Canamax reduces debt load to Amax Gold and Nat West

Denver-based Amax Gold has emerged with a larger stake in affiliate Canamax Resources (TSE).

Following Canamax’s decision to repay $5 million of an outstanding loan to the Denver company, Amax has increased its stake in Canamax to 49.7% from 47.1%. Under the terms of a $13 million revolving line of credit, Canamax reduced its indebtedness to Amax Gold to $7.3 million by issuing one million treasury shares to Amax at $5 per share.

The agreement gives Canamax the option to reduce its debt load still further by issuing more shares to Amax. But the Toronto company may take steps to prevent Amax from increasing its stake above 50% by paying in cash or completing an equity issue.

Despite Canamax’s decision to sell its 50% interest in the Ketza River gold mine to Belmoral Mines (TSE) for $5.5 million, Amax Gold treasurer Mark Lettes said the company is happy with the performance of its affiliate.

Canamax agreed to sell its stake in the Yukon-based operation after cost overruns and a reserve miscalculation left partner Pacific Trans- Ocean Resources (ASE) on the brink of bankruptcy.

The sale makes it almost impossible for Canamax to live up to its prediction (made in the company’s 1987 annual report) that it would be operating in 1989 with four gold mines.

“It is hard to be disappointed with a company that has brought three mines into production in two years,” said Lettes. “We have always regarded the Ketza River mine as a high risk venture. Two out of three successful mines is not a bad performance.”

The Ketza sale is expected to reduce Canamax’s 1989 gold output from a planned 75,000 oz to 57,000 oz. This year, all of the company’s gold production should come from the Bell Creek mine near Timmins, Ont. and the Kremzar project at Wawa, Ont.

The company is currently re-evaluating the small Matheson gold project near Kirkland Lake, Ont., which is considered a marginal operation. It contributed around 5,000 oz to Canamax’s 1988 production quota of 32,000 oz.

Canamax’s reduced production expectations will not affect the company’s ability to fulfill its obligations under the terms of a $35 million gold loan facility arranged with the National Westminster Bank of Canada, said spokesman John Pearson.

The terms of the loan requires Canamax to deliver 2,500 oz gold on a quarterly basis from March 1989 to Dec 31 1992. “Production from Bell Creek alone is capable of taking care of the gold loan,” said Pearson.

When Belmoral has completed the due diligence process at Ketza River and the sale is complete, Canamax will make a $5 million payment on the gold loan.