A proposed merger with
Rayrock was prepared to meet its destiny on Nov. 20, when shareholders were expected to vote, at a special meeting, on whether to replace current board members with nominees handpicked by Quest Ventures, an investment firm which holds a 5% equity stake in the company. Management, however, bypassed the requisition by announcing the proposed merger the previous day, allowing it to postpone the meeting until mid-February.
“It would not be in our shareholders’ best interests to force them to vote on the Quest proposal until they had a fair opportunity to consider the details of the proposed arrangement with Glamis,” states James Askew, president of Rayrock. “At the end of the day, it came down to either doing [a deal with] Glamis or going to the vote with Quest, and clearly we felt the former was in the best interest of the shareholders.”
Quest called the meeting because it believes shareholders have been “disenfranchised.” The company had planned to pay a special dividend to shareholders, using Rayrock’s current cash and marketable securities, estimated to be valued in the range of $5.50 per share. Quest would then either have sold Rayrock’s mining assets or sought a merger with another mining company.
Murray Sinclair, co-owner of Quest, was still reviewing the merger proposal at presstime.
Rayrock owns a 45.9% interest in Blackrock Ventures, which, in turn, holds a 25.5% interest in Rayrock.
The proposed merger would see each multiple and subordinate voting share of Rayrock exchanged for 2.2 common shares of Glamis, or 1.5 common shares plus $3, up to a maximum of $24 million in cash payments. Blackrock has already OKed the deal, though shareholders, representing 41.2% of all eligible votes, have yet to do so. Approval is also required from regulatory and legal bodies.
At Rayrock’s current market value, Glamis estimates its offer to be worth $8.34 per Rayrock share, or $8.69 if the cash-and-share option is exercised. Depending on when and if the deal is closed, Glamis places a premium of between 19% and 38% on the transaction but notes that this represents a sharing of future benefits by shareholders of both companies.
“This represents a healthy premium to Rayrock shareholders and reflects our view of the performance potential of Rayrock’s assets and its people,” says Kevin McArthur, president of Glamis. He adds that the cost to his own company would be US$42 per oz. of Rayrock’s recoverable reserves, estimated at 300,000 oz. gold, plus numerous assets, including mills and processing plants.
“Glamis expects to reduce the purchase price [even further] through consolidation of administration, gold resources over the long term, and cost reductions at all of our mine sites,” McArthur says.
The merged company would be known as New Glamis and operate out of Reno, Nev. Shares would total 75.7 million and be traded on both the Toronto and New York stock exchanges. New Glamis would have US$80 million in cash and marketable securities, with US$5 million in debt.
Glamis has appointed Daniel Rovig to the board of directors of the proposed new company and made him chairman; previously, he was president and chief executive officer.
In earlier moves, Rayrock had appointed three directors with backgrounds in international exploration, mining and finance. The new directors — Samax Gold President Michael Martineau, financier Robert Matthews and mining engineer Robert Zerga — replaced Bruce Burton, Walter O’Donoghue and Francis O’Kelly, all of whom had resigned. Around the same time, Rayrock elected Askew as president and CEO, and retained an investment firm to help it fend off the attempted takeover by Quest.
The amalgamated company would produce a combined 200,000 oz. gold in 1999, building to 300,000 oz. over the next five years. The long-term combined cash costs are projected to be less than US$200 per oz.
Currently, Rayrock cranks out 90,000 oz. annually from three open-pit mines in Nevada — the wholly owned Dee and Daisy mines and the 66.6%-held Marigold mine. The Dee is scheduled to close in May 1999, though current reserves have been deemed sufficient for another three years of production. An ongoing program of deep drilling by Barrick Gold (abx-t) is attempting to outline new sources. The major can earn a 60% interest in the project by spending $5 million and completing a feasibility study.
A similar mine life is projected for the Daisy mine, where annual production is pegged at 30,000 oz., whereas Marigold has an estimated five years of reserves at an annual rate of 60,000 oz. Daisy is being mined on a contract basis, though this may change given that Glamis has a mining fleet available.
Rayrock also owns a 100% interest in the Ivan copper mine in Chile, which it acquired last summer through a merger with affiliate Minera Rayrock. For the current year, Ivan is expected to produce 21 million lbs. copper at 66 cents per lb.
Glamis pulls its gold from the Rand and Picacho open-pit mines in California. The Rand accounts for about 90% of the current company’s 90,000 oz. of yearly production and would act as the flagship of New Glamis. The Picacho mine exhausted its reserves this year but is expected to yield a limited amount of gold over the next two years as the heaps are drained.
The merger also brings several exploration projects to the table, including Glamis’ Imperial project in California. While an independent feasibility study suggests the deposit can support annual production of 110,000 oz. gold over 10 years, the rate of return is only 11% at a gold price of US$300 per oz. — 4% lower than the rate of return needed to justify development. Capital costs in the first year are pegged at US$40 million, with cash costs projected at US$191 per oz.
The advanced San Martin project in Honduras is estimated to host reserves sufficient for 10 years of production. Infill drilling is attempting to bump up the resource to the proven and probable categories, and a third-party feasibility study is under way. Glamis’s prefeasibility study indicates the deposit is amenable to heap-leaching technology and is capable of producing between 500,000 and 750,000 oz. gold per year. Capital costs are estimated at US$15 million, with cash costs pegged at US$150 per oz., and permitting procedures are expected to get under way in January.
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