Shareholders OK Hope Brook sale

Shareholders of Hope Brook Gold Mines (TSE) have voted in favor of a reorganization which will transform the public company into a wholly owned subsidiary of BP Canada (TSE).

Casting ballots at the company’s annual meeting in Toronto, shareholders voted by more than 98% to accept BP’s offer to redeem, at $1.20 per share, all of the common shares of Hope Brook owned by public shareholders. The international oil company currently has a 75.6% interest in Hope Brook.

The share redemption, which was scheduled to take effect June 27, will give BP the flexibility to put an end to further losses at Hope Brook’s money-losing gold operation in Newfoundland, where mining is currently under suspension. One option being considered is to shut down the mine altogether.

BP will also be in a position to stem the flow of its loans to Hope Brook, which in the words of Hope Brook president John Auston, have allowed the company to “stay afloat”. During the past three years, Hope Brook has accumulated a debt of $99.3 million, about 70% of which is owed to BP.

At the same time, shareholder equity declined to $14.3 million at the end of 1990 from $82.9 million on Dec. 31, 1988.

“The financial well-being of Hope Brook has deteriorated to the point where shareholders’ equity, as reflected by the financial statements of Hope Brook, is near zero, necessitating financial restructuring,” the company said in a management proxy circular.

According to an independent committee set up to establish the fairness of the BP proposal, a gold price of at least US$650 per oz. would be needed to match the $1.20-per-share offered to Hope Brook shareholders. Securities firm Richardson Greenshields, hired by the committee as its financial adviser, set the fair market value of each common share in the range of 54 cents-$1.01. Before the proposal was made, Hope Brook shares were trading at 45 cents in a 52-week range of 40 cents-$2.25

After spending $10-million to replace the mine’s effluent treatment system, add a sorting circuit to the grinding mill and increase haulage in the underground mine, Hope Brook lost $16.7 million (56 cents per share) in 1990. A $30 million writedown in the carrying value of its assets brought the loss to $49.8 million.

Auston also blames the decline in the gold price, coupled with a strong Canadian dollar, for the Newfoundland miner’s woes. Since starting production in 1987, Hope Brook has suffered a 25% decline in the yellow metal’s value.

“This is a crippling blow to a new and relatively low-grade producer such as Hope Brook,” Auston told shareholders.