Amax Gold says Canamax sale to parent Amax is non-event

A spokesman for Amax Gold (TSE) recently described the Colorado company’s recent decision to sell its 44% stake in Canamax Resources (TSE) to parent Amax (TSE) as “a non-event.” The sale of 10.4 million Canamax shares for US$6.4 million to Amax Inc. is nothing more than a reshuffling of assets, according to Marke Lettes, vice-president and treasurer of Amax Gold. Amax Inc. owns 87% of Amax Gold.

“Amax Inc. is buying on book value and there will be no gain or loss as a result of a sale,” Lettes told The Northern Miner. However, if Amax were to sell the Canamax shares to a third party within two years of closing, Amax Gold would receive an additional consideration equal to the difference between proceeds realized and the US$6.4- million selling price to a maximum of US$5.1 million.

Pending regulatory and board approval, that would bring the total proceeds of the sale to US$11.5 million which represents the average closing price for the Canamax shares on the TSE for 20 days before the agreement, multiplied by the number of shares held by Amax Gold.

Meanwhile, Canamax will go ahead with plans to reassess ore reserves at its three Canadian gold mines, two of which are being shut down this month due to soft gold prices.

Before Canamax said it was closing the mines, it expected to produce roughly 100,000 oz. gold this year, up from 91,113 oz. in 1989. But officials at the Vancouver company said they haven’t yet figured out how much this year’s production levels will be affected by the shutdowns. Canamax treasurer Udo von Doehren said the reevaluation will probably result in a $32-million writedown in the carrying value of Canamax’s Kremzar mine near Wawa, Ont.

“We expect a reduction in proven and probable reserves at Kremzar based on grades and current gold prices,” said von Doehren, who believes the reduction, when it is announced in October, will be significant.

With production costs at US$375- 380 per oz., Canamax won’t consider reopening its Kremzar and Ketza River, Y.T., operations unless there is a dramatic increase in the price of gold. But von Doehren said he feels confident that the Bell Creek mine at Timmins, Ont., can continue to operate successfully.

Reflecting Amax Gold’s perception that the deal is a non-event, shares of Canamax remained at $1.10 on the day the agreement was announced. But as Amax is paying an average of US71 cents per share for Amax’s 44% Canamax interest, Richardson Greenshields analyst David James predicted the share price will eventually be dragged downward. Three years ago, when Canamax was promising to open five new gold mines by 1992, the shares traded as high as $14.37.

In a bid to solve a liquidity problem relating to shares of Amax Gold, parent Amax is going ahead with a secondary public offering of 9.5 million Amax Gold units plus an additional 1.4 million units to cover over-allotments.

Each unit consists of one share of Amax Gold and one warrant entitling the holder to buy one additional share of Amax Gold common stock from Amax. While the number of Amax Gold shares outstanding will remain at 59.9 million, Amax’s stake in its subsidiary will drop to 71% from 87% before the warrants are exercised. Lettes said the public float could increase by as much as 20 million shares if all the warrants are exercised.

A syndicate led by Merrill Lynch Canada Inc., Burns Fry Ltd. and Wood Gundy Inc. will place over 1.5 million units in Canada.