Corona unveils plans to divest non-gold assets

The board of International Corona (TSE) has approved a restructuring plan aimed at separating Corona’s precious metals business from its various other interests.

The previously announced plan calls for Corona to become a “pure gold” mining company, while non-gold assets would be held by a second and separate publicly traded company, Dundee Bancorp.

The restructuring would be achieved by a statutory plan of arrangement designed to provide Corona shareholders with direct ownership in the two companies. For example, for each 100 Corona common shares exchanged, the shareholder would receive 70 Corona common shares, 30 Dundee Bancorp common shares and 25 Dundee Bancorp warrants.

Corona shareholders will meet Sept. 17 to vote on the plan which should be effective in early October if all necessary approvals (regulatory and shareholder) are obtained. Gordon Capital, Corona’s financial adviser, delivered an opinion that the transaction is fair to all classes of Corona shareholders.

Corona President Peter Steen said the restructuring should maximize the value of both gold and non-gold assets for shareholders.

“Second, we want to increase the future ability to raise financing by separating our main business areas,” Steen said. “Third, restructuring will permit each company to adopt its own distinct strategies and objectives.”

Corona’s share price fell to about the $8 level from a recent high of $10 after the restructuring plan was announced, largely because of uncertainty as to how the market will value Dundee Bancorp shares. On the other side of the coin, however, the restructuring is expected to make Corona a more attractive takeover target.

Corona has been criticized by some analysts for being too complex a company, and for taking on entrepreneurial ventures and complicated corporate transactions not related to its core business of gold mining. The company’s shares have often traded at a discount as a result of this perception, the so-called “Ned Factor” named after Corona director and former chairman, Ned Goodman.

After the restructuring, “pure gold” Corona would have interests in nine operating gold mines — including 50% interests in two rich mines at Hemlo, Ont. — and a controlling interest in the advanced Eskay Creek gold-base metal project north of Stewart, B.C.

To get the restructuring plan off the ground, Corona set up a wholly owned merchant banking affiliate, Dundee Bancorp, which then purchased 3.2 million common shares of Dundee Capital, a merchant bank and mutual funds management company managed by Ned Goodman and associates. This move increased total corporate ownership to 50.2% from 21.9%, thus ensuring control. Dundee Bancorp bought the shares (at $6.50 per share) from a holding company owned by Goodman and his immediate family, and from companies controlled by Robert Buchan and Richard Renaud (also directors or officers of Dundee Capital).

Goodman has developed a reputation as the quintessential corporate tinkerer, and this shouldn’t end with the Corona restructuring. Dundee Capital and Dundee Bancorp also agreed “to move definitively toward a business combination as soon as practicable.” In the meantime, the two companies will share common management (Goodman and associates).

Along with a 50.2% controlling interest in Dundee Capital, Dundee Bancorp will own about 25 million Corona common shares, or about 30% of the company when the restructuring is completed.

Other assets will include Corona’s current 11.6% interest in Poco Petroleums, an 83.4% interest in Avalon (which owns 22% of Poco), a 26.6% interest in financially beleaguered Breakwater Resources (TSE), 80% of Fort Cady Minerals, 21.4% of Conroy Petroleum and Natural Resources and a portfolio of marketable securities.

These assets will be purchased by Dundee Bancorp for a total purchase price of $281.37 million in cash, preferred shares and a note. The company will borrow $100 million to finance the purchase.

As for Corona, its existing multiple vote and subordinate vote share structure — which gives 70% voting rights to Goodman and a management group owning about a 3.6% equity position in Corona — will be eliminated in favor of a single class of common share equity.

Dundee Bancorp will retain the multiple vote and subordinate vote share structure previously held by Corona, which ensures voting control remains in the hands of Goodman and his management team.

The transaction will also allow Corona to reduce its debt (last estimated at about $450 million) by $100 million. Corona would also have a shareholder’s rights protection plan which would become operative if anyone acquires shares carrying 15% or more of Corona’s outstanding votes, unless it is a “permitted bid.