Westmin plans restructuring

In an effort to reduce its long-term debt and improve earnings, Westmin Resources (TSE) is planning another restructuring. Despite the sale of its oil and gas division in 1989, Westmin has more than $187 million in long-term debt, not including gold loans.

The cost of servicing this onerous debt load is more than $24 million, versus operating income in 1989 of only $33.2 million before depletion, depreciation, interest expense and taxes.

Westmin received $453 million for its oil and gas assets from Norwest, a subsidiary of Norcen Energy Resources (TSE), comprised of $203 million in cash and $250 million in Norwest 8% debentures convertible into 10 million common shares of Norcen.

The company’s restructuring primarily involves obtaining maximum value for these relatively low- yield debentures.

In the first step of the restructuring, Westmin will sell the Norwest debentures to Noranda (TSE) in return for $250 million in 6% convertible preferred shares of Noranda convertible at $20 per share.

Since the result of this move is a drop of $5 million in earnings and cash flow, a further step is necessary. This is in the form of a partnership with Westmin’s controlling shareholder, Brascade Resources (TSE).

Brascade will contribute 37.5 million shares of Noranda (worth about $690 million at current prices) to the partnership while Westmin will add its $250 million in Noranda preferred. In return, Westmin will receive $250 million of 9% senior preferred shares in the partnership plus a 25% equity interest.

Brascade will hold the remaining equity interest plus $750 million in junior preferred shares, also carrying a 9% coupon.

As a result of the deal with Brascade, Westmin will have $2.5 million in earnings and cash flow more than what it would earn from the original Norcen debentures.

Westmin is also considering the sale of its $80 million short-term investment portfolio. The portfolio currently yields about 9% after tax. Proceeds from its sale would be applied to the $187 million long- term debt which currently has an average cost of 13%. The company notes that this initiative would increase earnings and cash flow by about $3.4 million per year.

To further reduce interest payments and restore the company’s financial health, Westmin hopes to complete a $50-million, 9% preferred share issue. Applying the funds to pay-down debt would further increase earnings and cash flow by roughly $2 million.

The bottom line to the financial restructuring — provided it is completed in full — would be an increase in earnings and cash flow of about $7.9 million.

In addition to changes to the balance sheet, Westmin plans a major reorganization of the company’s management structure. Ancillary to its dealings with Noranda, Westmin will receive management and technical support from Noranda on a cost-of-service basis.

Walter Segsworth, presently manager at Noranda’s Central Canada Potash, will resign to take over as president of Westmin. His main task will be to reduce operating costs at the company’s two mine sites, extend their operating lives, and reorganize the management structure and corporate office.