SOB demands second study for Prime/Calpine merger

The VSE’s decision to wash its hands of the controversial merger was overruled by the British Columbia Securities Commission which held its ground to insist that a second independent study be done to address the concerns of minority Calpine shareholders.

Wade Nesmith, British Columbia’s newly-appointed superintendent of brokers, told The Northern Miner his office is requesting the second study solely because the companies being merged have totally overlapping boards of directors.

“Ordinarily, a company such as Calpine would have independent directors, or in this case directors who are not on the board of Prime, to commission an independent report,” he said. “We are attempting somewhat artificially to do what those independent directors would have done had they existed.”

But Nesmith also said it will be up to the firm retained to prepare the second opinion to determine if an evaluation of Eskay Creek can be done at this time.

“That isn’t our concern,” Nesmith said. “The issue will be addressed by the independent report which may or may not agree that it is too early to provide an evaluation based on some analysis of the potential of the property.”

“The point is not what conclusion the study comes to, but that it is prepared independently from the concerns of Prime,” he added. “What the firm retained will do is provide information that will assist Calpine shareholders in making their decision to vote for or against this deal, and that’s all.”

Management of Calpine and Prime insist that it is not yet feasible to give a meaningful estimate of intrinsic value for the Eskay Creek project.

In a supplement to its circular sent to shareholders, management of the associated companies described Eskay Creek as “one of the most significant mineral discoveries in Canada in the past decade.”

According to the supplement, the favorable mineralization at Eskay Creek has been identified over a strike length of about 1,350 m to a depth of 200 m by more than 160 diamond drill holes. Since releasing the circular, Calpine issued two news releases disclosing assays from 22 additional holes which demonstrate continuity in the Central zone with the North zone.

And as if to underscore the difficulty of assessing the value of the deposit, shareholders also received a letter that summarized various mining analysts’ wide range of attempts to estimate reserves at the 21 zone.

But a preliminary or initial reserve calculation of Eskay Creek is expected to be completed by Roscoe Postle Associates by February. According to the Toronto-based firm, these reserves will be geological or in-situ reserves, and will be reported in the probable (indicated) and possible (inferred) categories.

In the meantime Calpine and partner Stikine Resources (VSE) plan to spend about $15 million by mid-1990. A total of eight rigs will be working on the property to drill the presently identified mineralized zone off at 25-m centres. Upon completion of the in-fill drill program, it’s expected the partners will drive an adit into the zone to gain further knowledge of the structure and continuity and allow for a bulk sample for metallurgical testing. Upon completion of this work, a feasibility study will be prepared.

On the corporate side, the meetings of Prime and Calpine will be held as scheduled to deal with matters except those that involve the proposed merger. The resolution respecting the proposed merger will be adjourned to a future date.

In accordance with the ruling by the Securities Commission, a further opinion will be prepared for Calpine shareholders on the basis of terms of reference acceptable to the Securities Commission and its advisers.

Recently Prime Resources announced it had completed the purchase of four million shares of Calpine to bring its holding to 45.48% of its issued and outstanding capital. The shares were purchased through the exercise of warrants. Corona Corp. (TSE) is a significant shareholder of Prime Resources.

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