Pegasus planning merger with U.S. gold producer

Although the company hasn’t abandoned its policy of developing new mines, Pegasus Gold (TSE) appears to have switched strategy, at least temporarily, to increase its gold output.

Pegasus has entered into a merger agreement with CoCa Mines, a small U.S. gold producer with operations in southern California. The company appears to be a good fit for Pegasus which operates four mines in the western U.S. and expects to produce approximately 270,000 oz gold and 1.5 million oz silver this year.

Under the merger proposal, CoCa shareholders will receive 0.485 of a common share of Pegasus for each share of CoCa held. The merger, which is expected to be non-taxable for federal income tax purposes in the U.S., requires approval by the majority of CoCa shareholders. A group holding 47% of CoCa’s outstanding stock has agreed to vote its shares in favor of the merger.

President Jim Foreman says the merger will provide Pegasus with “immediate gold production and excellent properties which can be put in production over the next three years.” And CoCa’s chairman, Tom Congdon, contends the Pegasus shares received by CoCa shareholders will be “highly liquid and will give CoCa shareholders the opportunity to participate in Pegasus’ growth.” Congdon will become vice-chairman of the merged company.

CoCa operates the Cactus mine in the Mojave mining district of California. In 1987, the operation produced 26,400 oz gold and production should increase later this year when the nearby Shumake project comes on stream. Construction costs are estimated at $9.3 million(US) and the deposit will extend existing mine life to at least 1994. In 1989, production from the Cactus properties should be about 60,000 oz gold and equivalents; of that amount 42,000 oz of that will accrue to CoCa.

The merged company will have 288,000 oz gold production in 1988 and 340,000 in 1989 plus 3.7 million oz of gold reserves. In the latest quarter ended March 31, Pegasus reported net earnings of $1.7 million or 7 cents per share compared to a net loss of $273,000 or 2 cents last year.

The increase in profitability for the first three months was attributed to higher precious metals production and to the addition of lead and zinc production from Montana Tunnels near Helena, Mont. Historically the company has tended to report losses in the first quarter because some of its heap leach operations are seasonal.