Homestake sweetens deal for Prime Resources

Homestake Mining (HM-N) has upped the ante for the remaining 49.6% of Prime Resources (PRU-T).

According to an agreement reached by the board of directors of each company, Homestake will grant Prime’s shareholders either 0.74 of a Homestake Mining common share or 0.75 of a Homestake Canada exchangeable share in return for one Prime common share. Homestake originally bid an exchange ratio of 0.675.

Homestake Canada shares may be converted into Homestake Mining common shares on a one-for-one basis and will carry the same dividend and voting rights.

Homestake Canada shares will not be treated as foreign property for Canadian tax and investment purposes, whereas Homestake Mining common shares will.

RBC Dominion Securities has advised Prime’s special committee of independent directors that the deal is fair, from a financial point of view, to the minority shareholders of Prime.

The proposed transaction will require approval of 75% of all Prime common shares represented at its shareholders’ meeting, including the Prime shares owned by Homestake. At least two-thirds of Prime’s minority shareholders, (excluding Prime shares held by Homestake and its affiliates) must also ratify the agreement. The deal is subject to the approval of regulators as well as shareholders of Homestake.

If all the approvals are obtained, the deal could close by mid-December 1998.

“I am pleased our two companies were able to agree on a ratio that each could recommend to its shareholders,” says Jack Thompson, president of Homestake. “I believe this acquisition is in the best interests of both Prime and Homestake shareholders, and I am confident they will support the transaction.”

If the deal is accepted, Homestake will acquire Prime’s main asset, the Eskay Creek gold and silver mine in British Columbia.

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.

Prime also holds a 100% interest in the Snip mine, also in north western British Columbia. Snip is a small high-grade gold mine that is expected to cease operations in the first quarter of next year. Proven and probable reserves there were last estimated at 232,000 tons grading 0.68 oz. gold, equivalent to 157,000 contained ounces.

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.

Prime used a gold price of US$325 per oz. in its calculations for the Snip mine and US$350 per oz. for Eskay Creek.

If the deal closes, Homestake has the potential to produce 2.4 million equivalent equity ounces gold in 1999 at a total cash cost of US$215 per oz., compared with 1.7 million oz. in 1997 at US$237 per oz.

The acquisition is expected to add 27.8 million common shares to Homestake’s outstanding balance, bringing the total to 239 million.