Corona takes control of hot Eskay Creek play

By entering into an agreement in principle for the merger of Prime Resources Group (VSE) and Stikine Resources (TSE) into a new company, Corona (TSE) has secured control of the rich Eskay Creek gold project north of Stewart, B.C. The move puts to rest a blizzard of rumors on the fate of both junior players at Eskay Creek. Stikine has had its 50% stake in Eskay Creek on the block for some time, while senior management of Prime face a British Columbia Securities Commission hearing this summer for a number of alleged securities violations.

Corona and associated company Prime have historically used share swaps or “paper transactions” when acquiring companies or completing mergers, and this deal is no exception.

Under the arrangement, each Stikine shareholder will receive 1.5 common shares of the new company, 5.33 Class A subordinate voting shares of Corona, and a gold certificate entitling the holder to receive the greater of $15.00 or 0.0273 oz. of gold at any time after Dec. 31, 1994.

Stephen Semeniuk, vice-president of research at L.O.M. Western Securities, estimates that the deal is worth about $65 to Stikine shareholders. He uses the current market price for Corona shares, the value of the gold represented by the certificate, and assumes the new shares trade at about the same level as the current price of Prime ($6.50). Semeniuk sees the deal as being fair but said he regrets to see control of the property move to Eastern Canada.

Prime shareholders will receive one common share of the new company for each Prime share held — plus shares in a separate company that will hold Prime’s existing portfolio of managed companies.

Murray Pezim, chairman of Prime, sees the arrangement as being “a good deal for all involved.” He notes that the property is worth more consolidated into one company, and he said Corona’s commitment adds to its credibility. Pezim also predicted that analysts will look very favorably on the new company.

Corona will receive 21.5 million common shares of the new company in exchange for the 16.6 million shares of Corona to be issued to Stikine holders. This — coupled with the company’s holding in Prime — will result in Corona holding about 29.6 million common shares of the 66.37 millions shares outstanding in the new company, or about 44.6%.

Corona has increased its stake in the Eskay Creek property from about 10% (through its 20% holding in Prime) to 44.6% through the new company.

In effect, it has purchased about 34.6% of the property with the issuance of 16.6 million shares worth, at current market prices, about $130 million.

Stikine holders will see their interest in the Eskay Creek property drop from 50% to about 7.9%, while Prime shareholders’ interest in the property drops from 50% to about 47.5%.

Many see the deal as a way for Stikine holders to cash out by selling their Corona shares into the market, the equivalent of a rather elaborate secondary share issue by Corona.

The proposed arrangement, approved in principle by the boards of both Stikine and Prime, is subject to approval by Corona’s board, regulatory approval, and approval by shareholders of Prime and Stikine. The companies anticipate that the plan of arrangement will be submitted to shareholders by the end of July.