Homestake makes bid for remainder of Prime

San Francisco-based Homestake Mining (HM-N) has made an offer to acquire the 49.4% of Prime Resources Group (PRU-T) that it does not already own.

The deal would see Prime shareholders exchange each of their shares for 0.675 of a Homestake common share or 0.675 of a Homestake exchangeable share to be issued by wholly owned subsidiary Homestake Canada. Homestake’s offer is valued at $11.80 per Prime share, a 12.4% premium over Prime’s closing price on May 22 of $10.50. The total value of the offer is $444 million.

“This is an outstanding opportunity for the minority shareholders of Prime to receive a fair premium for their shares and to participate in the potential upside of our aggressive exploration and acquisition growth program, world-class ore bodies and 16 operating mines in the U.S., Australia, Canada and Chile,” said Homestake President Jack Thompson in a written statement.

“For Homestake, the transaction will simplify our corporate structure, unify our presence in Canada, reduce costs associated with maintaining a separate public company, add to our equity interest in low cost production and reserves, provide certain tax advantages and reinforce our position as one of the world’s leading gold mining companies.”

Homestake has proposed that the offer be completed as a plan of arrangement that would be tax-deferred to most Canadian shareholders who elect to receive the exchangeable Homestake Canada shares. The exchangeable shares would not be foreign property for purposes of Canadian tax laws and Homestake plans to apply to have the exchangeable shares listed on the Toronto Stock Exchange.

Homestake’s offer is subject to approval by the Supreme Court of British Columbia, Prime’s board and the required percentage of Prime’s minority shareholders. Prime’s directors are expected to meet shortly to consider the offer.

Prime’s key asset is the 100%-owned Eskay Creek underground gold-silver mine in northern B.C., which is forecast to produce 245,000 oz. gold and 11 million oz. silver in 1998 at a total cash cost of US$161 per gold-equivalent oz. Its other significant asset is the Snip underground gold mine, also in B.C., which is scheduled to close in the second quarter of 1999. Snip is expected to produce 100,000 oz. gold in 1998 at a cash cost of US$225 per oz.

Greg Barnes, a Toronto-based mining analyst with Yorkton Securities, stated in a recent report that he considers it unlikely that a competing offer will be made for the minority stake in Prime. Canaccord Capital analyst Larry Strauss believes Homestake’s offer to be fair.