MINING MARKET & INVESTMENT NEWS — QUERY — Redaurum investment deemed speculative

Shareholders of Redaurum are being asked to vote in favor of a proposed amalgamation with Remick Investments, which will entail issuing more than 1.7 billion Redaurum shares to Remick, then consolidating all shares at 1 for 40. Loyal Redaurum shareholders will wind up with only 5.7% of the new Redaurum.

My overwhelming concern after communicating with the Ontario Securities Commission and the Toronto Stock Exchange is that there appears to be no watchdog or oversight group to review and protect minority shareholders from this type of sell-out.

The “Joint Management Proxy Circular” of July 31, 1998, says that: * at July 28, Remick Investments have 1.719 billion shares and Redaurum 104 million shares, and

* at March 31, 1998, Remick’s shareholder equity was US$62,107, 2% of Redaurum’s (US$3,124,000). The calculated equity, in U.S. dollars per share, for Redaurum is 1,000 times the equity of Remick.

Considering the current economic environment for resource companies, I place nominal value on the projections attached to Remick’s undeveloped land position, which will require hundreds of millions in capital.

* A private company, Centenary Investments, with which Redaurum was reportedly negotiating earlier this year, is a major shareholder in Remick, owning 1.29 billion shares or 75%. Possibly this is the result of property-share exchanges between Remick and Centenary subsequent to the June 30, 1997, annual reports. Regardless of the circumstances, Centenary becomes the controlling shareholder in the new Redaurum, with 71% of the company.

I am not so naive as to believe that minority shareholders voting against these plans will have any effect on reversing their content, so I have forwarded my letter of dissent to Redaurum’s corporate office. Your review would be greatly appreciated.

W. Iwankow,

Lamont, Alta.

Redaurum (RRK-T) had been in the diamond mining business, with producing mines at River Ranch in Zimbabwe, and Avontuur in South Africa, and with a project under development at Kelsey Lake in Colorado. On the minus side, it had $6 million in convertible debentures, a dispute with its partner at River Ranch, and a lawsuit over Kelsey.

In 1997, the company redeemed the debentures, essentially clearing off its debt, and cleared things up with its partner. It also settled the lawsuit, paying nothing to the plaintiff but plenty to the lawyers. That should have improved matters, but it was 1997, after all. Redaurum’s share price continued to drop, and it finished the year at 11 cents.

Saying that “the full value of current assets is not being recognized,” the company announced, in December 1997, that it was selling the diamond mining assets. It intended to concentrate on diamond exploration, and, to start off, acquired an interest in a Botswanan diamond property, near the producing Orapa mine.

Enter Centenary Investments, a private company led by Loucas Pouroulis and Demetri Manolis, both of South Africa. Centenary offered what was in essence a reverse-takeover: you buy my assets with stock, I get your exchange listing. The kicker in this deal was a private placement of shares issued by Redaurum in exchange for $10 million in cash.

Redaurum has, according to its balance sheet, little cash. Some revenue might be expected from the sale of the mining assets, which are carried on Redaurum’s books at a value of about $6 million. A private placement, on acceptable terms, would obviously be in the company’s best interests.

Your objections, based on the books of the two companies, seem quite reasonable. Remick Investments is not bringing much to this deal, except for the assets it has taken up from Centenary. Associated Mining Consultants, which is a solid consulting firm based in Calgary, has calculated net present values for the Centenary assets at around US$87 million, but, as you point out, the valuations assume that the properties will ultimately produce ore. If they do not, the capital investment will be a sunk cost.

IBK Capital, the investment firm retained by Redaurum to provide a fairness opinion, found the share exchange to be “fair and reasonable,” as long as Remick can raise a further US$49 million to run its business plan over the year ending June 30, 1999.

At bottom, the new investment appears to be speculative, and minority shareholders of Redaurum will have a comparatively small interest in whatever new assets can be brought into production. Balanced against that, had Redaurum remained as it was, the minority investors would be shareholders in a company looking for buyers for its assets. As the old saying goes, Redaurum is between a rock and a hard place.