Goldcorp makes new bid for Wharf Resources

Toronto-based Goldcorp’s (G.A-T) bid for subsidiary Wharf Resources (WFR-T) has received a lukewarm vote of confidence from Wharf’s independent directors following a valuation of the company.

Wharf’s directors recommended that minority shareholders “accept the cash alternative under the offer or carefully consider the share alternative.” Goldcorp’s offer, either to exchange 0.72 of a Class A share of Goldcorp for one Wharf common share or buy out at $9, was announced on Oct. 16 and expires on Dec. 6.

On Nov. 19, Wharf shares closed at $8.95, while Goldcorp A-series shares closed at $12.50, which implies a value of $9 per Wharf share in the share exchange.

Goldcorp already owns 50.3% of Wharf, which operates the Wharf and Golden Reward mines in South Dakota. Under the proposed plan, if the takeover succeeds, Wharf will buy back its preferred shares for $25.25 per share, a deal worth about $3.8 million.

For the recent third quarter, Wharf earned US$1.9 million (or US10 cents per share) on revenue of US$12.2 million, compared with US$1.8 million on US$14 million in the same period last year. For the first nine months of 1996, the company posted a loss of US$1 million (US5 cents per share) on revenue of US$34.8 million, compared with earnings of US$3.8 million (US19 cents per share) on US$36.4 million in the corresponding period last year.

The loss for the 9-month period includes a US$3.2-million writedown against the company’s 60% interest at Golden Reward. Concerns over the possibility that Wharf will not be granted permits to develop additional mineral reserves near a cemetery and a ski hill have led the company to take a series of writedowns against the asset since 1994 (T.N.M., Jan. 8/96). Mining ceased on June 30, when reserves at Golden Reward’s two open pits dwindled, though gold is still being recovered in the heap-leach system.

Production at the mine fell to 3,112 oz. in the third quarter from 8,957 oz.

in the second quarter.

Parent company Goldcorp broke even in the third quarter on revenue of $24.8 million. For the nine months ended Sept. 30, Goldcorp earned $11 million (17 cents per share) on $88.7 million. The Red Lake mine remains closed by a strike that started on June 23, and the company continues to hold discussions with Local 950 of the United Steelworkers of America.

However, while production has ceased, exploration drilling continues to be carried out, mainly between levels 30 (1,338 metres deep) and 34 (1,518 metres).

To delineate blocks for reserve calculations, three holes were advanced into areas of known mineralization, two of which returned high grades. A 0.7-metre intersection in the HW zone graded 4,505 grams gold per tonne (131 oz. per ton) and a 2.6-metre intersection in the same zone returned 2,374 grams (69.25 oz.). Holes in the FW and Quartz-Carbonate zones also returned assays in excess of 70 grams gold.

Holes advanced to test the eastward extension of the known mineralization between levels 30 and 34 also intersected high-grade gold mineralization, confirming that the mineralization encountered in earlier exploration continues to the east and downdip.

Initial exploration holes were advanced in order to test for the westward extension of the mineralization, but they failed to return significant gold values.

Some of these holes are being extended another 150-250 metres into the hangingwall of the deposit. Preliminary drilling on upper levels of the mine (roughly 700-1,250 metres deep) has located extensions of the mine’s known sulphide zones. Assays are not yet complete.

Goldcorp has also bought 2.4 million shares of Wilanour Resources (WLR-T) from TVX Gold (TVX-T) at 50 cents per share. Earlier in 1996, Goldcorp and Wilanour, with TVX’s backing, struck a deal whereby Goldcorp would take over the Cochenour Willans mine, near Red Lake, together with several other Wilanour assets, for $3 million. Wilanour would have retained a carried interest in some of the properties.

However, the deal failed to win approval at Wilanour’s annual meeting. With an equity position in Wilanour, Goldcorp may be better-positioned to make an offer for the properties.