Sullivan Mines target of St. Genevieve offer

A takeover bid has been made by St. Genevieve Resources for control of one of Quebec’s most famous and respected mining companies. The Montreal-based junior exploration company is offering $6.62 per share for a minimum 51% and a maximum of 70% of the outstanding common shares of Sullivan Mines. The offer, which will be made to all Sullivan shareholders on June 26, expires on August 1.

Sullivan has approximately 10.5 million shares issued on a fully diluted basis. The acquisition would then require a minimum of $34.7 million and a maximum of $43 million. St. Genevieve intends to finance the purchase via a 50 million Swiss franc debenture issued to IndoSuez, a Swiss-based investment bank. According to the St. Genevieve chairman, Pierre Gauthier, the bank has submitted a firm offer to purchase the debentures no later than August 5.

St. Genevieve was incorporated in 1985 and is controlled by Mr Gauthier, a successful broker who in two years has been quietly building a mining group of several exploration companies. The Sullivan deal, if successful, will give St. Genevieve exposure to more than 20,000 oz of annual gold production, primarily from Sullivan’s 34% interest in the Arthur White gold mine near Red Lake, Ont.

However, the deal will not be a simple one to close. Cambior Inc., the public company spunoff last year from Soquem, a Quebec crown corporation, is the major shareholder in Sullivan holding 31% of the common stock.

Cambior’s vice-president of administration and finance Herve De Jordy, woul d not comment on the St. Genevieve offer. “We’re going to evaluate the situation before deciding if its fair or not,” he told The Northern Miner. He did agree that if the St. Genevieve offer puts Sullivan into play (investment banker talk for starting a takeover bidding war), any potential suitors from outside the province of Quebec will be unlikely to find much support from the government — the implication being that control of Sullivan is expected to remain in Quebec.

Sullivan president Claude Genest was more candid about the offer than was Mr De Jordy. Emphasizing that he was not speaking on behalf of Sullivan’s board but rather for himself, he said that “there is not much benefit to our shareholders for accepting the offer. My first impression is that (St. Genevieve) is not a well known or well established company.” Mr Genest added that “the price appears to be on the low side.” Deal hinges on Cambior

Other major shareholders in Sullivan include cmp, a flow- through share fund with approximately 13%. Mr Genest noted that Sullivan has the first right of refusal on the cmp shares. Also, another 12% lies in the hands of American shareholders. The U.S. shares however, are excluded from the offer. This leaves about 88% of the stock open to the offer. Assuming that Sullivan deems the offer hostile, then the cmp holding is protected by the first right of refusal leaving only the Cambior block as the crucial interest open for acquisition. Without the Cambior shares, St. Genevieve will be unable to acquire majority control.

If the offer is accepted, the real winner from the bid will be St. Genevieve. Although Sullivan realized a loss in 1986 of $687,000 or 8 cents per share, the company has several strong assets which would provide St. Genevieve with a solid foundation for future growth. In addition to its 34% stake in the Arthur White mine, Sullivan also holds interests in several advanced gold projects in Quebec. The company has little long term debt and has a healthy working capital position of $2.68 million as at Dec 31, 1986. Revenue in 1986 totalled $12.8 million on gold production of 26,530 oz.

St. Genevieve has a portfolio of several advanced gold projects in Quebec and is forecasting gold production from its 50%-owned Duverny property next year. The company also has the right to receive 34% of net profits from a gold recovery system designed to process low grading tailings and placer deposits.