Teck Cominco to give SGW bid the nod

With no competing bid on the horizon, Teck Cominco (TEK-T) says it intends to accept Sons of Gwalia‘s (SGW) takeover bid for PacMin Mining, which is an 80%-controlled subsidiary of Teck Cominco.

SGW launched its bid for fellow Australian gold miner PacMin on Aug. 23.

SGW is offering five of its own shares for every 28 PacMin shares. The offer valued PacMin at A$1.20 per share, representing a 29% premium to the PacMin closing share price on Aug. 22, the day prior to the announcement of the bid.

There are 132 million PacMin shares outstanding. SGW will also pay up to A$6.10 cash for PacMin’s 7.7-million redeemable convertible preference shares, all of which are held by Teck. The total value of the paper and cash bid is A$206 million.

SGW’s bid is subject to the tendering of 90% of PacMin’s shares.

If the offer is successful, Teck Cominco stands to receive net proceeds of about $40 million in cash, plus a 12% stake in SGW.

It is anticipated that SGW will mail out its offer documents shortly. Under Australian law, the offer must remain open for at least a month.

"Whilst Teck Cominco remains committed to the gold business, PacMin’s Tarmoola and Carosue Dam operations are not of a scale that will be significant economic contributors to Teck Cominco following the recently completed merger with Cominco," says Steven Dean, Teck Cominco’s president. "There are substantial synergies to be achieved by combining the operations of PacMin and SGW, particularly in the Leonora region of Western Australia.”

The Tarmoola and Carosue Dam open-pit mines are expected to account for nearly half of Teck’s forecast production of 650,000 oz. in 2001.

For the first six months of 2001, Tarmoola, near Leonora, produced 87,768 oz. The newly commissioned Carosue Dam mine, 110 km northeast of Kalgoorlie, produced 56,216 oz.

Dean says that, if the bid is successful, Teck Cominco will use the cash proceeds from the sale of the preference shares to fund business growth opportunities that meet the new company’s investment criteria.

PacMin posted a net profit of A$7.2 million for the fiscal year ended June 30. The company produced 221,039 oz. gold during the year. The Tarmoola mine contributed 155,447 oz., down from 180,000 oz. in 2000. The Carosue Dam operation in Western Australia added 65,592 oz. At June 30, PacMin held a stake in resources totalling 127.7 million tonnes grading 1.72 grams gold per tonne for just over 7 million oz. PacMin’s equity share is 6.64 million oz. The company realized an average gold price of A$537 per oz. in the period. This was some A$36 per oz. above the average spot price over the term.

SGW is a gold and tantalum producer based in Perth.

For the year ended June 30, the company posted a net profit of A$63.7 million, up 9% over the previous year. Revenue rose 16.6% to A$428.9 million.

SGW’s advanced minerals division produced and sold a record 1.6 million lbs. tantalum concentrate from its Western Australia operations at Greenbushes and Wodgina, and contributed A$61.3 million in earnings, up 79% over last year.