Gencor buys into Eldorado and affiliate

As part of a plan to expand internationally, South-African based Gencor has invested US$150 million in Eldorado (TSE) and its exploration affiliate, HRC Development (VSE).

In the equity-for-asset swap, Gencor will receive more than 12 million Eldorado common shares and almost 12 million non-voting shares of Eldorado. As a result, Gencor will own 49.9% of the equity of Eldorado on a fully diluted basis and 40% of the outstanding voting rights in Eldorado. Gencor will also receive 7.7 million HRC common shares and 4.9 million non-voting HRC shares, giving the South African company a 49.9% equity interest and 40% of the voting rights.

Eldorado and HRC will acquire the Sao Bento gold deposit, as well as five exploration and development projects in Brazil, 20 exploration projects in Turkey, and five exploration projects and development projects in North America.

These acquisitions, combined with Eldorado’s other operations, will enable the company to boost annual gold production to 500,000 oz. within five years and to 1 million oz. within 10 years. In addition, HRC, the group’s exploration arm, will end up having grassroots and advanced-stage properties on four continents.

The prime asset acquired from Gencor by Eldorado is the Brazilian Sao Bento gold mine, where proven and probable reserves stand at 798,000 oz. In 1995, the mine produced 95,000 oz. at a cash cost of US$300 per oz.

Richard Barclay, president and chief executive officer of both Eldorado and HRC, expects that production at Sao Bento will increase over the next few years and that operating costs will be lowered by US$50 per oz. “For 1996, we are forecasting pro forma production of 100,000 oz. at a cash cost of US$300 per oz. We expect production to rise to 130,000 oz. by 1998, at a cash cost of US$257 per oz.”

In addition, Eldorado has acquired the North American rights to Gencor’s proprietary bacterial oxidation (BIOX) technology for extracting gold from refractory ores.

Not only will Eldorado be able to use the technology itself; it will issue licences for other companies to use it. As a result, Eldorado will be able to earn an equity interest in, or receive technology fees from, companies with refractory gold deposits. (There are an estimated 15 million oz. of reserves in North America that could be processed using BIOX technology.) According to Gary Maude, executive director of Gencor responsible for gold, “We are very pleased to be associated with such a group, as we believe Eldorado and HRC Development will be able to maximize the value of these international gold assets for their shareholders, including ourselves.” He adds that Gencor does not intend to assimilate the Canadian companies into its operations. “We intend to foster the entrepenurial nature of Eldorado and HRC as independent companies.”

Shortly after the Eldorado-HRC deal was made public, Hatch & Associates, a private engineering firm, announced it had signed an agreement with Gencor’s engineering division.