Amalgamation simplifies Northgate group

By merging ABM Gold (AMEX) with Neptune Resources (TSE), United Gold (VSE) and Inca Resources (TSE), Northgate is attempting to simplify its corporate structure and take the first step toward becoming an operating mining company.

Under the proposal, Northgate is transferring to ABM its 20% stake in Neptune’s Colomac gold project in the Northwest Territories which is expected to begin producing at a rate of 200,000 oz annually, starting in the second quarter of 1990. Northgate’s right to earn an additional 30% interest in Colomac would also be assumed by ABM if the amalgamation goes ahead.

ABM’s interest in Sonora Gold (TSE) will increase under the plan to 42% from 26% after Northgate deals its 16% interest in Sonora to ABM. Sonora Gold has a 70% stake in the Jamestown gold mine in California which produced 60,100 oz gold in the first six months of 1989.

If the plan is approved, Northgate will hold 50% of the equity and 81% of the voting shares of the amalgamated company. But a Northgate spokesman declined to say whether or not a future merger will take place.

While Northgate holds a 45% stake in AMB Gold and a 54% equity interest in Neptune, the Toronto company has been criticized for its complicated corporate structure.

After selling its Chibougamau gold copper mines to Western Mining of Australia, Northgate holds an equity stake in 12 separate gold and base metal companies. Analysts say Northgate’s current share price of $6.25, which was unaffected by news of the transaction, reflects Northgate’s confusing array of assets.

In addition to its resource assets, AMB will have $42 million(US) in cash, while assuming responsibility for a $90-million(C) Bank of America project loan which was arranged to finance a $190-million development program at Colomac. It will also hold a 15% net profits interest in the Jamestown mine.

“This pretty much takes care of our western operations,” said Northgate spokesman Gregory Bowes.

The proposed amalgamation is scheduled to be completed in two phases. In phase one, Neptune shareholders are being offered three Class A common shares of ABM Gold for seven Neptune shares. Also, Class A shares of ABM can be exchanged for Northgate’s 20% stake in Colomac plus its right to earn an additional 30%.

Under phase two, ABM Gold is merging with United Gold and Inca Resources on a one ABM Class A share for every 15 common shares of Inca and one ABM Class A share for six United. ABM will also issue Class B common shares to Northgate in exchange for the latter company’s 15.8% stake in Sonora Gold. ABM already holds a 60% stake in United Gold and 21% of Inca.

On Nov 10, shareholders of the companies involved will meet in Toronto to vote on a plan which has yet to be approved by regulatory authorities and Neptune’s bankers.

“No one has any problem with an amalgamation as long as it is fair to everyone,” said Margaret Witte, former Neptune chairman, who was ousted from her position after the company ran into financial difficulties. Witte, who still holds around two million Neptune shares, declined to comment on the merger terms as she hadn’t yet examined the prospectus. However, she questioned Northgate’s judgment in announcing the transaction only months before Colomac is scheduled to go into production.

If the amalgamation proceeds as planned, an additional 18.4 million Class A common shares and 1.6 Class B common shares will be issued, increasing the amount of ABM shares outstanding to 36.1 million. Northgate will own 11.6 million ABM Class A shares and all of the Class B shares.

Asked about the timing of the amalgamation, Bowes said Northgate is more concerned about the current price of gold than the time remaining before Colomac goes into production.

“At recent prices, Colomac won’t make much money,” said Bowes. “But as the price of gold moves upward, the leverage on the upside gets exponentially better.”

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