Griffin Pursues Bargain-Priced Ivernia

Ivernia (IVW-T, IVWFF-O) might not strike many as a great catch. Its Magellan lead mine in Western Australia has been on care and maintenance since March 2007, after birds in the port of Esperance started dying from lead poisoning; the company posted a net loss of US$15.4 million in the first nine months of 2008; debt mars its balance sheet with payments coming due in April; and the price of its one commodity — lead — has sunk to depressing lows.

But Bermuda-based mining and investment company Griffin Mining (GFMIF-O, GFM-L) is still keen to buy it and has made an unsolicited offer for the company in a deal valued at about $27 million.

Griffin is offering 15¢ per Ivernia share, roughly a 25% premium over Ivernia’s closing price on March 24, the day prior to the announcement, and a 27.4% premium over the 20-day average trading price of Ivernia’s shares.

In a release, Griffin said its substantial cash balances and no debt would enable it to bring Ivernia’s idled Magellan mine back into production.

Roger Goodwin, Griffin’s London-based director and company secretary, declined to return phone calls from The Northern Miner to elaborate on the reasons why the company is so keen on acquiring Ivernia, but in an email said that “that information is not in the public domain.”

In a statement, Griffin noted the acquisition would give it “control over a second project in a different commodity and a separate geographical area. . . and enhance its existing management team.”

Griffin already has a 39.2% interest in Spitfire Oil, which holds the Salmon Gums lignite project in Western Australia and has administrative and service offices in Perth.

The company also owns the Caijiaying mine in China’s northern Hebei province, about 200 km northwest of Beijing. Production has been halted at the mine since January for maintenance and upgrading, Goodwin said. The mine produces about 50,000 tonnes of zinc concentrate a year, together with gold, silver and lead.

Not only will Griffin pay for Ivernia’s shares from its own cash resources, but the company says it will also acquire or repay US$33.4 million of Ivernia’s convertible loan notes if its offer is successful.

On March 20, Ivernia made public that it had entered into binding commitments on a recapitalization proposal under which it planned to amend and restate its senior secured promissory notes and issue additional new notes on similar terms, with the first tranche scheduled to close on March 27.

Ivernia advised that it intends to reduce the conversion price from US$1.08 per share to US11¢ per share on US$20 million of outstanding convertible notes (at least half of which are held by a related party); add an additional US$3 million to these notes for interest and fees; and issue a further US$10.4 million of notes to a related party with the same conversion price.

This would cause Ivernia’s fully diluted share capital to climb by 303.6 million shares, or 169% of the company’s share capital, primarily to related parties.

Griffin says that if its bid for Ivernia is successful, but minority shareholders remain, it will complete the same financings at a conversion price of US15¢, or a total price of US$33.4 million. That represents a premium of about 36% to the new conversion prices that Ivernia and its related parties have agreed upon.

Ivernia’s board said in a late March press release that it would evaluate Griffin’s proposal.

News of the bid drove Ivernia’s shares up 29.2% or 3.5¢ apiece to close at 15.5¢ on a trading volume of 1.8 million shares.

Ivernia has a 52-week trading range of 4¢-$1.55 per share and has 180.2 million shares outstanding.

In London, Griffin Mining’s shares lost 2 apiece, or 7.77%, to close at 23.75 per share.

Earlier this month, Ivernia reported that the government of Western Australia had approved its remediation plan to resume the shipment of stockpiled lead concentrate from the port of Esperance. (Shipments were stopped in 2007 when authorities found that lead was leaking from bulk concentrate as it was being loaded, poisoning thousands of birds.)

The new shipping method involves bagging the concentrate first in sealed double bags and placing the bags in containers. Previously, the concentrate had been loaded onto a conveyor belt directly and placed in a vessel’s hull.

About 8,000 tonnes of bulk lead carbonate concentrate had been stockpiled at the port of Esperance for nearly two years.

Ann Candelario, Ivernia’s director of corporate communications, says the company expects to complete the work at the port of Esperance in the second quarter and will then turn to bagging and shipping the remaining 21,000 tonnes stockpiled at the Magellan mine, 30 km west of Wiluna. That stockpile will be sent through the port of Freemantle.

Because Ivernia’s new bagging method involves using shipping containers, the company now needs to send the material through the port of Freemantle, because it can accommodate container ships. (The port at Esperance is not a container port.) This will add to the company’s costs.

“During this whole process, the company will undertake a fairly comprehensive mine restart planning process,” Candelario explains, adding that a number of factors will influence the timing of the mine’s reopening, including the general economic environment, metal prices, exchange rates and transport and shipping costs.

Magellan had only been in operation since the end of 2005 before shipments to China were terminated in early 2007.