Dayton plans to diversify

In a bid to diversify beyond its Chilean gold mine, Dayton Mining (DAY-T) has agreed to buy Kinross Gold‘s (K-T) 49% stake in the Denton-Rawhide gold-silver mine, 190 km southeast of Reno, Nev.

Kennecott Rawhide Mining, a unit of London-based Rio Tinto (RIO-N), holds the remaining 51% of the open-pit mine and is operator. To acquire Kinross’s interest, Dayton will issue 144.7 million shares. The operation turned out 128,000 oz. gold-equivalent in 1999 at a cash cost of about US$243 per oz. Reserves at year-end stood at 31.9 million tonnes grading 0.7 gram gold and 11.68 grams silver per tonne, using a gold price of US$325 per oz.

Dayton also plans to issue more of its paper to buy the outstanding shares of Vancouver-based Mirage Resources (MGP-T), in which Kinross holds a 53.8% interest.

Mirage’s primary asset is El Dorado, a gold property near San Salvador, El Salvador. The high-grade banded quartz system has a resource of 4.2 million tonnes grading 6.6 grams gold and 48.4 grams silver, which includes 1.3 million tonnes grading 11 grams gold and 75 grams silver.

The proposal calls for one share of Mirage to be exchanged for 0.667 share of Dayton. The exchange ratio represents a price of 7.5 per Mirage share — a 14% premium over the 30-day average trading price of Mirage and Dayton shares. If all goes as planned, Mirage would then become a subsidiary of Dayton.

Kinross, which holds about 14 million Mirage shares, has agreed to vote in favour of the proposed amalgamation. Should Mirage shareholders not approve the deal, Dayton would buy (through the issuance of shares) the Mirage shares for 7.5 per share, or 115% of the market price, whichever is lower. Dayton will also buy the shareholder loans made by Kinross to Mirage in exchange for Dayton shares. The acquisition will result in an estimated total of 42 million Dayton shares being issued.

The two transactions are valued at $21 million, based on the 30-day average trading price of Dayton and Mirage. The 178 million shares issued to Kinross will bring Dayton’s total issued and outstanding shares to 539 million and give Kinross a 33% equity interest in Dayton. The latter has proposed a 20-to-1 share consolidation upon closure.

Also, Dayton has received an independent audit of the minable reserves at its Andacollo gold mine, 30 miles from La Serena, Chile. The new estimate, based on a gold price of US$325 per oz., pegs the reserves at 17.8 million tonnes grading 0.88 gram gold, down from the 1998 year-end estimate of 31 million oz. grading 0.87 gram.