Colorada potential entices Glamis

Just one day after Eldorado (TSE) held its annual meeting and approved a shareholders’ rights protection plan, Glamis Gold (TSE) made an unsolicited takeover bid for the company.

Glamis Vice-president James Billingsley describes the takeover proposal as “a good investment opportunity.”

Eldorado’s crown jewel is its Colorada gold mine in Mexico. “Glamis likes what it sees there,” Billingsley says. The mine is well-situated and has sizable reserves plus good exploration potential. Production costs are low and are expected to drop even further.

Billingsley believes shareholders of both companies will benefit from owning shares in a much larger gold producer with a solid asset base. Adds Glamis President Daniel Rovig: “We can offer [Eldorado] shareholders a solid premium and give them partnership in Glamis shares which enjoyed a healthy growth in past years.”

Glamis intends to acquire all of Eldorado’s common shares, 8.25% convertible debentures and special warrants. It is offering $1.20 in cash and 0.4 of a Glamis share for each outstanding common share of Eldorado and for each common share into which the convertible debentures and special warrants may be converted.

Based on the June 5 close of $11.63 for Glamis, the offer represents a value of $5.85 per Eldorado share, for a total bid value of about $134 million.

Funding for the takeover bid will come from cash on hand and an existing US$20-million line of credit.

At presstime, however, Eldorado’s management was showing no signs of agreeing to the proposal.

“It is an insufficient bid,” says David Hottman, Eldorado’s director of corporate development. “We feel we can maximize our assets without Glamis Gold.”

Eldorado directors were planning to meet and, afterwards, offer an opinion regarding the takeover bid.

Donald Poirier, a mining analyst with McDermid St. Lawrence Chisholm, says Glamis’ offer is not high enough. Other analysts say Eldorado management is working on a defensive strategy which may involve accepting offers from companies willing to act as a “white knight” to fend off Glamis.

The takeover battle is believed to have been launched by Glamis Chairman Chester Millar, who resigned as non-executive chairman and director of Eldorado last year after opposing a US$10-million debt financing aimed at expanding exploration.

Glamis operates three open-pit, heap-leach gold mines in California: the Picacho in Imperial Cty., plus the Baltic and Yellow Aster in Kern Cty.

In fiscal 1994, the company produced 104,476 oz. at an average production cost of US$192 per oz. Net income for the year was $7.9 million, or 32 cents per share, on revenue of $52.4 million.

In the first six months of fiscal 1995, Glamis produced 51,120 oz. for net earnings of US$1.2 million or US4.6 cents per share on revenue of US$19.8 million. Production cash costs for the 6-month period ended Dec. 31, 1994, averaged US$215 per oz. The rise in costs is mainly due to lower mining grades encountered at the Yellow Aster and Baltic mines during the second quarter.

Glamis expects to have produced about 104,000 oz. for fiscal 1995, which ends June 30.

Eldorado’s Colorada mine lies 30 miles southeast of Hermosillo in Mexico’s Sonora state. In 1994, the first full year of operation, the open-pit, heap-leach producer yielded 19,900 oz. gold at a cash operating cost of US$191 per oz. The company earned US$1.06 million, or US8 cents per share, on revenue of US$7.6 million.

The junior has meanwhile boosted Colorada’s resource base to 1.3 million contained ounces.

Proven and probable reserves for the Creston and Gran Central pits total 20 million tons grading 0.033 oz., while an additional possible resource is estimated at 20 million tons averaging 0.033 oz. Drilling will continue to expand the deposit in 1995, with 60 holes planned.

An engineering study is attempting to determine whether the production rate can be expanded to 100,000 from 75,000 oz. per year by 1998. Gold production for 1995 is expected to increase to 30,000 oz. at an operating cash cost of US$189 per oz.

Glamis will be mailing an offering circular to Eldorado’s shareholders in due course.

The offer is subject to 75% of Eldorado’s shares being deposited on a fully diluted basis and the shareholders’ rights protection plan being declared null and void, or its applicability being waived.

The rights plan, commonly known as a “poison pill,” is used to ward off hostile takeovers. When Eldorado proposed the plan back in March, Eldorado President Richard Barclay insisted it was not in response to any specific effort to acquire control of the company; nor was it intended to block takeover bids.

The rights plan comes into effect if a party acquires 20% or more of the company’s shares without complying with the permitted bid provisions, or without approval of the board of directors. Each right, upon exercise, entitles shareholders, other than the acquiring party, to buy shares at half the market value.

Eldorado’s other principal interests includes a 51% share of La Trinidad, a joint venture with Almaden Resources (VSE), and a half interest in Andes, a joint venture with HRC Development (VSE).

La Trinidad, situated in Mexico’s Sinaloa state, is in the final stages of feasibility and permitting. A minable resource of 2.8 million tons grading 0.062 oz. is expected to support a mine life of four to five years.

Farther south, in Argentina, is the Andes project, which extends over a distance of 125 miles into the Maricunga gold belt to the north and into the southern belt known as El Indio. Eldorado is negotiating with four major mining companies which are interested in joint-venturing the Nordin discovery, a gold porphyry system outlined in the northern section of the project.