Magma, Canyon teaming up to buy Addwest gold mine

One of the United States’ biggest copper producers, Magma recently acquired an option to purchase the assets of Denver-based Addwest Gold Inc. for $30 million(US) and more acquisitions may follow.

A wholly-owned subsidiary of Addington Resources Inc. (NYSE), Addwest’s assets include the Kendall mine, which is expected to produce 40,000 oz gold this year, a gold deposit and 900,000 acres of mineral rights, all of which are in Montana. “The Addwest properties are believed to contain more than one million oz gold in proven, probable and geological reserves”, said Magma’s President and Chief Executive Officer J. Burgess Winter.

Magma paid Addington $500,000 to buy the option. Under a proposed agreement, Magma and Canyon Resources Corp. (NASDAQ) will form a joint venture after they acquire all of Addwest’s assets (or capital stock).

Denver-based Canyon, which already holds a 40% stake in Kendall, will have a 25% interest in the joint venture while Magma retains the other 75%.

Magma has agreed to provide Canyon’s share of the acquisition cost by lending the company half of the money it needs and purchasing enough Canyon shares at $2.50 each to finance the other half.

The proposed agreement also gives Canyon a 5-year option to increase its joint venture stake by 15%. In return Magma has the option to acquire an additional 20% stake in Canyon for $3.85 per share.

While the deal is subject to due diligence plus royalties on a number of Addwest properties, Magma spokesman Frank Harris said it looked like a good opportunity.

In addition to the Kendall mine, Addwest also owns a large gold deposit in California’s Panamint Range.

“The cyclical nature of the copper industry is one reason why we are looking out for opportunities”, Harris told The Northern Miner. The $607 million in revenues which Magma reported last year were based almost entirely on the 183,000 tons of copper it produced from two mines in Arizona.

In 1988, Magma also churned out 21,000 oz of gold and 623,000 oz of silver as a by-product, “but not enough”, Harris said, “to pay the bills”.

Strengthening Magma’s balance sheet is another reason why Magma is on the acquisition trail, according to Harris. Last year, for the first time in eight years, the Arizona copper miner reported a profit. Net income increased to $56.3 million or $1.47 per share, from a loss of $40.9 million or $1.07 per share in 1987.

At year end, Magma had over $9 million in cash and a long-term debt position of $374.7 million.

“We are going to examine the Kendall mine very closely and analyze it further from a production standpoint”, said Harris.

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