Kennecott sells Kemess interests

Merger partners El Condor Resources(VSE) and Covenant Resources (VSE) recently agreed to purchase the North and South Kemess property interests held by a unit of Kennecott.

El Condor earned a 60% interest in the North Kemess property in north-central British Columbia from Kennecott last year. The two companies are in the process of earning a 60% interest in the adjoining South Kemess property from St. Philips Resources (VSE) by spending a total of $1.1 million, $800,000 of which has been completed.

El Condor and Covenant, which plan to merge on a 1-for-1 basis, agreed to pay Kennecott $3.5 million for its interests in the area. Of the total, $350,000 is payable on May 13, while the balance is due May 23.

Covenant principals, Robert Hunter, Robert Dickinson and Douglas Forster, agreed to act as guarantors and advance $3.5 million to the company at an interest rate of prime plus 2%. In return for the guarantees, the three will each receive 75,000 shares of Covenant.

El Condor and Kennecott completed a small drilling program on the South Kemess last year that led to the discovery of a large, near-surface porphyry copper-gold system.

A follow-up drilling program late last year outlined a system measuring at least 1,500×2,000 ft. extending to depths of over 300 ft. The mineralization, grading in the order of 0.019 oz. gold per ton and 0.26% copper, remains open in all directions.

The latest development follows a string of deals involving the South Kemess property.

St. Philips, the then 75% owner of the property before the earn-in, acquired the remaining 25% interest in the property held by Stork Resources in return for 600,000 shares of St. Philips.

El Condor followed up with court action, claiming it has first right of refusal to Stork’s interest. El Condor attempted to get an injunction, but the action was thrown out and the case is awaiting a trial date.

St. Philips proceeded to hammer out an agreement with Rio Algom (TSE). That agreement gives Rio the right to purchase up to 3.8 million treasury shares from St. Philips as well as 1.2 million shares from certain existing shareholders based on a graduated price scale.

Assuming Rio exercised its purchase option, St. Philips would receive a total of $10.65 million to April, 1993, for the 3.8 million treasury shares. Including the 1.2 million existing shares, Rio would own five million shares or about 48% of the company’s 10.33 million outstanding shares (fully diluted).

St. Philips is awaiting the Vancouver Stock Exchange’s approval for the share-sale and said it has obtained letters of consent from over 51% of its shareholders.

Following the announcement that El Condor and Covenant planned to merge on a 1-for-1 basis, the two companies launched a bid to acquire St. Philips. The proposal offers one share of the merged El Condor-Covenant in return for two shares of St. Philips but is contingent on St. Philips cancelling the deal with Rio Algom.

As a result of the takeover bid, it is anticipated that the Rio Algom share purchase arrangement with St. Philips will require shareholder approval through a formal vote. The merged El Condor-Covenant will have about 8.7 million shares outstanding.

With about 6.53 million St. Philips shares outstanding, El Condor’s proposed merger would result in the issuance of about 3.27 million new shares or about 27% of the resulting company.

In essence, St. Philips’ interest in South Kemess property drops to about 27% from its current position of 40% assuming the deal to purchase Kennecott’s interest is completed.

Vangelis Catevatis, a principal of Stork prior to its purchase and now a large shareholder of St. Philips, said he was against the merger proposal. He noted the dilution to St. Philips’ interest in the South Kemess property and said he views El Condor’s merger proposal as a tactic to delay the company’s deal with Rio Algom by forcing a shareholder vote.

Charles Raymond, a director of St. Philips, said he would not respond to the proposal until a definitive merger offer is made. He noted El Condor’s stated intention to make a takeover offer on or about May 15, but he has not received any documents.

If a merger went through, St. Philips would also pick up an indirect interest in El Condor’s 60% interest in the North Kemess property where a lower-grade mineralized zone was encountered prior to the discovery and subsequent concentration of activity at South Kemess.