The company recently announced a proposal to acquire
“Our management team has done a phenomenal job,” Crew’s President and Chief Executive Jan Vestrum says. “We’ll be a big mid-tier . . . and we’re sniffing at becoming a major.”
The acquisition of Guinor will not only add to the international scope of Crew’s operations — it currently has gold mines in Greenland and the Philippines — but it will also add heft to its gold reserves. Guinor’s assets in Guinea would prop up Crew’s proven and probable gold reserves to about 2.5 million oz. and its resources to roughly 7.4 million oz.
Crew’s offer is a 100% purchase of Guinor shares at $1.50 per share, in an all-cash, fully financed transaction valued at $389 million.
Guinor’s West African assets are held through its 85% ownership of its subsidiary — Socit Minire de Dinguiraye (SMD) — in Guinea. The government of Guinea has the remaining 15%.
Guinor is expanding its carbon-in-leach plant so that it can handle a forecasted output of more than 300,000 oz. gold per year by 2007 at a cost of US$234 per oz.
As of March 2005, Guinor’s proven and probable reserves were 40.5 million tonnes grading 1.7 grams gold per tonne (or 2.3 million oz.) contained within a measured and indicated resource of 68.1 million tonnes grading 1.6 grams gold per tonne for 3.43 million oz. Inferred resources stand at 18.8 million tonnes at a grade of 1.4 grams gold per tonne for 900,000 oz.
In a conference call, Vestrum said the offer to acquire Guinor came on the heels of the company’s strategic decision to diversify assets across the globe.
“The industry tends to like more focused plays,” Vestrum said. “That sounds sensible but when we made a strategy to diversify, we looked at an overall portfolio strategy. If you’re focused in on one region then you’re taking one political risk.”
On the same conference call Vestrum said Guinor was targeted after Crew scanned the market for a company with a minimum gold production of 100,000 oz. per year and a 7-year mine life. He said 40 to 50 companies were looked at and Guinor made a short list of three.
“This a good fit,” Vestrum said, “(Guinor) is a company with strong growth potential and a strong management team . . . we’re adding one of the best projects in Africa.”
One analyst who is familiar with the deal, but wished to remain unnamed, says the $1.50-per-share price offered by Crew is fair as it offers a 50% premium to Guinor’s historic share price. Guinor shares had largely been trading in the 90-$1.10 range until a spike in early September. In Toronto on Oct. 17, Guinor shares were trading at $1.40 — greatly reducing the premium.
Vestrum attributes the spike to Crew’s interest.
“(Guinor investors) should recognize that the 50% run-up must have had something to do with (Crew’s interest in Guinor),” Vestrum said.
The analyst says if Guinor shareholders do not accept the offer, the company will likely dilute shares in an effort to raise the cash necessary for further exploration on its Guinea property.
“This might be the right time to get out,” the analyst says with regard to Guinor investors.
If there is resistance to the transaction from Guinor shareholders, it may come from investors who project the spot price for gold rising to US$600 per oz. in the future, the analyst says. Guinor’s current resource of 2.3 million oz. could increase to as much as 3 to 4 million oz., the analyst adds — which would represent significant value to Guinor shareholders down the road were they to reject Crew’s offer.
But Vestrum doesn’t anticipate much resistance. He is confident of the roughly 67% approval he needs from the shareholders of both companies. Crew already has a 53% written commitment in favour of the deal.
“It’s a slamdunk from our side,” Vestrum says. “We know the shareholders quite well and we’re not concerned (about their approval).”
Guinor’s President and Chief Executive Trevor Schultz was not immediately available for comment, but in the press release he was quoted as saying: “We believe that this all-cash offer is fair to our shareholders and provides them with the opportunity to reinvest in what is destined to be one of the sector’s most exciting companies.”
Schultz has agreed to stay on as president of African operations if the deal goes through.
Vestrum contends the combined company of Crew and Guinor is much better than either entity alone and he relates such combined strength to the advantage of diversifying in the right way.
“It’s more than just diversifying projects,” Vestrum says. “If your three projects are in West Africa, you’re still exposed to the same political risk. From our management’s point of view, you have to have exposure to different areas.”
When asked if Crew was diversifying into regions with equal risk — perceived political risk in the Philippines and Guinea, and the risk of market unfamiliarity with Greenland — Vestrum says the Street’s reaction to both the Philippines and West Africa has greatly improved as the governments of both countries show more stability. He also anticipates a turn in favour for Greenland — eventually.
“Greenland needs a few more years,” Vestrum says, adding that after more mines are established, credibility with investors will come.
Crew’s 82%-owned project in Greenland, Nalunaq, has annual production of 100,000 oz. gold and measured and indicated resources of 313,000 oz. gold with another 926,000 oz. inferred.
Crew’s recently acquired
If the deal is approved in late November, there is no indication that Crew will be satiated. While Vestrum won’t tip his hand to reveal any future merger and acquisition targets, he did indicate that his company’s bullishness on the Philippines could lead to future endeavours.
“We’re keen on the Philippines,” Vestrum says. “Don’t be surprised if we do something in the Philippines.”
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