LAC buys 65% of Bond Gold, more than doubles gold output

Dallhold is the private family holding company of Australian businessman Alan Bond, the chairman and founder of BIG.

LAC said it has agreed to pay $10 per share to acquire a 65% stake in BIG from Dallhold and Bell Resources, also of Australia. The total price tag for the control block is $373.8 million(US) with the closing date set for Nov 21, subject to regulatory approvals.

The recently announced purchase agreement brings to an end months of speculation over the future of Bond’s private 58% stake in one of the world’s largest gold mining companies.

By purchasing control of the 600,000-oz-per-year gold producer, LAC is about to leapfrog into the precious metal big leagues.

Last year, LAC reported gold production of 319,407 oz from its Canadian mines which include the Doyon, Macassa and Bousquet No 1 operations.

With a 65% stake in BIG under its belt, the Toronto-based company will gain control over production from five other mines in North and South America, including the low-cost El Indio operation in Chile.

Mining analysts in Toronto said the new acquisition will have a “positive long term” effect on LAC, although some felt LAC was paying “a tad too much” for its stake in BIG.

LAC President Peter Allen said, “BIG has profitable gold mines and prospective assets all located in excellent geologic environments.”

Among BIG’s North American operations are the 77,000-oz-per- year Golden Patricia mine near Pickle Lake, Ont., and the new Bullfrog mine in Nevada. Officially opened last summer, the Bullfrog mine is expected to turn out 200,000 oz of gold this year, making it the company’s largest North American producer, followed by the Colosseum and Richmond Hill mines in the western U.S.

BIG’s largest and lowest cost gold mining operation is the El Indio mine in Chile. That mine produces more than 200,000 oz of gold annually at a cost of about $63(US) per oz. LAC ventured into Chile a few years ago when it purchased the Toqui zinc mine. A new polymetallic discovery was made this summer on the Toqui property.

One mining analyst in Toronto said that without a major new acquisition to bolster its reserves, LAC would have been “left behind as far as gold production is concerned,” by other North American super producers.

Other senior companies like Placer Dome (TSE), for example, have plans to churn out more than a million oz of the yellow metal per year.

While some analysts thought the price of $10 per share offered by LAC was too high (by about 10%), they agreed that the new acquisition will provide a big boost to the company’s over-all gold output. The acquisition will also reduce LAC’s average cost of production per oz, one analyst noted.

BIG recently reported gold production of 477,340 oz for fiscal 1989 with an average cash cost of production at $204 per oz and bank debt at $183 million on June 30, and a gold loan of $152 million.

LAC had also been rumored as a takeover target of late, mainly because of its large cash reserve totalling nearly half a billion dollars. Included in that amount was a recent cash payment awarded to LAC from the lawsuit with Corona Corp. (TSE) over ownership of the Williams mine at Hemlo, Ont. Last month, Corona decided not to pursue an investment strategy of its own, designed to gain control of BIG. After not being able to reach a suitable price in a takeover deal, Corona sold its 7% stake in BIG at $7.25(US) per share. The company also decided not to exercise its option to acquire a further 20% of Bond from Dallhold Investments at $8.25 per share.

The announcement by LAC came as a surprise to officials of BIG’s Canadian subsidiary Bond Gold Canada, which has offices based in Toronto. Officials at BIG’s Denver office in Colorado were unavailable for comment.

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