New Falconbridge Gold ready to `take a beating’

After all, when Falconbridge and agent Merrill Lynch Canada held the second of three meetings to promote the new company, the shares could have been trading at much less than $2.95 on the COAT system. The price of gold could have dipped below $400(US) instead of hovering at the $401 level and investor enthusiasm for gold stocks in general could also have been much lower.

But despite the inhospitable market climate which is likely to greet the new issue, Falconbridge Gold Chairman Brian Ferguson is convinced that the company and the share price has nowhere to go but up. Shares of Falconbridge Gold

will be listed for trading on the Toronto Stock Exchange Jan 24.

Shares of the new company will be issued to shareholders Jan 31 as part of a recent agreement in which Falconbridge acquired a 24.7% block of its own shares from Placer Dome Inc. (TSE) and subsidiary McIntyre Mines (TSE). The new company will contain two operating gold mines and 13 exploration properties in the Timmins, Ont. region.

At a cost of $268(US) per oz, Falconbridge Gold expects to produce 69,700 oz of gold this year from the Owl Creek and Hoyle Pond mines which were operated by the parent company as part of its over-all Kidd Creek base metals operation in Timmins.

With 13.3 million shares outstanding, the 51%-owned Falconbridge Ltd. subsidiary will also have an estimated asset value of about $100 million, according to Merrill Lynch.

Based on a gold price of $425 per oz and production at close to 70,000 oz, earnings are expected to be in the $5 million range.

Nevertheless, Ferguson is well aware that now is not the best time to be launching a new gold company.

“There is a lack of enthusiasm for gold stocks generally, but the people who hold Falconbridge Ltd. shares are not necessarily the kind of people who will want to hold onto Falconbridge Gold shares,” he said. “It is inevitable that the new issue will take a beating.”

In a bid to realize the potential of its assets, Falconbridge Gold will spend about $5 million this year on exploration. About $3.5 million of that is earmarked for the Owl Creek mine where Falconbridge will attempt to expand reserves of 532,000 tons grading 0.204 oz gold per ton and investigate down to the 600 m level.

An underground mining operation could follow depending on results of the program.

At the nearby Hoyle Pond mine where proven and probable ore reserves stand at 444,010 tons of 0.481 oz, Falconbridge Gold is planning to spend $1 million a year over the next five years to develop additional ore.

In addition, $1.4 million will be spent this year on a number of outside properties including the Falconbridge Hoyle which produced 79,000 oz gold between 1940 and 1948. While the project isn’t considered economic at current prices, total reserves in three zones stand at close to six million tons grading 0.079 oz gold per ton.

“We have a head start in the exploration stakes and funding will be from operating cash flow,” said Ferguson.

While the parent company will retain its two gold mines in Zimbabwe and Botswana (they produced 25,000 oz last year) plus all exploration properties outside Timmins, it will also hold onto its controlling stake in Falconbridge Gold, according to Ferguson.

As reported Falconbridge shareholders of record on Jan 24 are scheduled to receive shares of the new company on a one-for-10 basis (N.M., Dec 12/88). No fractional Falconbridge Gold shares are to be issued. Instead shareholders will receive $7.50 in cash on the basis of one Falconbridge Gold share held at the time of distribution.

To pay for the dividend and about 25,000 oz gold which Falconbridge Ltd. is transferring into its subsidiary, the new company has negotiated a $22.5-million gold loan facility. It is comprised of a $12.5-million revolving term facility and a $10-million operating line of credit.

The loan is unusual in that it is secured by current as opposed to future production.

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