Prime shareholders unhappy with Homestake bid

Concerned that Homestake Mining (HM-N) has made a low-ball bid for the 49.4% interest of Prime Resources Group (PRU-T) that it does not already own, several shareholders spoke out against the offer at Prime’s recent meeting.

Homestake has offered 0.675 of a share for each share of Prime held by minority shareholders. The offer, valued at $11.80 per Prime share, represents a 12.4% premium over Prime’s May 22 closing price $10.50.

Shareholder Jack Caplan voiced his concern that Prime’s reserves may be understated by as much as 1.8 million oz. gold-equivalent. He said Prime used an artificially high dilution factor of 27% in calculating its reserves and that it employed a silver-to-gold ratio of 77 to 1 in converting silver to gold-equivalent. On the date of Homestake’s offer, Caplan said the silver-to-gold ratio was approximately 58 to 1.

Prime’s proven and probable reserves at the beginning of the year were calculated at 4.2 million contained ounces gold-equivalent. The company owns and operates the Eskay Creek and Snip gold mines in northwestern British Columbia, both of which are underground operations.

Eskay Creek contains a proven and probable reserve of 1.5 million tons grading 1.69 oz. gold and 78.3 oz. silver per ton, equivalent to 2.5 million contained ounces gold and 117 million contained ounces silver. Proven and probable reserves at Snip are estimated at 232,000 tons grading 0.68 oz.

gold, equivalent to 157,000 contained ounces. Prime used a gold price of US$325 per oz. in its evaluation of the short-lived Snip mine and a price of US$350 per oz. gold for Eskay Creek.

Prime is forecast to produce 345,000 oz. gold and 11 million oz. silver in 1998 at an average cash cost of US$174 per oz. gold-equivalent.

Homestake’s offer is subject to approval by Prime’s minority shareholders.

Prime’s board of directors intends to set up a committee consisting of three of its independent directors — Alan Lenczner, Douglas Little and Graham Scott — to provide an independent evaluation before beginning negotiations with Homestake.

The formation of the advisory committee was greeted with skepticism by Caplan, who questioned the impartiality of the committee after he disclosed that two of the independent directors had been engaged in paid contractual work for Homestake.

Prime’s president, Walter Segsworth, said the directors are considered independent under the guidelines of the Ontario Securities Commission. He added that the advisory committee will hire an independent appraiser to assess the reserves.

“We’re doing what the law requires and what we feel is right, [namely] to assess the offer for the minority shareholder,” said Segsworth, who also serves as president of Homestake Canada and vice-president, Canada, of Homestake Mining.