Cambior buys Barrick’s share of Doyon mine

Cambior (CBJ-T) has announced plans to buy out Barrick Gold’s (ABX-T) interest in the Doyon mine in Bousquet Twp., Quebec, and combine the operation with its wholly owned Mouska mine.

The Montreal-based company intends to purchase the mine for US$95 million, raising just over half of that sum through a public share offering.

At the beginning of 1997, Doyon had minable reserves of 15.3 million tonnes grading 6 grams gold per tonne. Production in 1997 was 162,000 oz., though the mine averaged 228,000 oz. annually between 1993 and 1996.

Production was hampered by a lack of developed ore, which obliged Barrick to open up workplaces below the mine’s 8 Level. Ground problems in one zone also slowed down production.

A ventilation shaft should be completed by mid-1998, permitting production on lower levels of the mine. Production rates are expected to increase as ore is developed on the 10 and 12 Levels and as manpower and equipment are returned to production roles.

The mine has generally kept its cash costs below US$240 per oz., though, with/ the reduced production in 1997, the cost figure is now expected to be close to US$300. For the first nine months of 1997, Doyon’s average was US$329 per oz.

Cambior hopes to economize by combining the Doyon operation with its Mouska mine, immediately to the west. New zones discovered in 1995 and 1996, which substantially extended Mouska’s life, lie on structures that may persist eastward on to the Doyon property — though Doyon’s most pressing need is not more reserves but more working places to mine ore that is already outlined.

Cambior also plans to cut costs by processing ore from Mouska at the Doyon mill, while also making milling capacity available at its Vezina mill.

For the third quarter of 1997, the last period for which figures are available, Mouska produced 5,200 oz. at a cash production cost of US$218 per oz. In 1998, the two mines are expected to produce 176,000 oz. at a unit cash cost of US$245 per oz., and by 2001 Cambior hopes to be producing 260,000 oz.

per year at US$200 per oz. or less.

Cambior’s current hedging program has locked in an average price of US$398 per oz. for its 1998 production. The company’s cash resources at year-end were US$50 million. About US$13 million of Cambior’s US$49-million capital budget was earmarked for work at Doyon before the deal with Barrick was announced.

In the transaction, Barrick also transfers its interest in properties adjoining Doyon, and Cambior will trade in its 50% interest in the Coco property in northwestern Quebec. Cambior has also granted a “participation right” under which Barrick can receive up to $30 million, depending on production from Doyon and on the price of gold. The right is in the money once the annual average price of gold exceeds US$375 per oz.

To finance the deal, Cambior has arranged a syndicate of four investment dealers to market an offering of common shares for net proceeds of $75 million. Cambior requires an initial US$50 million to close the deal, and will not proceed if the offering does not raise that sum. Additional payments of US$25 million (on June 30) and US$20 million (on Dec. 31) will be financed out of Cambior’s existing lines of credit.

Meanwhile, Trizec Hahn Corp., which holds about 16% of Barrick’s outstanding shares, has arranged a bought deal with RBC Dominion Securities and Nesbitt Burns, under which it will sell the two investment houses its entire unencumbered holding in Barrick.

The two houses will buy 28.2 million Barrick shares from Trizec at a price of $26.40 per share, with $15.60 payable on closing and the rest payable in one year. Trizec will offer them up to 6 million shares at $25.85 for immediate cash. The two houses will offer the shares to the public on an instalment basis.

Trizec, which has bought about US$2 billion in Canadian and U.S. real estate over the last year, is selling off its holdings in other businesses.

Barrick has, in the meantime, finished repair work to the ball mill at its Holt-McDermott mine, east of Matheson, Ont., permitting production there to return to normal. The mine had continued production using its semi-autogenous grinding mill but had stopped custom milling for the adjacent Holloway mine, jointly owned by Battle Mountain Canada (BMC-T) and Teddy Bear Valley Mines (TBV-T).

Barrick has also taken down a private placement of shares in Java Gold (JVAG-C), which is exploring in Mongolia. Barrick acquired 2.2 million shares for $1.1 million, and will also have a right of first refusal and option rights on Java Gold’s Mongolian properties.