Canamax layoffs fuel merger rumor

The rumor surfaced after Canamax announced that 15 employees at its Timmins, Ont., and Vancouver exploration offices were being laid off as part of an austerity program designed to cut costs. The layoffs came just weeks after CanadaTungsten President Wayne Lenton replaced John Hansuld as president and chief executive officer of Canamax.

Canamax recently reported a 1988 net loss of $12.7 million or 85 cents per share as a result of an $8.2 million write-down on the value of its troubled Ketza River gold mine.

If the merger rumor proves to be correct, analysts say an amalgamation would make sense for the two affiliates of New York-based metals giant Amax Inc.

Amax Inc.’s Colorado subsidiary Amax Gold (TSE) holds a 49.7% stake in Canamax while Amax Inc. holds a direct 56.4% interest in Canada Tungsten.

A successful explorer, Canamax recently became a small producer with three new gold mines under its wing and the company could use Canada Tungsten’s technical expertise, according to Yorkton Securities of Toronto analyst Paul Esquivel.

A mothballed Northwest Territories tungsten mine and a small placer gold operation in the Yukon has given Canada Tungsten lots of experience in a region where Canamax has struggled with the Ketza River gold mine.

After using the wrong specific gravity level during the feasibility phase, Canamax was forced to cut reserves at Ketza by 90,000 tons and production of 17,246 oz last year fell far below the expected 29,000 oz.

The error put Canamax’s former partner Pacific Trans-Ocean Resources (ASE) at the brink of bankruptcy.

“When you make mistakes like that, people begin to wonder if you know what you are doing,” said Esquivel.

A merger would also make sense, analysts say, because of Amax Inc.’s renewed interest in gold. “Back in 1982, Amax Inc.’s reason for spinning off an independent Canadian gold explorer (Canamax) was to get out of the gold business,” said a leading Toronto analyst who declined to be identified .

“Now, Amax wants to get back into gold with a vengeance and so too does Canada Tungsten,” he said. Since Canamax successfully brought four gold mines into production (the Matheson, Ont. gold mine was recently put on hold), Amax Gold has gradually been increasing its position in the Toronto company. Canamax is planning to expand its gold output to 90,000 oz this year from 32,667 in 1988.

After increasing its stake in U.S. heap leach gold producer Minerex Resources (VSE) to 43%, Canada Tungsten has been looking around for acquisitions to beef up an asset portfolio which includes an ammonium paratungstate plant at Fort Madison, Iowa and provide its technical staff with more to do.

“In the mining industry, the current trend is to join and consolidate assets,” said Richardson Greenshields of Winnipeg analyst David James. He believes that a future merger, based on a share exchange agreement, would not necessarily receive shareholder support.

Meanwhile, Lenton has been extremely busy running the affairs of both Canamax and Canada Tungsten and he was unavailable when The Northern Miner placed a call to Canamax’s executive offices.

“All I know is that its pointless to speculate on what might happen in the future,” said Peter Tredger, Canamax’s vice-president, corporate developments. He predicts that Canamax’s new emphasis on profitability could mean more lay offs.

“If the price of gold keeps falling, watch out” he said.

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