Placer to buy BP’s 30% stake in Mt. Milligan for $79 million –

The Mt. Milligan gold-copper project north of Prince George, B.C., appears to be well on its way into the hands of major mining company, Placer Dome (TSE). Having secured an agreement to buy a 30.16% interest in Mt. Milligan from BP Canada (TSE), Placer Dome now intends to proceed with an offer to purchase all the shares of Continental Gold (TSE) which owns 69.84% of the bulk tonnage project and is operator.

If all shares are tendered, the major company would pay an estimated total of $260.8 million for 100% of the advanced project which is projected to produce about 400,000 oz. gold and 83 million lb. copper annually when in full production.

Continental Gold President Robert Dickinson said Placer Dome’s involvement in Mt. Milligan is “good news for everyone” and paves the way for the project to become one of Canada’s largest new mine projects of this decade.

“Placer Dome has considerable experience operating large mines in this province at the lowest possible operating cost,” he said.

Last month Placer Dome announced it would make a public tender offer for all Continental shares if it could resolve outstanding litigation between BP and Continental Gold. BP was seeking a greater interest in the project relating to the original agreement between it and a predecessor company to Continental Gold.

By paying $78.8 million for BP’s stake in the project, Placer Dome will acquire BP’s interest in all the claims and other mining rights within the joint venture. It will also acquire BP’s interest in the British Columbia Supreme Court action against Continental Gold, thus paving the way for dismissal of the legal action.

BP Canada expects that it will take about 30 days for the sale to close after receipt of Competition Act clearance. Continental Gold has already given its consent to the sale.

Last month Placer Dome and Continental Gold announced details of a lockup agreement whereby certain shareholders of Continental Gold agreed to tender all their shares to Placer Dome if a public bid is made before Oct. 22. Four of the shareholders — Robert Hunter, Robert Dickinson, Jeff Franzen and Douglas Forster — are also directors of Continental Gold.

The agreement with the shareholders involves 2.67 million shares, or about 30% of Continental Gold’s outstanding shares on a fully diluted basis. In the event of an offer, the shareholders would receive not less than $20 cash per Continental share, or alternatively one Placer Dome common share for each common share of Continental.

Even though Mt. Milligan still has a few skeptics in view of its hefty $300- to $325-million price- tag for capital costs, most analysts appear to be viewing Placer Dome’s plans to acquire the project as a positive development.

A Sept. 4 research report by David James of Richardson Greenshields projects that the gold only reserve (not yet in the proven and probable category) increment of 6.35 million oz. at Mt. Milligan “represents a 33% increase in Placer’s year-end 1989 net reserves of 18.9 million oz.” The report also projects that Placer Dome will likely complete the feasibility study by year-end and could be in production as early as 1993.

“This Canadian-based project should have a favorable after-tax effect on Placer and certain economies may be created with the 1992 closure of 58.8% owned Equity Silver (a Placer Dome subsidiary) operation near Houston, B.C.” the report states. “Mt. Milligan will put Placer’s overall production in 1993 and after at over two million ounces annually.”

Two other major companies, Hemlo Gold Mines (TSE) and Rio Algom (TSE), each holds minor equity interests (4% and 9% respectively) in Continental Gold. Both companies will have the opportunity to tender their shares to the Placer Dome offer.