Ontzinc adopts shareholder rights plan

In the midst of trying to raise a hefty stack of cash to complete its planned acquisition of Anglo American‘s (AAUK-Q) Canadian operation, Hudson Bay Mining and Smelting, junior Ontzinc (OTZ-V) has adopted a shareholders rights plan.

The plan has been approved by regulators but still requires shareholder ratification. Ontzinc says the plan is designed to give the company’s board of directors and shareholders adequate time to evaluate a take over bid or to pursue alternatives. The company says it is not currently aware of any pending bids.

Under the plan, Ontzinc would issue one right for each of its 237.6 million outstanding shares. Faced with a hostile bid, the rights would allow shareholders to buy additional shares at a substantial discount to the going market price, thereby flooding the market and making a buyout prohibitively expensive.

The plan would be triggered by a non-permitted offer for at least 20% of the company’s shares. A permitted bid would need to be made via a take over circular and remain open for at least 60 days.

In early October, Ontzinc came out on top of an auction for Hudson Bay with a bid of $325 million. Hudson Bay produces copper, zinc, and byproduct metals from its Flin Flon, Man., smelter and from mines in northern Manitoba and Saskatchewan.

The deal hinges on Ontzinc, which currently has a market capitalization of around $33 million, and had about $3.1 million in cash at the end of June, raising the necessary funds. The company plans to finance the ambitious acquisition via an equity offering and debt financing. The deal is expected to close near year-end.

The plan will be put to shareholders at a meeting scheduled for May 9; shareholders will also be asked to approve a planned 1-for-40 share consolidation; name change to Hudbay Minerals; additions to the board; a restatement of the financial statements; and a reduction of the company’s stated capital.

The proposed financial restatements for the first halves of 2003 and 2004 relate to some asset retirement obligations and an income tax recovery associated with the renunciation of tax benefits from the issuance of flow through shares in Dec. 2003. In the end, the changes increase the company’s loss during the first six months of 2003 by $144,000 to $581,000, and lower the loss for the 2004 first half by $376,000 to around $2.9 million.

The company will also ask shareholders to OK a reduction in the shareholders’ equity account by up to $22 million to around $2.9 million to more accurately reflect future financial results. The move will also eliminate the company’s deficit as of July 1, 2004.

In the boardroom, Norman Anderson, James Ashcroft, Ian Conn and Peter Jones have been nominated to join Ontzinc’s board following the acquisition of Hudson Bay.