Echo Bay Mines to acquire half of Santa Elina

In the latest attempt by a major to expand its operations, Echo Bay Mines (TSE) will buy a half interest in Brazilian-oriented Santa Elina Gold (TSE).

The New York City-based company is held 66% by Sercor, a private company, and Echo Bay controls 7%. Upon completion of the deal, ownership of Santa Elina would be split 50-50 between Sercor and Echo Bay. The agreement is subject to a two-thirds approval by the minority shareholders of Santa Elina.

The deal calls for Echo Bay to issue 8.8 million common shares to acquire 58.6 million shares of Santa Elina, which, when added to the 9 million shares it already owns, would be sufficient to achieve a half ownership in the company. Santa Elina shareholders would receive one common share of Echo Bay for every 6.7 shares of Santa Elina (equivalent to US$2.08 per share of Santa Elina and a 29% premium over Santa Elina’s market price).

Echo Bay would acquire all of the 35.1 million publicly held shares of Santa Elina and 23.5 million shares held by Sercor, which is owned by Brazil’s de Brito family. The transaction is valued at US$122.5 million.

“This increase in ownership is very much in line with our aggressive growth strategy,” says Richard Kraus, Echo Bay’s president and chief executive officer. “Brazil provides excellent opportunities for us, and Sercor is a strong partner with extensive in-country experience.”

Santa Elina has one of the largest land positions in Brazil, with three advanced projects and almost 12 million hectares of mineral claims. “The land holdings are about the size of New York state,” says Kraus.

The most promising project is the Chapada porphyry in central Brazil. Situated on a 3,000-hectare concession in Goias state, the large copper-gold deposit contains a minable reserve estimated at 103 million tonnes grading 0.43% copper and 0.4 gram gold per tonne (equivalent to 1.3 million oz. gold and 972 million lb. copper).

Echo Bay will carry out infill drilling to upgrade the deposit to reserve status. A feasibility study is expected by the end of the year.

The deal to acquire a greater stake in Santa Elina gives Echo Bay the opportunity to increase its share in Chapada to 66% from the original 50%.

The company increased its minority interest in Santa Elina in September 1995 as part of its ongoing program of forming alliances with junior companies.

The second of Santa Elina’s advanced-stage projects is the Fazenda Nova project, also in Goias state. Gold exists in a mineralized shear zone in Precambrian rocks. A partial resource calculation stands at 9.3 million tonnes of oxide material grading 1.3 grams gold (or about 400,000 oz. gold). Below the oxide portion is a sulphide resource of 400,000 oz., grading about 2.5 grams gold, which is still open at depth.

An initial feasibility study is in progress on the 14,000-hectare property.

The third project, the Sao Francisco, is in the Santa Elina gold belt in the western part of Mato Grosso state. The resource is estimated at 45 million tonnes grading 0.85 gram gold. An initial feasibility study is expected by year-end.

Santa Elina owns 83% of the Fazenda Nova, Sao Francisco and Sao Vicente projects, with the remainder held by the de Britos. The family controls 33.5% of the Chapada deposit.