Golden Star throws in the towel (August 16, 2004)

Golden Star Resources (GSC-T) says it will not extend its bid for Iamgold (IMG-T) in the face of a competing US$2.1-billion deal to merge with South Africa’s Gold Fields (GFI-N).

The company also says it does not expect to take up any shares tendered to its offer, which expires on Aug. 16.

Golden Star chief executive Peter Bradford says the market will need several months to evaluate and digest the Gold Fields plan, and that extending his company’s bid that long would not be in the best interests of shareholders. He says the company will continue to pursue joint venture and merger prospects in Ghana and elsewhere as long as they are accretive to shareholders.

Last week, Gold Fields agreed to bundle its foreign assets together with Iamgold to create Gold Fields International. Gold Fields would own about 70% of the new Gold Fields International; Iamgold shareholders would hold the remaining 30%.

The new company would rank seventh among the world’s top gold producers with six mines churning out around 2 million oz. of gold each year; operating costs are forecast at around US$250 per oz. On the financial front, the market cap would come to US$350 million; operating cash flow for 2005 is pegged at about US$265 million, based on a gold price of US$400 per oz.

Gold Fields has already obtained all required regulatory approvals in South Africa; the scheme requires approval of a simple majority of each company’s shareholders. The deal is slated to close before yearend.

Debt deal

Meanwhile, Golden Star has agreed to cap some US$16.7 million in debt owed it by Guyanor Ressources (GRL-T) at US$16 million.

The agreement will also see US$6 million payable by Golden Star to Guyanor for its regional exploration data applied to the debt. Repayment of the remaining, interest-free US$10 million will also be deferred until Guyanor returns to a “sound financial situation.”

Also under the deal, Golden Star will be granted an option to earn up to a 70% stake in the Paul Isnard property in French Guiana by paying US$7 million and completing a feasibility study within three years. Golden Star’s payments will be credited against Guyanor’s remaining debt.

If GSC decides to build at mine at Paul Isnard within five years; it would buy out Guyanor’s subsidiary at the project for US$5 million plus a net smelter return royalty (capped at 2 million oz.). The royalty varies from 0.5% to 2%, increasing in US$50 increments over gold prices ranging from US$325 to US$400 per oz.

Golden Star owns 52.8% of Guyanor.