N.A. Metals fights Homestake

Life in the North American goldfish bowl is becoming much more exciting for publicly-traded companies with gold reserves and production potential. Indeed, the predatory fish themselves are being pursued, including U.S. gold mining giant Homestake Mining.

No sooner had it announced a $4-per-share offer for Vancouver- based North American Metals when it too became the object of a takeover attempt by corporate raider T. Boone Pickens (see separate story page A25). His Mesa Ltd. Partnership has made a cash offer for Homestake worth about $1.9 billion(US) or $20 per share, according to an Associated Press report from Amarillo, Tex.

Homestake’s $32-million(C) bid for North American Metals pales by comparison but it would give the company a much-needed production toehold in Canada and probably a stronger base for future expansion. It already has an exploration arm in Vancouver (Homestake Mineral Development) but the takeover offer is being made through another subsidiary, Homestake Mining (B.C.).

North American and Chevron Minerals have an equal interest in the Golden Bear project near Dease Lake, B.C. which is slated for production in late 1988 at the earliest. Based on a milling rate of 400 tons per day, annual gold output is expected to be around 64,000 oz from mill heads averaging 0.54 oz in the first 5 1/2 years. Underground mining is planned in conjunction with a seasonal open pit operation. Reserves are currently 1.8 million tons grading 0.32 oz gold in all categories.

Robert A. Dickinson, corporate secretary for North American Metals, told The Northern Miner that Homestake’s offer was unsolicited. “We were called in late Sunday night (Feb 28) and advised in a professional way that this was going to happen; and we were called just before the market opened Monday morning and advised of the content of their news release.”

He also said that Homestake confirmed it hadn’t purchased any shares on the open market. “We asked them that, they were very forthright, and they said no.” Fully diluted North American Metals has approximately 7.9 million shares outstanding so the value of the Homestake offer is approximately $32 million.

A spokesperson for Homestake in San Francisco said the company is “always interested in ways of expanding our gold production capability” but she refused to comment on the possibility of Homestake also purchasing Chevron Minerals’ 50% interest in Golden Bear as well.

Homestake is cash rich and last year reported a net income of $146.4 million(US) or $1.51 per share, the highest in the company’s 111-year history. A net gain of $95 million was realized in the fourth quarter from the sale of a 20% interest in Homestake Gold of Australia. Total gold production for 1987 was 677,739 oz, making it one of North America’s largest producers.

In response to the offer, North American Metals President Robert G. Hunter announced that a directors circular would be mailed to shareholders recommending that they “not accept Homestake Mining Co.’s $4-per-share offer.” In his view, the offer is “substantially less than their intrinsic value.”

Hunter is not alone in that assessment and several other companies are rumored to be interested, including Murray Pezim’s Prime Capital–so the price could go higher. Pezim said that Prime was a shareholder but “not a large one yet. We intend to join the game one way or another * * * maybe,” he said. (Sources tell The Northern Miner that its subsidiary, Prime Exploration, was on the Golden Bear property recently to size the project up.)

Anthony W. Garson, newly-appointed senior mining analyst at Continental Carlisle Douglas of Vancouver, has followed North American from its inception and he’s very bullish about its prospects. Arguing the company is “very, very attractive,” Garson concluded that Homestake “just got there first with the first offer. I wouldn’t be surprised if other companies follow through and I think a price closer to $5 might be fair for the company.”

Garson targeted North American Metals as a takeover candidate several months ago because its Golden Bear project in northern British Columbia hosts a high grade ore deposit and it will be a low cost producer. “What’s really attractive is the potential to substantially increase reserves,” he added.

A Wright Engineers report based on a gold price of $400(US) forecasts an after tax return of 36% and a payback of 1.7 years on a capital cost of $36 million (including road access). An average annual pre-tax cash flow of $15 million is expected to accrue to North American Metals, the study indicates.

Negotiations with the B.C government over road access into the property has been overhanging the market and it’s kept the share price down and contributed to some negative feelings about the company, Garson suggested. Approval for the 93-mile-long road is expected in the next few weeks and it should cost less than $10 million to build.

Garson conceded that North American would be an easy takeover target because there are “no substantial control blocks” and he wouldn’t discount a “white knight” coming into the picture. Stay tuned.