Insider trading of Belmoral raises takeover speculation

Insider trading in shares of Belmoral Mines has led to renewed speculation that the gold mining company may be the subject of a takeover bid.

While recent insider trading has not shifted control of the company at all — in fact, the trades were little more than a reshuffling of an Alberta family’s holdings — it has focussed attention on Belmoral’s unique capital structure and its vulnerability to an outside buyer.

A major reorganization of the company late in 1985 resulted in a large portion of the company’s massive bank debt being converted into common and preferred shares. The company now has virtually no debt and is making a profit from its two producing gold mines near Val d’Or, Que., but the bank holds enough preferred shares that can be converted into common shares to give it control.

Those preferred shares aren’t convertible for another two years according to the terms of the refinancing, but the bank is actively trying to unload its holdings in the company says Belmoral President Malcolm Slack. The bank, the Canadian subsidiary of the Continental Bank of Illinois, has asked him to place the stock in a manner that would be beneficial to the company.

As a result, rumors that circulated in the past that American Barrick Resources was interested in acquiring the company are resurfacing. Barrick, however, says it is not planning such an acquisition.

Theoretically, at Belmoral’s current market price of about $3 per share, a 50% interest could be gained for about $37 million not including the preferred shares held by the bank. If Belmoral can live up to its potential of producing 125,000 oz of gold by 1989, that might be seen as a bargai n for the debt-free company.

By comparison, Barrick recently offered to buy PanCana Minerals for shares worth about $45 million. PanCana’s major asset is a 50% interest, subject to net profits and net smelter royalties, in a Nevada mine which produces about 40,000 oz of gold per year.

The insider trading in Belmoral involved September sales by two directors, Clive and Frank Brown of Calgary, amounting to almost two million shares. Clive Brown says the sales were gifts made to the two men’s wives but the Ontario Securities Commission, which publishes details of insider trading, does not distinguish between gifts and sales and in fact deems gifted stock to have been sold.

The OSC records show that Alma and Helen Brown acquired most of the Belmoral stock provided by their husbands.

“There may be a number of reasons (for gifting the stock) which I’m not at liberty to disclose,” says Mr Brown, personal tax considerations being one.

Mr Brown says that he and his brother and their wives together hold the largest block of Belmoral common stock. Belmoral says as of May 26, the Brown brothers held 4.5 million shares or 18.2% of the company’s issued common stock.

The transfer of shares within the Brown family does not indicate a divestiture of any interest in the company, says Mr Brown.

“I wish I had more money,” he says. “I’d buy more.”

The Browns won control of the company in the 1970s but lost it during a protracted battle with the bank that was resolved earlier this year. Although the Browns hold the major block of common shares, there are five other directors on the board, two nominated by the bank.

Despite the problems Belmoral has suffered since 1980 — including a cave-in that killed eight miners, prompted a Royal commission and involved criminal charges of which the company was eventually acquitted — Mr Brown says he and his brother are still firm believers in the company.

“Things have never been better in the history of this company,” he says adding that he would not be a seller of Belmoral stock at current prices.

A Toronto-based financial newsletter, Personal Wealth Reporter, speculates that the recent insider trading reflects poor exploration results by Belmoral. However, Mr Slack says results on the Wrightbar Mines property, which Belmoral hopes will be its third producing mine, have been “better than expected.”

The company had hoped to be able to make a production decision on the Wrightbar property early in 1987 on the basis of underground exploration being done but has deferred that decision in order to analyze some good results in a new zone to the west of the Ramp Zone.

“The more we drill, the more we hit,” says Mr Slack.

Two drills are drilling from surface on the property. The latest result is from hole 47, the most easterly of the holes drilled on the West Zone. It cut 10.75 ft grading 0.698 oz gold per ton uncut or 0.273 oz per ton when values of over one ounce are reduced to one ounce.

Belmoral says it plans to exercise its option to buy 750,000 Wrightbar shares at $3 per share. That will give it a 35% interest in the company and control.