Restructuring plans at Breakwater

The previously announced corporate restructuring of Breakwater Resources (TSE) moved a step closer to fruition with the recent execution of a formal agreement with a group headed by Roy Shipes of Tucson, Ariz.

The Shipes group paid $5 million into Breakwater’s treasury to buy a net smelter royalty of the El Mochito mine. If all goes as planned, the group intends to convert this royalty and a Breakwater note it holds into about 20% of the then equity of Breakwater on a fully diluted basis.

The restructuring is still conditional on other transactions that would result in about $38 million of existing Breakwater debt being converted into equity (T.N.M., Feb. 3/92).

As part of the overall agreement, Dundee Bancorp (TSE) granted an option to the Shipes group to purchase about 11.9 million Breakwater shares held by Dundee Bancorp at a price of 40 cents per share over two years. Once the restructuring is complete, management of Breakwater would pass to Arimetco International (TSE), an Arizona-based mining company whose president and major shareholder is Roy Shipes.

Breakwater’s key assets are a 49% interest in the Cannon gold mine in Washington state, and the producing El Mochito zinc mine in Honduras. The company’s recent financial problems relate to several ill-fated base metal mines which the company opened and then was forced to close in Canada. Arimetco is involved in a number of mining ventures, but has received considerable attention for its aggressive entrance into copper mining using acid leach, solvent extraction-electrowinning (SX-EW) recovery techniques. This process is attracting interest because of the low operating costs that can be achieved by producing cathode copper on site, thereby bypassing transportation and smelting costs associated with conventional sulphide deposits.

Because of these and other developments, both Breakwater and Arimetco have been active issues on The Toronto Stock Exchange in recent weeks. At presstime, Breakwater reached 55 cents in a 52-week range of 12-72 cents, while Arimetco traded at $4.90 in a 52-week range of $2.10 to $5.12. Arimetco isn’t required to put up any of its financial resources to the Breakwater restructuring, and will receive a base management fee of US$750,000 per year.

Roy Shipes said by adding the management functions of Breakwater to those of Arimetco (in Tucson), the corporate overheads of both companies would be dramatically reduced.

“Additionally, the access of Arimetco to Breakwater’s zinc production will allow Arimetco to complete its ongoing testing program for the application of its leach, solvent extraction and electrowinning technology to the production of cathode zinc from zinc sulphide concentrates,” he stated. “This is viewed by Arimetco as an extremely important opportunity for long-term corporate growth and the company is optimistic of reaching a successful conclusion.” After the restructuring is complete, Breakwater is expected to pursue other Latin American base metal projects, particularly zinc and copper. Arimetco’s focus will remain on expansion of its presence in base metal production using its solvent extraction and electrowinning technology.