Metall bids for copper producer

Assuming the deal closes in about three months, Metall will take control of a copper-silver mine which produced 46,000 tons of copper cathode and 1 million oz silver by-product last year.

At a break even price of 65 cents per lb, Copper Range is expected to increase its production this year to 51,000 tons and then 64,000 tons over the next three years.

“This really takes us into the operating company field,” said Metall’s chief financial officer Douglas Scharf who believes that the two companies are well matched.

A 62%-owned subsidiary of West German metals giant Metallgesellschaft AG., Metall has been criticised recently for failing to shed its holding company image. Metall has a 49% stake in Temagami Mining Co. the company that controls Teck Corp. (TSE). It recently increased its stake in Cominco Ltd. (TSE) to 10% and has a 10% holding in the Highland Valley Copper Group.

Even though Metall is currently developing the Cayeli zinc/copper/silver deposit in Turkey and is operator of a gold mine in Australia’s Kalgoorlie area, analysts have said all along that Metall must make a large North American acquisition to be taken seriously as an operating mining company.

“It’s a good move for Metall,” said Alan Ferry, a mining analyst with Prudential Bache in. “If copper prices remain over $1 (the base metal was trading recently at $1.77(US) per lb), Metall could recoup its investment within two years,” he said. “The mine should be capable of carrying itself after that.”

Situated in isolated White Pine on Michigan’s Upper Peninsula, the Copper Range site has just recovered from the pre-1988 slump in base metal prices and a cave-in at the operation’s underground workings. In November 1985, Copper Range was purchased through a leveraged buy-out, by employees and management on a 70% employees/30% management stock ownership arrangement. But since the average age of the company’s 1,200 employees is about 46, they have been searching for a mechanism to “cash in” their shares, according to Copper Range vice-president Michael Dunn.

While a public offering was considered before the October 1987 stock market crash, the company decided instead to find a buyer.

“Our objective was to get the shares into stronger permanent hands,” said Dunn who has been involved in discussions with Metall since last summer.

For his own part, Scharf claims that proven and probable reserves of 188 million tons of grade 1.08% copper on Copper Range lands, makes the purchase a good long- term investment. An additional 20 million tons averaging 1.49% copper is on contiguous land under lease to the company.

Under the terms of a proposed agreement, Metall is buying all of the outstanding common shares of Copper Range for a minimum $85 million. Of that amount, $80 million is payable upon closing and the balance in 1994.

The purchase price could increase to $98 million depending on daily output and specified operating profits from 1989 to 1993.

Metall has also agreed in principle to the terms of a new collective bargaining agreement involving Copper Range and the United Steelworkers of America. While the full details have not been announced, it involves future payments of as much as $18 per share over the next five years to about 800 employees. They are scheduled to hold 750 shares each when the deal is closed.

“We can bring a lot to the table in terms of technical expertise,” said Scharf. While he said it is too early to say what Metall’s future plans for the operation will be, the Toronto company is picking up an underground copper mine, mill smelter and power plant. The electrolytic refinery at White Pine is valued at $78 million and is considered state of the art and includes equipment from all over Europe.

Metall is planning to cover the purchase price through debt financing, by taking on extra debt and by utilizing around $121 million in cash resources.

The company’s share price remained at its 52-week high of $12.75 on the Toronto Stock Exchange following the announcement.

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