New Corona combines companies of Royex group

Canada’s newest major mining company, Corona Corp., is an amalgamation of five Royex-Corona firms whose total estimated gold output this year and in 1989 will put it among the top three gold producers in the country.

Corona, which will combine the assets of Royex Gold Mining (TSE), International Corona Resources (TSE), Lacana Mining (TSE), Mascot Gold Mines TSE) and Galveston Resources (TSE), will be headed by Ned Goodman as chairman and Peter Steen as president.

The amalgamation, which would give the new company a projected gold output of 465,000 oz in fiscal 1988 (the fiscal year runs to Sept 30) and 650,000 oz in fiscal 1989, is subject to shareholder and regulatory approval. Assuming complete approval, Goodman expects the amalgamation deal will be complete by the end of June.

Estimated annual cash flow (at a gold price of US$450) of the new company will be $200 million and, according to Steen, the average production cost will be $170 per oz of gold. Proven and probable reserves stand at an estimated seven million oz.

Largest gold producer in the country is Placer Dome (TSE), which is expected to turn out about 900,000 oz this year and close to 1.3 million oz in 1989. In second place is Echo Bay Mines, which will produce about 550,000 oz this year and an estimated 700,000 oz in 1989. Diverse operations

In addition to its gold mining side, the new Corona will have silver (from Lacana’s Mexican operations) and oil and gas (also from Lacana) product ion. The new company will also have an industrial minerals division, producing mica in Quebec (another Lacana project) and boric acid (from Galveston) from a deposit located 160 miles northeast of Los Angeles, Calif.

The new Corona will have two types of shares, class A and class B, which Goodman said have been modelled after the Teck Corp. (TSE) set-up. Assuming all types of securities (warrants, options, etc.) are converted by shareholders, the new company will have 154.4 million shares outstanding.

The amalgamation is to take place on the following basis: one A share for one old Corona common share, 0.61 A share for one Royex common share, 0.43 A share for one Galveston A share, 0.43 B share for one Galveston B share, 1.32 A share for one Lacana common share and 1.11 A share for one Mascot common share.

All inter-company shareholdings among the five firms will be cancelled. In addition, old Corona, Royex and Galveston will issue to their shareholders 2-year warrants on the following basis: one warrant for 6 old Corona shares, one warrant for 13 Royex shares and one warrant for 23 Galveston shares. After the amalgamation, warrant holders will be able to buy new A shares at $12 per share. Exchange ratios

The proposed exchange ratios have been developed by management of the five companies, Goodman said. (Goodman and Steen are involved in all five companies at a management or directorship level.) Burns Fry and First Boston Canada are advising old Corona and Royex on the proposed exchange ratios and have also been retained to provide fairness opinions to the two firms. Burns Fry, First Boston Canada and Credit Suisse First Boston will manage domestic and international soliciting dealer groups.

Equity ownership by shareholders in the new company will be on the following basis: old Corona 46.1%, Royex 16.7%, Galveston 12.9%, Lacana 14.8% and Mascot 9.5%.

Each new class A share will carry one vote and each class B share will represent 100 votes, with the number of votes on all voting shares outstanding amounting to 981.5 million. Of these votes, 13.2% will rest with Prime Capital (a Corona subsidiary), which has granted a voting trust to Goodman for all of its B voting shares. In addition, about 20% of the votes will be owned by Goodman directly and 28% collectively by Steen, Paul Carroll, Timothy Hoare and Myron Gottlieb, who will all serve as directors of the new company.

Holders of preferred Royex shares will receive equivalent preferred shares of the new company, and all warrants, options and convertible securities of the five companies will be adjusted to reflect the proposed merger ratios.

In the event of a takeover, the A shares would be convertible into B shares, Goodman said. Equity positions

After amalgamation, on a fully diluted basis, 94% of Corona Corp. will be held by the public and 6% by management and its directors.

The new company will become a participant in eight producing mines throughout North America, with four additional mines expected to be brought into production by the end of 1989. In addition, exploration continues at numerous prospects.

Estimated annual gold output of the new company includes a 50% share of the production at the Williams mine at the Hemlo camp in northern Ontario. Brought into production by Lac Minerals (TSE), the Williams mine was awarded to Corona in a Supreme Court of Ontario decision in 1986. Lac lost its appeal to the Ontario Court of Appeal, and the case is now before the Supreme Court of Canada, with a hearing by that judicial body set for Oct 11.

Corona’s partner in the operation of the Williams mine would be Teck. The two companies are 50/50 owners of the producing David Bell mine which is located beside the Williams mine, and the two also share a 50% net profits royalty in a quarter claim which lies immediately west of the David Bell mine.

Galveston, with a 21% interest in Royex, was formerly headed by west-coast promoter Murray Pezim. It merged during the latter part of 1987 with Blackbird Resources, a private company controlled by a group including Goodman and Steen.