Brascan to sell control of Westmin

A proposed unit offering through an underwriting group will raise almost $70 million for Westmin Resources (TSE) and allow Brascan to sell its 35.9 million shares of the Vancouver-based mining and exploration company.

The underwriting group, led by broker CIBC Wood Gundy, will package one treasury share with four existing shares held by Brascan and sell the five shares as a unit at $39.75.

The units will be purchased on an instalment basis, with an initial $23.75 per unit due upon closing. The unit will immediately split into one fully paid treasury share and four partially paid shares (instalment receipts), which will trade separately from the common stock. A final payment of $4 per instalment receipt will be due on or before Jan. 30, 1997.

Brascan has four representatives on Westmin’s 9-member board of directors. Two of Brascan’s nominees will step down upon closing of the underwriting deal, on or about Dec. 29.

Meanwhile, Westmin is reviewing several corporate changes as a result of Brascan’s sale.

For one, the company plans to discontinue the quarterly dividend of 5 cents per common share in order to conserve funds for reinvestment in company projects.

Westmin is also looking at selling its Alberta coal assets, which would generate additional cash to help fund development projects such as its 60%-owned Wolverine polymetallic massive sulphide discovery in the Yukon.

To that end, the company reached an agreement with Brascan giving it the right to “put” the coal assets to Brascan. If Westmin exercises the put, Brascan would be required to purchase the coal assets for $80 million, less obligations totalling $44.25 million related to coal royalty notes.

Westmin’s coal lands in the Wabamun Lake area of central Alberta contain an estimated 362 million tonnes of strippable coal. The company received lease payments of $5.2 million from TransAlta Utilities in 1994 for just over 2 million tonnes mined during the year.

Unless Westmin can attract a better deal on the coal assets, it plans to exercise the Brascan option.

Westmin also plans to repay a $90-million revolving bridge loan facility owed to Brascan. Funding to pay down the loan will come from a new, 5-year, $70 million loan facility, together with a $10-million working capital loan and a $5-million gold loan from a Canadian bank.

After the offer is completed and before the coal asset is sold, Westmin will have $74 million in long-term debt and $12 million in cash. Following the sale, long-term debt will drop to $31.7 million and the company’s cash position will rise to more than $46 million.

Westmin will report a gain of $74.6 million on the sale of the coal assets to Brascan. Bruce McKnight, vice-president of corporate affairs, says tax-loss carry-forwards will allow the company to shelter the entire gain from tax.

On completion of the offering, Westmin will have 56.4 million common shares outstanding. The company also has just under 2.8 million preferred shares outstanding, with a par value of $25 and an annual dividend rate of $2.12 per share.