Goldcorp funds mine — Red Lake mine to start up in late 2000

A recently closed $60-million financing will enable Goldcorp (G-T) to step up development of its Red Lake gold mine in Balmertown, Ont.

In a deal with a syndicate led by Griffiths McBurney & Partners, TD Securities and RBC Dominion Securities, the Toronto-based mining company issued 6 million units at $10 each, including 1 million units issued under an over-allotment option. Each unit consists of one class A share and half a warrant, with each whole warrant entitling the holder to buy, over a 10-year period, another class A share for $20. (At company meetings, a class A share is entitled to one vote, whereas a class B share is entitled to 10.)

Goldcorp President Rolando Francisco says most of the proceeds will be applied to an expansion program at the Red Lake mine, the capital cost of which is pegged at US$56 million (C$81 million).

“We’re short by about US$24 million, and we have been approached by several institutions, mainly bankers, to finance the balance,” says Francisco. “There’s no rush, but we would like to put it in place as soon as possible.”

Asked about the rather high $20 strike price of the warrants, Francisco remarks: “Yes, that’s kind of unique. My view is that it is a 10-year call, essentially, on the stock, which of course is dependent on the price of gold.”

The closing of this recent financing comes after months of on-again, off-again debt and equity deals.

In early January, Goldcorp negotiated a US$60-million loan from the Bank of Montreal, the Bank of Nova Scotia and the Royal Bank of Canada. It would have been a 5-year loan at an interest rate of between 1.25% and 2.5% above the London Inter Bank Offer Rate, and the company would have had to hedge 450,000 oz. gold.

Then in March, Goldcorp announced a bought deal with underwriters RBC Dominion & Griffiths McBurney for 6 million shares at $9.75 apiece. Meanwhile, the company was still pursuing the bank loan.

Only days later, Goldcorp announced it had received a threatening letter, and that this was the latest in a series of threats dating back to June 1996, when mining at Red Lake was suspended by a strike.

“We thought it was our duty to advise our employees, our contractors and the public at large — particularly the [local] community — of this threat,” says Francisco. “The threat did not address the financing specifically. The letter made reference to the Giant mine, so that was a serious concern to us.”

During a strike in 1992 at Royal Oak’s Giant mine, near Yellowknife, N.W.T., nine miners were murdered — a crime for which a former striking miner is now serving a life sentence.

“But since the threat, nothing has happened,” continues Francisco. “The picketing at the gate has been relatively peaceful. I think the co-operation between the two sides is going to be helpful for both parties.”

Nonetheless, in mid-March, Goldcorp terminated the bought deal, saying there should be public dissemination of news of the threat before a preliminary prospectus for the offering is filed. As a result, the prospectus was not filed by the required deadline, though the company said it would file another preliminary prospectus for a similar offering.

Ten days later, Goldcorp announced it was withdrawing this new offering, citing the recent decline in gold prices.

However, in late March, after receiving more exceptional drill results from Red Lake’s High Grade zone, Goldcorp received a $9-million infusion of cash from shareholder CSA Management (CSA-T), which is controlled by Robert McEwan, the chairman of Goldcorp. CSA exercised a warrant issued in 1994 and bought 2.24 million class B treasury shares for $4.04 per share. As a result, CSA now had a 19% equity interest in Goldcorp. which translates into a 46% voting interest in Goldcorp. Goldcorp also stated that it was still trying to close the US$60-million debt facility.

In late April, Goldcorp announced the now-closed $50-60-million bought deal, as well as the end of negotiations for the US$60-million term loan.

Asked if Goldcorp had been playing the banks and the brokerage houses off of one another, Francisco replies: “No, the reason we decided to terminate the bank route was because of the very slow process. We wanted to get started with the development of Red Lake, and, fortunately, the underwriters came up with this novel idea and we thought, ‘Let’s go for it.'”

With this major financing behind it, Goldcorp has already awarded two key contracts for the development of the Red Lake mine: Hatch Associates will be responsible for the design and procurement of the surface processing plant, and Dynatec (DY-T) will be undertake 20,000 ft. of underground development and construction worth more than $13 million. Dynatec’s work is expected to last 18 months and employ up to 100 people.

Asked if any striking workers will be hired by Dynatec for the development work, Francisco replies, “I don’t know. We could not interfere with Dynatec’s development program there.”

Commercial production is scheduled to begin in the last quarter of 2000, at the annual rate of 240,000 oz. gold. Cash production costs are expected to total US$88 per oz. (T.N.M., Oct. 12-18/99).

Goldcorp also owns and operates the Wharf open-pit gold mine in South Dakota, as well as a limestone quarry in New Brunswick and sodium-sulphate facilities in Saskatchewan.

For 1998, Goldcorp posted a loss of US$1.8 million (or 3 cents per share) on revenue of US$56.2 million, compared with a loss of US$94.1 million ($1.38 per share) on revenue of US$62.1 million in 1997, when the company wrote down US$88.2 million, most of which was related to the Wharf mine’s carrying value.

In 1998, Goldcorp produced 110,175 oz. gold at a total operating cost of US$221, compared with 1997’s 103,145 oz. gold produced at US$329 per oz. The company’s average realized price for gold sold in 1998 was US$294, compared with US$326 in 1997.

Print

Be the first to comment on "Goldcorp funds mine — Red Lake mine to start up in late 2000"

Leave a comment

Your email address will not be published.


*


By continuing to browse you agree to our use of cookies. To learn more, click more information

Dear user, please be aware that we use cookies to help users navigate our website content and to help us understand how we can improve the user experience. If you have ideas for how we can improve our services, we’d love to hear from you. Click here to email us. By continuing to browse you agree to our use of cookies. Please see our Privacy & Cookie Usage Policy to learn more.

Close