Wesdome, Western Quebec ponder merger

Toronto-based sister companies Wesdome Gold Mines (WDO-T) and Western Quebec Mines (WQM-T) say they are “exploring the possibility” of merging, but have the support of both boards of directors for the idea.

Wesdome is the more active of the pair, with two 100%-owned, operating underground gold mines: Kiena in Val d’Or, Que.; and Eagle River, 50 km west of Wawa, Ont.

Last year, Kiena produced 9,300 oz. gold, having only attained commercial production on Aug. 1.

The mine is set to produce 16,000 oz. gold in the first half of 2007, and 24,000 oz. gold in the second.

Eagle River has been in production since 1996, but operations there were scaled back in late 2005. Last year Eagle River produced 43,700 oz. gold, and the mine is slated to produce 30,000 oz. gold this year.

All Wesdome’s gold production is unhedged to give shareholders exposure to any upside move in gold prices.

Western Quebec Mines’ primary asset is its 33% interest in Wesdome, plus it has a portfolio of properties in the Val d’Or region, including areas contiguous to Wesdome’s Val d’Or assets and Agnico-Eagle Mines‘ (AGE-T, AGE-N) Goldex project.

Some of Western Quebec’s properties are advanced, and include a 920-metre shaft, a 2,000-tonne-per-day, carbon-in-pulp mill plus extensive surface and underground infrastructure.

A merger would thus consolidate this Val d’Or land package as well as increase liquidity and reduce duplicated costs such as listing, legal and audit fees.

There doesn’t seem to be much of a rush to close the deal: the two companies say the merger is at a “very preliminary stage” and they “hope to report to their shareholders within the next few months.”

Presumably contributing to the delay is Wesdome president Paul Cregheur’s retirement effective May 1, 2007. A replacement has not yet been named.

The announcement didn’t excatly set the market afire: Wesdome shares closed the day down two cents to $1.61 on a volume of 50,900 shares, and there was no trading in Western Quebec stock on Wednesday. It last traded at $2.25.

The history of the two companies is a little complicated, but always centres around the Val d’Or camp.

Wesdome Gold Mines was created as a joint venture in 1976 to explore and develop the Wesdome property in Val d’Or, having derived its name from the two participating companies, Western Quebec Mines (which was incorporated in 1945) and Dome Mines.

Western Quebec Mines bought out Dome Mines’ interest in the JV in 1997, and two years later Wesdome Gold Mines was spun out and began trading publicly.

Western Quebec Mines bought the Kiena mine in December 2003, after McWatters Mining’s bankruptcy, and later put it into Wesdome.

On Feb. 1, 2006, the two sister companies, River Gold Mines and Wesdome Gold Mines Inc., merged to create Wesdome Gold Mines Ltd.

River Gold had been formed in 1994 to consolidate ownership of the Eagle River property and related assets.