Battle for Atlanta Gold heats up

Vancouver-based Atlanta is attempting to fend off a hostile take- over attempt by U.S. Gold Corp. (NASDAQ), an emerging U.S. gold producer owned 16% by Placer Dome (TSE) and 4% by Amax Inc. (NYSE).

The two companies had previously been negotiating for a possible joint venture on the Atlanta project which was recently described by Atlanta as a “one million oz gold deposit”. Although an updated reserve is expected shortly, at last report the project had proven reserves of 14.1 million tons grading 0.061 oz gold and 0.16 oz silver per ton.

U.S. Gold has acquired about 13.5% of Atlanta to date, making it the largest single shareholder. The company is now seeking shareholder support for the election of a new slate of directors at Atlanta’s annual general meeting in early June.

Atlanta’s defence strategy is complicated by the defection of one of its directors to the U.S. Gold takeover bid. The only member of Atlanta’s current management team on the dissident slate, Paul Bailly, exercises control over 1.38 million shares (12.67%) of Atlanta Gold beneficially held by Ventures Trident Limited Partnership of Denver, Colorado.

Denver-based U.S. Gold and VenturesTrident have teamed up and agreed to each vote their shares in favor of a jointly proposed board of directors. If successful, William Reid, president of U.S. Gold, would take over as chief executive officer. Other nominees (all Canadian residents) are John Stark, David Valpy, Hans Klingmann and Arthur Fisher.

In response to this, Atlanta has amended its proxy materials to remove Bailly from its slate of nominees and have him replaced by Jurgen Lau, a lawyer and geological engineer. Atlanta also said it is looking into “possible breaches of confidentiality and violation of applicable securities law by U.S. Gold and related parties”.

The Atlanta team is led by Olaf Tolpinrud, president, who along with several other directors launched and guided Grandview Resources to production until that company was acquired by Western Mining of Australia.

Among other charges, U.S. Gold maintains that current management of Atlanta does not have “the financial strength nor technical resources” to bring the Atlanta property into production.

“Present management has taken four years and spent $10 million and still does not know what to do with the property,” said William Reid. “That is not satisfactory to us and what we are doing is presenting shareholders with an alternative.”

In its original discussions with Atlanta, U.S. Gold had proposed the use of its proprietary bio- oxidation technology to treat the refractory sulphide reserve which predominate at the Atlanta property. (U.S. Gold has under construction North America’s first commercial bio-oxidation facility at its Tonkin Springs mine in Nevada.)

Atlanta is counter-charging that U.S. Gold is merely seeking to gain the opportunity to test its “unproven technology” on the Atlanta property “for only the cost of a proxy battle”. Atlanta’s 1988 annual report states, however, that metallurgical tests revealed the company could save $7 million in capital costs by using bio-oxidation instead of pressure oxidation in the recovery process without sacrificing metallurgical recovery.

Atlanta Gold recently retained Bear, Stearns & Co., a U.S. investment banking firm, to study a range of financial options “for maximizing shareholder value”, including developing the Atlanta gold property and/or the possible sale of the company.

U.S. Gold has stated that it would not stand in the way of any “bona fide fully valued, fully financed offer” for all outstanding Atlanta shares.

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