Shore Gold offers to merge with Kensington

Vancouver With the blessing of majority shareholder Newmont Mining (MEM-N), Shore Gold (SGF-T) plans to merge with Kensington Resources (KRT-V) and consolidate their respective holdings in the Fort a la Corne diamond district of Saskatchewan.

Kensington President Robert McCallum described the combination of the two companies as "an unparalleled opportunity to realize the growth potential of one of the largest diamond fields in the world."

Shore’s key asset is the Star kimberlite, where exploration to date has outlined more than 240 million tonnes of kimberlite grading 15.7 carats per hundred tonnes. A pre-feasibility study is under way for a potential diamond mine. Shore plans to spend $21 million to advance the project this year, for a total budget of $44 million by 2007.

Kensington, meanwhile, holds a 42.25% interest in the Fort a la Corne joint-venture operated by partner De Beers. A $26.5-million exploration program is under way to outline at least 70 million carats of diamonds and advance the project to pre-feasibility. So far, 63 kimberlite bodies have been identified, including 369 million tonnes hosting an estimated 35 million carats.

The terms of the proposed merger call for Shore to offer 0.64 of its common share for each Kensington common share. The offer values Kensington’s shares at $3.49 per share, which represents a 45% premium over the closing price on August 12.

Kensington shareholders will vote on the merger proposal at a special meeting on October 27. At least two-thirds of shareholders must vote in favor of the merger for it to proceed.

Once the merger is completed, Shore will have about 145 million shares outstanding (162 million fully diluted) and a cash position of about $175 million ($220 million fully diluted) with no debt. The combined company would have a market capitalization of more than $780 million and increased trading liquidity, as well as potential economies of scale as its projects advance to production.

The board of the combined company will be comprised of five existing Shore directors and three Kensington nominees. Newmont intends to maintain a 9.9% interest in the combined company.