Franco takes reins of Echo Bay in stock deal

Denver — Echo Bay Mines (Eco-X) has reached an agreement with Franco-Nevada (FN-T) to convert US$115 million in capital securities into common shares, giving the royalty company a controlling stake in Echo Bay.

Echo Bay issued US$100 million in capital securities in early 1997, though hard times forced the company to defer interest payments just a year later. The amount owed under those securities, including unpaid interest, has since climbed to US$159.4 million as of the end of September.

Franco, which did not own any previous shares of Echo Bay, started purchasing the capital securities on the market about six months ago. While the company would not give a purchase price, it acquired securities with a principal value of US$72.4 million. With interest, those amount to US$115.3 million.

Echo Bay has entered into lock-up agreements with Franco, as well as Kinross Gold (K-T), which controls 15.8% of the capital securities, to convert the capital securities into shares.

Under the agreements, Echo Bay would issue more than 360 million shares to Franco, giving it a 49.5% stake in the company and making it Echo Bay’s largest shareholder. Kinross would receive 57.1 million shares of Echo Bay for 11.4% of the company.

The share exchange is conditional upon approval of 90% of the remaining security holders, consent from the bankers and regulatory approvals. Current Echo Bay shareholders, who are seeing their stake in the company diluted, must also give their approval.

Echo Bay produced 695,000 oz. gold last year from four mines in the U.S. and Canada.