Etruscan extends bid for shares of Channel

Ross Fitzpatrick, chairman of Channel Resources (CHU-T), is continuing to urge shareholders to reject an “opportunistic” takeover bid by rival West African explorer Etruscan Resources (EET-T). But having already locked up a 26% equity stake in Channel, Etruscan is extending its bid to July 27 and challenging its quarry to release more drill results from the Bombore gold property in Burkina Faso, “so investors can make an informed decision as to whether or not to tender their shares.”

Based on internal studies and a valuation by an independent consultant, Channel reports that the Bombore First Target (BFT) at the Bombore permit contains estimated indicated resources of 35 million tonnes averaging 1.1 grams gold per tonne, plus potential to “significantly increase [and] perhaps double” this oxide resource with ongoing exploration.

Channel says it is ready to proceed with a preliminary feasibility study for a proposed open-pit, heap-leach operation at Bombore. In the meantime, the junior intends to continue exploring numerous other permits in the African nation, using funds provided by Placer Dome (PDG-T), which holds the right to earn interests of between 49% and 60% in six of Channel’s properties (excluding Bombore).

Etruscan, which has a sizable portfolio of projects in West Africa, including the advanced Tiawa gold project in Niger, launched its formal bid for Channel in late June on the basis of one Etruscan share for every 4.5 Channel shares. It has already secured a lock-up agreement with Channel’s major shareholder, Viceroy Resource (VOY-T), which holds 26% of Channel.

Etruscan’s bid for Channel is probably of interest to a division of South Africa’s Anglo American, which is continuing a due diligence review of Etruscan’s Tiawa concession.

In early June, Anglo’s African subsidiary acquired the right to acquire 50% of Tiawa in return for a US$5-million cash payment and by subscribing for US$5 million worth of Etruscan shares. The major also is required to complete a bankable feasibility for the Samira gold deposit at Tiawa.

Samira was previously optioned by Placer Dome, which bowed out of the deal after outlining a resource of 27.8 million tonnes averaging 2.02 grams gold per tonne, stating that it did not fit its global exploration strategy.

Etruscan’s subsequent deal with Anglo was subject to a 30-day due diligence, which recently expired. However, Anglo has asked to extend its due diligence for another 90 days.

Etruscan Chairman Gerald McConnell says the extension was granted so that Anglo could examine the junior’s entire African portfolio. “They are looking at a broader assocation with us than Tiawa.”

Meanwhile, Channel’s Fitzpatrick appears intent to block Etruscan’s takeover bid, which he describes as “inadequate,” in that the terms do not reflect “the underlying value of Channel.”

Fitzpatick describes Etruscan shares as “overvalued” and Channel shares as “undervalued,” relative to other juniors, and argues that the recent agreement with Placer Dome could provide Channel with up to $30 million for exploration expenditures over the next four years if fully exercised.

President Jean-Marc Lulin, a Canadian geologist who manages the exploration work from the capital city of Ouagadougou, points out that, in addition to the main target at Bombore, Channel’s land package includes several largely unexplored properties, and that these encompass “country-scale” deformation corridors that bear similarity to the Abitibi district of Eastern Canada.

Lulin also notes that the oxide-sulphide transition at many of the properties occurs at depths of up to 100 metres, which means the oxide zones extend considerably deeper than in some parts of West Africa. “This provides the kind of tonnage potential that interests majors,” he says.

Adds Fitzpatrick: “We give Etruscan credit for recognizing the potential of our properties.”

Etruscan, though pressing ahead with its bid, is now questioning Channel’s resource calculations at Bombore, noting that the valuation report was based on internally prepared resource estimates provided to a consulting firm that did not audit the information. Another “concern” raised by Etruscan is that the resource is largely based on “unsubstantiated” rotary air blast drill results and that confirmatory diamond drill results have not been disclosed.

Channel intends to file a response to Etruscan’s concerns shortly.

Etruscan says its takeover offer would allow Channel shareholders to regain exposure to 100% of Bombore (rather than the current 45%), as it plans to terminate an existing joint-venture agreement between Channel and another Canadian junior if the bid is successful.

Etruscan’s president, Rick Van Nieuwenhuyse (the former head of African exploration for Placer Dome), notes that the combined company would be better funded, have an expanded, diversified portfolio in West Africa and a stronger exploration team.

Etruscan’s offer is subject to various conditions, including the requirement that at least 51% of Channel shares are deposited under the offer. McConnell says about 30% of Channel’s shares have been tendered to date.