Claude spices up its offer for St. Eugene

Claude Resources (CRJ-T, CGR-X) has sweetened its all-share bid for St. Eugene Mining (SEM-V). 

The Saskatoon-based company has offered to buy all the shares it doesn’t already own in the Toronto-based junior for $19 million – a $4-million top off to its initial offer in July. 

Under the new transaction, St. Eugene shareholders get 0.0789 of a Claude share and 0.25 of Spinco, a newly formed St. Eugene subsidiary, for each share held. 

St. Eugene will transfer its 100%-owned Tartan Lake gold mine project in Manitoba to Spinco, which will also hold $800,000 in cash. 

The offer values St. Eugene at 14.5¢ a share in a 28% premium to its 20-day volume weighted average price on Oct. 24. 

More importantly, it’s a 53% premium to St. Eugene’s 20-day volume weighted average share price on July 8, the last trading day before Claude made its first move, which fell short of pleasing the junior’s board. Claude originally approached St. Eugene offering 0.0601 of a Claude share, which implied a value of 12.5¢ per St. Eugene share, or $15 million on a non-diluted basis.

But this time around Claude had more luck – St. Eugene’s board unanimously endorsed its offer. 

Under the new bid, Claude will keep its pro-rata interest in Spinco but lower its existing net smelter return (NSR) royalty in the Tartan Lake project to 2% from a sliding scale. Spinco can buy the NSR royalty for $2 million.

A November 2010 resource estimate says Tartan Lake has 1 million indicated tonnes grading 4 grams gold per tonne for 130,000 oz. gold, and 1.9 million inferred tonnes at 3.9 grams gold for 240,000 oz. 

Claude says the acquisition bid will allow the company to consolidate the Amisk gold project in Saskatchewan, of which it owns 65%, while St. Eugene holds the remainder.

Situated in the prolific Flin Flon greenstone belt, Amisk hosts an indicated resource of 30.1 million tonnes grading 0.95 gram gold equivalent per tonne for 921,000 gold-equivalent oz., plus another 28.6 million tonnes at 0.70 gram gold equivalent for 645,000 gold-equivalent oz. 

“We wanted to own one hundred percent of that project,” says Philip Ng, Claude’s senior vice-president of mining operations. 

Ng estimates that the company would receive 548,000 gold-equivalent oz. from the transaction, which translates into an “attractive” acquisition cost of $36 per oz. gold. 

If the deal is approved Claude will issue 10.5 million shares, which will inflate its outstanding shares by 6.5%, Ng says, noting it will also increase its National Instrument 43-101 gold inventory by 18%. For that reason, Ng opines that “it’s an accretive transaction.”

Claude’s main asset is the 100% owned Seabee gold mine in northeastern Saskatchewan. It also wholly owns the past-producing Madsen property in Ontario’s  Red Lake gold camp.

The transaction requires two-thirds of St. Eugene’s shareholders to vote in favour of the offer, which is expected to close before the new year. 

If St. Eugene walks away from the deal it will need to pay Claude $800,000. 

On the offer update, St. Eugene shares shot up 30% to 15¢ during intraday trading.