Aur launches hostile bid for Cambior

Junior copper producer Aur Resources (AUR-T) has launched an all-share takeover bid for Cambior (CBJ-T) at a time when the ailing Montreal-based gold miner is weakened as a result of its failed hedging program.

Aur is offering one share for each 1.1 Cambior share, representing a value of $2.40 per Cambior share, or a premium of 45%, based on the closing prices for Aur and Cambior shares of $2.65 and $1.65, respectively, on Jan. 14, 2000.

The offer is conditional on two-thirds of Cambior’s shares being tendered and the waiving of Cambior’s shareholder rights protection plan (or “poison pill”). Aur already holds 3.4 million Cambior shares, equivalent to a 4.9% interest.

The new company would have 136 million shares outstanding, with Aur and Cambior shareholders, respectively, owning 55% and 45% interests.

On Jan. 17 (the first trading day following the takeover announcement), Aur and Cambior shares closed at $2.30 and $2.19, respectively, placing a value of about $153 million on the offer.

“Aur’s objective is to be a gold and diversified base metal producer and we believe that we have critical mass to be able to put forward a strong growth program,” Aur President James Gill told a gathering of analysts and reporters in Toronto. “It’s the combination of producing assets, development assets and exploration assets that makes this transaction a win-win one for all the shareholders.”

He described the offer as being “very good value” for Cambior shareholders and did not anticipate it would be increased.

Aur has retained HSBC Securities (Canada) to act as its financial advisor and solicit acceptance of its bid.

The greatest concern over the proposed deal is the fate of Cambior’s US$212-million debt burden and whether the new company will have sufficient cash flow to service it. Most pressing is a US$75-million debt payment due on June 30, 2000.

Aur plans initially to reduce Cambior’s debt to US$175 million, using its own cash on hand (which totalled C$84 million on Sept. 30, 1999), and then begin discussions with lenders over the remainder.

“What we have concluded, in preliminary discussions with our bankers, is that Cambior’s US$175-million debt will be available and manageable in the event that we do not successfully restructure the debt with the current lenders,” said Gill. “However, we’re confident that the existing lenders will be pleased with the financial strength that Aur brings to the new merged entity and that there will be no problem restructuring that debt position.”

Aur has indicated that the new company would have a net operating cash flow (after capital expenditures of US$44 million) of about US$53 million in 2000, based on total metal revenues of US$356 million.

Gill said management would be willing to sell the new company’s “non-core” assets, though he did not specify what projects might be affected.

Gill also stated that the new company will be able to realize at least $10 million annually in savings after the first year of combined operations.

While cutbacks at Cambior’s head office in Montreal would be an obvious way to achieve such savings, Gill said the new company will be a “strong Quebec company” with six operating mines and more than 100 exploration properties in the province and that “this commitment to Quebec will continue at the operating level.”

He continued: “Our feeling is that the management of both companies will recognize what good value this deal is, and that we will be able to sit down and make this proposal into a friendly merger.”

However, when asked about Cambior’s poison-pill provision (a mechanism put in place allowing Cambior management time to solicit other proposals), Gill replied that “at the end of the day, poison pills always get squashed, and it’s just a matter of time.”

Aur will bring to the merged company its 30% interest in the underground Louvicourt copper-zinc-silver-gold mine, near Val d’Or, Que., and its 70% interest in the open-pit Andacollo copper mine in Chile. Aur operates both mines. The company’s remaining assets include a portfolio of exploration properties in Quebec, Manitoba, Saskatchewan and Nevada, and a working capital position of $98.1 million.

Cambior’s principal assets are its interests in the Omai gold mine in Guyana (effectively 100%) and in five mines in Quebec: Doyon (100%) and Sleeping Giant (50%), both of which are gold producers; Bouchard-Hebert (100%) and Langlois (100%), both polymetallic base metal mines; and Niobec (50%), which produces niobium.

The merged company’s metal production in 2000 is projected to be 639,000 oz. gold, 87 million lbs. copper, 158 million lbs. zinc, 929,000 oz. silver and 2.6 million lbs. niobium.

Concerning Cambior’s development projects, Gill said Aur will be looking “particularly hard” at the huge, wholly owned La Granja copper property in Peru and the 50%-owned Cerro San Pedro gold-silver property in Mexico.

At presstime, Cambior spokesman Robert Lavalliere said the company had not yet received a formal offer from Aur and would not comment publicly until it had. He did say Cambior is continuing to work with financial advisor Bunting Warburg Dillon Read.