Writedown results in red ink for gold producer Corona

A net loss of $13.3 million or 19 cents per share was reported by International Corona (TSE) for the first six months of this year after taking into account a $21.9-million writedown of its investment in Breakwater Resources (TSE).

Before the writedown, the company’s net earnings were $12.3 million, slightly below the $15.1 million reported for the same period in 1990. Corona’s 1991 second-quarter loss was $19.5 million after writedowns, compared with earnings of $4.6 million in the 1990 second quarter. Corona said the decrease in first-half earnings primarily reflects $25.5 million of losses with respect to Breakwater, a once-successful gold producer which ran into financial problems after opening (and closing) several base metal mines which proved to be uneconomical.

Corona also reported that production of gold and gold equivalent for the 1991 first half was 371,734 oz., about the same level of 367,012 oz. gold and gold equivalent produced in the first half of 1990.

Corona’s key asset is its 50% interests in two gold mines at Hemlo, Ont. The David Bell mine turned out 145,061 oz. in the 1991 first half, compared with 171,364 oz. in the same period in 1990. The Williams mine produced 268,233 oz. during the period, compared with 282,784 oz. in the 1990 first half. Direct operating costs per oz. of gold produced declined by $4 per oz. to an average of US$199 in the 1991 first half, despite a strong Canadian dollar and a 6% reduction in production from the low-cost Hemlo operations. Direct operating costs averaged US$203 per oz. gold in the comparable 1990 period. Corona uses a hedging program, which allowed it to realize an average gold price of $447 per oz. for the 1991 first half, $26 higher than the average spot price of $454 (US$386) per oz.

At the end of June of this year, Corona had forward sales contracts in place totalling 224,624 oz. gold, representing 70% of production for the balance of 1991, at an average price of US$422 per oz.

On the corporate front, Corona is continuing to work toward a restructuring plan aimed at separating gold assets from non-gold assets into two publicly trading companies. The objective is to have Corona become a “pure gold” company, while a new entity, Dundee Bancorp, will hold all non-gold assets plus an approximate 30% interest in Corona.

A number of changes to the restructuring were recently announced, including alterations to a shareholders’ rights protection plan which was designed to protect against an “unfair takeover attempt.”

The changes included the elimination of a special grandfathering that was to have allowed Dundee Bancorp to buy up to 37.5% of the voting shares of Corona without triggering the plan.

Corona’s original restructuring plan eliminated a multiple vote and subordinate vote structure which gives 70% voting rights to Corona director and former chairman Ned Goodman and a management group owning about a 3.6% equity position in Corona.

But the plan was widely criticized because Dundee Bancorp was to retain the multiple vote and subordinate vote share structure previously held by Corona, which meant voting control remained in the hands of Goodman and a management group.

Corona’s board recently announced that this previously disclosed voting agreement will be terminated on the effective date of the reorganization. The individuals within the management group will then be free to vote their shares as they individually determine with respect to their interests in Corona and Dundee Bancorp. Goodman retains the right of first refusal to purchase the shares of the other four parties should they wish to sell part or all of their interests.

Corona shareholders will meet in mid-September to vote on the revised reorganization plan which should be effective in early October if all approvals are obtained. At that time, Corona directors Timothy Hoare and Peter Cole will resign, while Bill James, president of Denison Mines, will become a new director.