Editorial Determination value

If one must comply with strict regulatory definitions such as those established by the U.S. Securities Exchange Commission, if the value of the property is the basis of a feasibility study, if one is looking for a guarantee that a property is worth so many dollars, then insisting that only proven ore reserves have value might be considered a reasonable position.

But in the world of mineral exploration, to say one cannot put a value on a property with no established ore reserves is nonsense. There is value, and that value is determined every day. Whenever a prospector vends a claim or a mining company strikes an option agreement, a value is put on the unproven potential of the property. Whenever someone buys or sells the stock of a company whose main asset is such a property, they, too, are judging that value.

It is also true that those investors need the fullest information available in order to make the decision whether to buy or sell. That brings us to a property called Eskay Creek in northwestern British Columbia.

By all indications, Eskay Creek is a significant mineral discovery. Murray Pezim, a director of Calpine Resources which is operator and 50% owner of the property, said earlier this year that Eskay Creek was “bigger than Hemlo.” But he and, apparently, the market are basing their judgment on the potential of the property, not on an ore reserve that has been calculated.

A great deal of information about the property has been reported. But the nature of mineral discoveries is that developments move so quickly and information gathered through surface drilling is so sketchy no matter how thoroughly the drill program was conducted, that it is very difficult for even the most sophisticated investor to make a sound decision.

When it comes to mergers, takeovers or amalgamations, the picture becomes even more complicated. Suddenly the investor is left on the sidelines while someone else determines the value of the property. Those shareholders unhappy with the situation can, of course, “vote with their feet,” simply selling their shares and walk away. But those investors who have faith in the property and believe an offer for their shares should reflect the potential they see in it may be overruled by a vote in favor of the merger.

In this particular case there are no directors of Calpine who are not associated with Prime Resources — the company that is seeking to amalgamate with Calpine and which already holds 48% of the vote. None of those directors can be expected to distance themselves from the amalgamation and say objectively whether they feel it is a good deal or not for the Calpine minority shareholders.

So where does that leave the Calpine minority shareholders? Who will see that they are considered in the merger?

The Vancouver Stock Exchange has bowed out of the fray. Its view is that the information circular regarding the merger sent to shareholders provides all the necessary data. To demand more is to put unnecessary constraints on the marketplace.

By the same token, the minority shareholders deserve a summing up of all the work done on the property with an indication on the significance of the results from an independent source. The British Columbia Securities Commission, therefore, has ordered that a second fairness opinion (other than the one included in the information circular), an independent opinion prepared solely for the Calpine shareholders.

The object of all this is not to prevent the merger but simply to lay out to the minority shareholders of Calpine by an independent source just what has been done on the property and what it means. Then let them set their own value and vote accordingly.

There need not be full-blown reports on mining method, metallurgy, capital costs and other factors — there will be no guarantees. But there can certainly be some indication of the size of the deposit, its grade and its potential for expanding reserves. That, surely, is a reasonable demand.

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