brewery Creek project in the Yukon Territory. Preliminary reserves amenable to heap leaching stand at 11 million tons of 0.05 oz. gold.

— Noranda is also involved in several hundred other exploration projects.

According to Harvey, Hemlo Gold will take until the end of March to consider the offer before alerting Noranda as to whether it will proceed. If the answer is “yes,” an independent committee of Hemlo Gold directors would consist of mining executives Frank Lang and Richard Hughes and former Ontario premier William Davis.