Cominco to absorb subsidiary

Spun off to the public through an initial offering in 1987, Cominco Resources International (TSE) will come full-circle if a proposal to merge with parent company Cominco Ltd. (TSE) is acted upon.

Cominco Ltd. is offering one common share for every 6.5 common shares of Cominco Resources, representing a value of about $3.40 based on the recent $20 trading level of Cominco.

Cominco Ltd. currently owns about 38.6 million of Cominco Resources’ 69.3 million outstanding common shares.

Reasoning for the amalgamation is two-fold. In addition to the obvious advantages of a simpler ownership structure, the merger will give the company the financial clout to fund its major projects.

Immediate requirements include US$15 million for the company’s share of restart costs at the 50% owned Glenbrook nickel smelter in Oregon. The remaining half interest in Glenbrook is owned by a subsidiary of Cominco Ltd. Cominco Resources’ other large expenditure on the horizon is the development of the company’s wholly owned Cerattepe copper-gold-silver project in Turkey. Feasibility work is still under way at Cerattepe, but the capital cost is expected to be in the order of US$45 million.

Construction go-ahead has been given for the company’s 49% owned Mariquita copper project in Mexico. Capital costs are projected to be in the US$30-million range, but Cominco Resources will not have to put up any money, since its partner, Empresas Frisco, is required to arrange the funding and guarantee loans.

Cominco Resources will need an additional US$3 million to fund its 50% share of development costs on the Alder Gulch garnet project in Montana, and the company expects to spend $6-7 million on exploration this year. Cominco Resources has about $35 million in working capital and almost no long-term debt.

A special committee of Cominco Resources’ board of directors will be formed to review the proposal and to hire a financial adviser. If the offer is deemed to be below fair market value, the transaction will require approval of two-thirds of the minority shareholders. Otherwise, a majority of the minority is required for the merger to proceed.