Semafo, High Desert to merge

Under a merger agreement reached this week, West African explorer Semafo (SMF-T) will merge with royalty company High Desert Mineral Resources (HDR-V).

High Desert shareholders will take away a 55% stake in the merged company in exchange for the common stock of High Desert. Semafo shareholders will keep a 45% interest in the new company.

At presstime on Aug. 19, Semafo shares had closed at 84 cents on the Toronto Stock Exchange, with High Desert shares trading at 94 cents on Vancouver. Semafo’s market capitalization was $27.8 million; High Desert’s, $49.6 million. Semafo represents about 36% of the total market value of the two companies but also brings the heftier balance sheet.

Semafo’s principal assets are properties in West Africa, most of which are in the early phases of exploration. Two — Teleku-Bokazu in Ghana and Jean-Gobele in Guinea — are at the prefeasibility stage.

Semafo concluded a joint-venture agreement with Samax Gold (SMX-T) on the Teleku-Bokazu licence area, under which Samax can earn a 75% interest in both Teleku-Bokazu and the adjoining Ebi licence by delivering a bankable feasibility study by July 2000.

Teleku-Bokazu has an indicated resource of 1.7 million tonnes of oxide material grading 2.6 grams gold per tonne, and 1.1 million tonnes of sulphide material grading 3.1 grams. The resource in all categories stands at 6.7 million tonnes averaging 1.8 grams gold.

At Jean-Gobele, a resource of 2.7 million tonnes grading 3.6 grams gold has been outlined.

Semafo’s major grassroots exploration properties include the Kaloum and Kakoulima exploration concessions on the coast of Guinea, where, in April, the company begain drilling for nickel-copper-cobalt mineralization. In Burkina Faso, Semafo ran active exploration programs this year on its Lopal and Perkoa gold projects, both of which are in the central part of the country.

Semafo had 33.1 million shares outstanding at the end of 1997. In July, the company redeemed an issue of 8.2 million preferred shares for $50,000. For the quarter ended March 31, it reported assets of $60.7 million, including $39 million in current assets, against liabilities of $2.7 million.

High Desert owns a 2% royalty interest on the HD Venture, operated by Newmont Gold (NGC-N) and held jointly by Newmont and Barrick Gold (ABX-T). On HD, adjacent to Barrick’s Goldstrike mine, Newmont has outlined three zones with proven and probable reserves of 2.5 million tonnes grading 14.5 grams gold.

A second High Desert royalty interest is a 1% net smelter return on the SJ tract of Barrick’s Betze-Post property. SJ’s proven reserve is 50.8 million tonnes with an average grade of 6.6 grams gold.

According to High Desert’s first-quarter financial statements, the most recent ones filed, the company had $17.4 million in assets and $2 million in liabilities, but only $384,000 in cash and other short-term assets. It had 52.8 million shares outstanding.

The merged company intends to retain a listing on the TSE and will apply for a listing on the American Stock Exchange. The merger requires the approval from the shareholders of both companies, and also regulators. There is a 45-day period before closing so that due diligence investigations can be carried out.

At the same time, Vauquelin Mines (VAQ.A-M), which owns 2.5 million Semafo shares, or about 7.5%, has concluded a merger agreement with California-based NewGold (NGLD-O). Vauquelin shareholders will end up with 51% of the merged company.

Vauquelin brings cash (about $3 million) and its Semafo interest, which would amount to a 3.4% stake in the merged High Desert and Semafo. The company also holds 1% net smelter return royalties on Semafo’s Ebi and Teleku-Bokazu licences in Ghana.

NewGold owns the Relief Canyon mine and has an option to acquire the Victorine mine, both former gold producers in Nevada. Relief Canyon, previously mined by Pegasus Gold (PSGQF-O) and by Lacana Mining, sports a resource of 27.2 million tonnes with an average grade of 0.8 gram gold, based on a cutoff grade of 0.34 gram. A higher-grade resource, based on a 1-gram cutoff, has 5.1 million tonnes running 1.7 grams.

The merger plan is conditional on shareholder and regulatory approval, and both companies are performing due diligence investigations.