Breakwater scoops up seven mines

Just weeks after acquiring two producing mines, Breakwater Resources (BWR-T) is set to gain control of seven more.

The company has agreed to buy a controlling share in Minera, a privately owned South American zinc producer. To acquire a 60.3% interest, Breakwater will pay Minera $11 million in cash, a further US$2.18 million within five years, 11 million Breakwater shares, and 4 million share purchase warrants exercisable for four years following the date of closing (expected to be Oct. 29, 1997).

Breakwater Chairman Gordon Bub tells The Northern Miner that his board had been looking at Minera’s assets for more than a year.

“We’ve been doing due diligence off and on, and finally we came to an agreement,” he says. “It was a good deal for them and a good deal for our shareholders.”

While a 100% takeover of Minera is not in Breakwater’s plans, Bub says “it is a possibility.”

Minera (through wholly owned subsidiaries) controls seven producing operations. In Bolivia, the company operates four zinc mines (three of which it owns outright; in the third it owns a half interest), a heap-leach silver recovery operation from dumps left by Potosi-area mines (roughly an 80% interest) and a gold mine (95% interest). In Argentina, Minera owns and operates a zinc mine and a zinc smelter on tidewater, 350 km from Buenos Aires. Minera also holds several exploration properties in Bolivia.

As of Sept. 30, 1996, the company’s total assets were valued at US$143.5 million, while its long-term debt was US$28.1 million.

For the year ended Sept. 30, 1996, Minera produced 129,261 tonnes of zinc, 23,762 tonnes of lead and 5.5 million oz. silver contained in concentrates.

The company’s zinc smelter produced 35,288 tonnes of zinc metal during the same period.

For the year ended Sept. 30, Minera earned US$5.5 million on revenue of US$164 million. Some of its operations, says Bub, are better than others, “but they’re all profitable at today’s prices.”

Breakwater does not anticipate making any major changes to Minera’s management, which is based in La Paz, Bolivia.

With the closing of the Minera deal and the reopening of the Bougrine mine in Tunisia in early 1998, Breakwater expects to rank third in the world in zinc production, accounting for 6% of the Western World’s total.

Breakwater currently produces zinc, lead and silver at El Mochito mine in Honduras, the Nanisivik mine in the Northwest Territories and the Caribou and Restigouche mines in New Brunswick. It produces zinc and gold at El Toqui, a Chilean mine.

Although Breakwater is paying for the Minera deal mostly with shares (roughly 85% of the total cost to Breakwater), the cash portion combined with the debt-financed purchase of the Bougrine and Toqui mines in August raised Breakwater’s total debt substantially. To alleviate this situation, Breakwater has entered into an underwriting agreement with a syndicate managed by Newcrest Capital, issuing 10 million shares at $9 per share, for total gross proceeds of $90 million. The issue is being made by way of a short-form prospectus, to be filed in late October.

The underwriters have the option, at any time up to the closing date, of purchasing an additional 1 million shares at $9.

The share issue, says Bub, “will pay off all of our debt — if we so choose — and give us a fairly hefty cash position, so I don’t think we’ve overreached ourselves. And we’ve got a very strong cash flow, with current zinc prices.”