Curragh looking for a `$700-million acquisition’

The company will be seeking gold or base metals acquisitions dangling price tags of up to $700 million, The Northern Miner learned during a wide-ranging interview with Curragh’s founder and chairman Clifford Frame. “We have a foundation with the U.S. investment community. We’re in a very good position to finance a $500- million to $700-million acquisition,” Frame explained.

Big numbers coming from a man who just a few years ago in 1985, was set adrift after being ousted as president of Denison Mines, the international mining company established by the late Stephen B. Roman.

In less than eight months, Frame landed on his feet with a deal to buy the assets of Cyprus Anvil Mining Corp, an affiliate of financially-troubled Dome Petroleum. Anvil’s main asset was the shutdown open pit zinc mine near Faro, Y.T. — a victim of high costs and record low zinc prices. After putting the Faro deal together and successfully reopening the mine, Curragh has evolved into one of Canada’s largest zinc mining companies.

Following the Asturiana deal, which will cost $140 million, Curragh plans to increase annual concentrate production from 600,000 tonnes to more than one million tonnes by the early 1990s. “Being a primary producer of this magnitude (with no smelter) you stick out like a sore thumb,” Frame said explaining why Curragh moved quickly when the Asturiana opportunity arose.

Curragh, which accounts for almost 25% of the world’s free trading lead-zinc concentrate — concentrate not committed to a smelter — was becoming vulnerable as a result of its lack of downstream processing capacity. “I’ve felt vulnerable because we’re not part of the club,” Frame added. The club which Frame referred to, is select. Membership is restricted to MIM Holdings, Teck Corp. and Cominco Ltd., which combined are the largest zinc producers in the world.

Exclusion from the club forced Curragh to search for a secure home for a large portion of its future zinc concentrate — a need fulfilled by Asturiana.

Banesto, a major Spanish bank and largest shareholder in Asturiana, was planning to sell a 20% interest in the company. “Every major smelter in Europe went after the deal,” Frame said. “But Asturiana decided Curragh would make a better partner. We have a good supply of concentrate and we’re not a threat to management in Spain.”

Although some analysts in Europe have said that Curragh’s $140-million price is too high, Frame argues that the price was actually 30% below market price. “We got into a smelter without having to build one. We couldn’t afford not to take this deal.”

In addition to providing Curragh with a presence in Europe, the Asturiana deal also provides exposure to potential deals in other Spanish-speaking countries, namely Latin America. Financing deals in this area will be a role for Frame’s U.S.-based associations. One of Frame’s strongest contacts is with Drexel Burnham Lambert — the leader in the U.S. high-yield bond market. The Drexel association alone would be capable of financing acquisitions in the $1- billion range.

An obvious area for diversification is the gold sector. Although Curragh has and continues to study several deals, Frame still considers the market for gold acquisitions expensive.

In the short-term, however, Curragh will continue to focus its energy on expanding its zinc output. By 1992, the company must supply Asturiana’s smelter with 150,000 tonnes of zinc metal per year. The bulk of that tonnage will come from two new mines, Mt. Hundere in the Yukon and Cirque in British Columbia.

Asturiana will also buy, for $10 million, a 15% interest in Cirque — one of Canada’s largest undeveloped zinc deposits. Hosting reserves of 30 million tonnes grading 8.6% zinc and 3.5% lead per tonne, the deposit will require capital costs of $130 million.

Financing for Cirque and Mt. Hundere will be on a project basis. “The reason we can go to the banks is because we have a home for the concentrate,” Frame explained. Once in production, the two new mines will enable Curragh to exceed one million tonnes of concentrate production per year. At this level, the company will match that coming from Cominco Ltd. and its Red Dog mine in Alaska. Red Dog, which begins production this year, will be the world’s largest zinc mine.

To cap Curragh’s international expansion program, the company and Asturiana will establish an equally-owned marketing company with offices in London and Switzerland. Managed by Curragh, the new firm will sell the metal products produced by both companies. A major marketing target will be the European Economic Community (EEC) which Spain will enter in 1992. “I found this attractive. This gives us an entry point into the EEC which is a major consumer of lead and zinc.”

]]>