Kinross, Echo Bay and TVX plan three-way merger

Joining the mining sector’s consolidation parade, Kinross Gold (K-T), Echo Bay Mines (ECO-T) and TVX Gold (TVX-T) have announced plans for a three-way merger.

Under the plan, Echo Bay shareholders would receive 0.52 of a Kinross share for each Echo Bay share. TVX shareholders would get 0.65 of a Kinross share for each TVX share held. The conversion rate for TVX shares would be adjusted if the company follows through on a previously announced 1-for-10 share consolidation.

Based on each company’s average share price for the 30 days prior to the deal’s announcement, the exchange ratios represent a 23% premium over Echo Bay’s price and a 47% premium over TVX share price.

In conjunction with the merger, TVX will acquire Newmont Mining‘s (NEM-N) 49.9% interest in the TVX Newmont Americas, which has interests in five mines in North and South America — a 49% interest in the New Britannia mine in Manitoba (51%-owned and operated by High River Gold [HRG-T]); a 32% interest in the Musselwhite mine in Ontario (68%-owned and operated by Placer Dome [PDG-T]); a 50% interest in the Brasilia-Paracatu mine in Brazil (50% owned and operated by Rio Tinto [RTP-N]); a 50% interest in the Crixas (Serra Grande) mine in Brazil (50% owned and operated by AngloGold); and a 50% interest in the La Coipa mine in Chile (50% owned and operated by Placer Dome).

The Americas acquisition has the approval of Newmont, which will sell its 49.9% stake to TVX for US$180 million. Newmont has also agreed to vote its 45.2% equity stake in Echo Bay in favour of the three-way deal.

The boards of all three companies have also approved the deal, and recommend that shareholders do the same at shareholder meetings during the third quarter of 2002. The plan needs a two-thirds approval by Echo Bay and TVX shareholders. A simple majority vote is required of Kinross shareholders. Kinross shareholders will also be asked for a two-thirds approval for a 1-for-3-share consolidation. If approved the above share exchange ratios would be adjusted.

When the dust settles, the post-merger Kinross will be 40.3% held by existing Kinross shareholders, 31.1% by TVX shareholders (excluding Newmont), 14% by Echo Bay shareholders (excluding Newmont and Kinross) and 14.6% by Newmont.

The new Kinross will be headed up by Bob Buchan, currently Kinross’s chairman and CEO, who will assume the role of president and CEO. Scott Caldwell, will become senior vice-president of operations and COO. The board of directors will comprise six Kinross nominees, two TVX nominees, and one nominee from each of Echo Bay and Newmont.

The new Kinross will have a market capitalization of more than US$2 billion, and production will top 2 million ounces annually at total cash costs of less than US$200 per oz. Sixty-five percent of its production originates from the U.S. and Canada.

The three companies expect the merger to produce after-tax savings of about US$15 million annually.

The new entity will rank as North America’s only primary gold producer to have les than 5% of its reserves hedged. On a global scale it will rank as the seventh largest primary gold producer.

Combined proven and probable reserves are pegged at 17.9 million ounces of gold and 52.6 million ounces of silver. Measured and indicated resources total 19.2 million ounces gold plus more than 60 million ounces of silver.

The deal is subject to regulatory approval.

In late-afternoon trade on the Toronto Stock Exchange, TVX shares were 31 or 19% higher at $1.95. Kinross shares were off 77 or nearly 20% at $3.15 and Echo Bay’s stock was a quarter lower at $1.60.