Cyprus Amax divests stake in Kinross

Cyprus Amax (CYM-N), clearing the decks for its merger with Phelps Dodge (PD-N), has arranged to sell its 31% holding in gold producer Kinross Gold (K-T) for $356 million.

The deal will see three large investment houses — Merrill Lynch, CIBC World Markets and TD Securities — underwrite a sale of the copper producer’s 89 million Kinross shares at $4 per share, disposing of one of Cyprus’s remaining assets outside the base-metal sector. Cyprus came by the shareholding when it merged its Amax Gold subsidiary with Kinross in mid-1998, and its merger with Phelps Dodge is generally expected to mean that the merged company will concentrate completely on the base metal business.

The $356-million gross will net out to about $341 million in revenues for Cyprus, and the company will also realize about $295 million in tax losses in the transaction. The Kinross investment, carried on Cyprus’s books at about US$240 million ($350 million), lost US$53 million ($78 million) in 1998.

Cyprus retains warrants to buy 8.8 million Kinross shares, which were exercisable at a premium to Kinross’s share price. Kinross has agreed not to issue either shares or other securities convertible into shares for a 90-day period after the deal closes. Currently, the closing date is expected to be around Oct. 27.

The three investment houses will be making a public offering of the shares, and Cyprus has filed a preliminary short-form prospectus in Canada and a registration statement in the U.S. to permit the public offering.

On Sept. 30, after a 2-month fight to preserve a merger with Asarco (AR-N), Cyprus agreed to a takeover offer from Phelps Dodge. Phelps Dodge is still seeking a merger deal with Asarco but faces a competing offer of US$29.50 per share from Mexican copper producer Grupo Mexico (see separate report, page 3).

Meanwhile, Kinross has picked up the assets of insolvent Royal Oak Mines’ Ontario division, including the Pamour and Nighthawk gold mines. The operations, along with the Pamour mill, were shut down in September after no buyers could be found to keep the mines in production.

Kinross has already said it has no immediate plans to put the mines back into production. Accounting and engineering reports prepared for the United Steelworkers, which had been considering an employee buyout of the Ontario Division, said the mines and mill had received too little capital investment in recent years to be profitable.

Kinross owns a large land package in the Timmins area, which includes the producing Hoyle Pond mine and surrounds much of the Pamour ground. Royal Oak’s holdings included the Pamour super-pit, the Nighthawk mine and several former producers, including the McIntyre, Hollinger, Coniaurum, and Delnite mines. Timmins’ other major player is Placer Dome (PDG-T), which operates the Dome underground mine and open pit.