Dayton-Pac Rim merger targets El Dorado (January 14, 2002)

With an eye on advancing the El Dorado gold-silver project in El Salvador, Dayton Mining (DAY-T) and Pacific Rim Mining (PFG-T) have proposed an all-stock merger.

Pacific Rim President Catherine McLeod-Seltzer says the upside potential of El Dorado is the main reason her company is pursuing the merger, and that Dayton’s asset base is an added incentive.

Under the deal, which has already been approved by both boards, Dayton shareholders will receive 1.8 shares of Pacific Rim for each share of Dayton held. Dayton shareholders will hold 70% the post-merger company, and Pacific Rim shareholders will hold the remainder.

The deal will see Thomas Shrake, and Catherine McLeod-Seltzer continue their respective roles as CEO and president of the merged company. William Myckatyn, Dayton’s president, will serve as non-executive chairman. Other directors will include Pacific Rim nominees Anthony Petrina and Dayton nominees Robert Buchan and David Fagin.

El Dorado, 65 km northeast of San Salvador, is among El Salvador’s most advanced projects. So far, Dayton has outlined a resource of 4 million tonnes grading 6.7 grams gold and 49 grams silver per tonne, from just five of the 35 known bonanza veins on the 75-sq.-km property (T.N.M., Sept. 3-9/01).

In late August, several significant changes to mining laws in El Salvador were passed. At the time, Dayton’s exploration licences at El Dorado gold-silver property were set to expire. The company had completed an in-house feasibility study in preparation for its exploitation application. The study evaluated the viability of a 500-tonne-per-day underground operation based on existing known resources. Under the new laws, Dayton has an additional three years to come to a production decision.

The best grades cut by recent Dayton drilling were encountered at depth (100-250 metres above sea level). Higher-grade mineralization has also been cut at similar depths on the Coyotera Vein, about 4 km north of the old mine. Most of the previous drilling at El Dorado targeted veins above this range.

Meanwhile, Pac Rim’s Diabillos silver-gold project in Argentina has been sold to Silver Standard Resources (SSO-V), and the two companies plan to apply proceeds from the $3.4-million, cash-and-share sale to a drilling program. The holes will target the productive elevation across El Dorado’s vein targets.

In addition to El Dorado, Dayton brings to the table a 49% joint-venture interest in the Denton-Rawhide mine, near Fallon, Nev., and full ownership of the Andacollo mine in central Chile. Rawhide will wrap up open-pit mining in July 2002, but crushing of lower-grade stockpiled material will continue for six months, followed by several years of leaching. Over the next three years, Rawhide’s cash flow is pegged at US$8 million, based on current gold prices. Most of the mining equipment at Andacollo has been sold off, and the operation has been leaching residual precious metals from the heap since August, 2000.

Pac Rim owns the San Francisco low-sulphidation epithermal gold project in Argentina’s Jujuy province. A 13-hole program of reverse-circulation drilling in 1999 returned bonanza-type mineralization. Elsewhere in Argentina, Pac Rim owns the Prometedora porphyry-related gold-bearing alteration system.

Both companies will seek shareholder approval during meetings anticipated in early April 2002. The merger is subject to regulatory approval.

After resuming trade on the Toronto Stock Exchange, Pac Rim shares plummeted 9, or more than 23%, to 30. Conversely, on resumption of trade on the TSE, Dayton shares soared 15, or more than 40%, to 52, though this is still off the 52-week high of 68. Shares of Kinross Gold (k-t), which has a 32.1% stake in Dayton, were up 8, or about 6%, at $1.32 in late afternoon trading.