TVX cleans house

Echoing management’s cry for a new beginning, shareholders of TVX Gold (TVX-T) have approved the early conversion of the company’s US$250-million, gold-linked convertible notes.

The decision, which eliminates US$9 million in interest payments, leaving the company with US$50 million in cash (net of debt), received the blessing of 81% of shareholders at TVX’s annual meeting in Toronto. About 99% of note-holders had agreed to the deal beforehand, leaving the final word to regulators.

The notes will be exchanged for 321.5 million TVX shares, inflating the number now outstanding to 357.2 million. Sean Harvey, president, told shareholders that the conversion nevertheless removes dilution uncertainty by fixing the conversion price.

“The increased market capitalization will assist us in consummating transactions, which should lead to further growth opportunities,” he said. “We also expect an increased institutional and analyst following, post-conversion.”

TVX has undergone a notable transformation over the past two years, beginning with the joint-venturing of its North and South American operations to Normandy Mining (NDY-T). The deal came with a US$150-million line of credit, but TVX has since had this scaled back to US$20 million and may soon replace it altogether with a bank facility.

Last summer, the TVX board took another step by forming a special committee to review alternative directions for the company with the aid of outside counsel. A board reduction and other corporate shakeups followed, culminating most recently in the decision to retire the notes.

Harvey did not rule out the possibility of another share consolidation, similar to a 1-for-5 consolidation a year ago, nor additional deals, nor outright sales. As for the Greek projects, he reiterated that the Stratoni silver-lead-zinc mine must continue as a stand-alone operation and that partners will now be sought for the nearby, advanced Olympias and Skouries projects.

TVX began treating Stratoni as an individual business last year, five years after acquiring it. Although long a money-loser, the mine is expected finally to turn a profit this year. However, if, as planned, US$3 million is channelled to Olympias, Strantoni will only break even on a cash basis.

In 2001, Stratoni is expected to produce 80% more metals than it has previously, or 1.8 million oz. silver, 30,600 tonnes zinc and 28,700 tonnes lead. At this rate of production, reserves are sufficient for four years of production, though mineralization remains open at depth, below a nearby townsite.

Nothing new was revealed about Olympias, except the newly preferred development route. A decision by the Greek Conseil d’Etat, the country’s highest administrative law court, regarding the validity of the permits already issued is expected no earlier than September.

Assuming the court rules in TVX’s favour, Chief Financial Officer Mel Williams anticipates another six months will pass before the final, construction permit is issued. This assumes no other legal challenges are brought forth. “If the court rules favourably for the [environmental impact study] and pre-approval of site, it will rule favourably for the construction permit,” Williams said.

In 2000, SNC-Lavalin estimated Olympias’s capital costs at US$258 million. Williams confirmed that US$40-50 million of that amount can be covered by European grants.

TVX expects the operation to yield an internal rate of return of 16.7% and a net present value, discounted by 5%, of US$199 million. Tax credits are not considered, but the required metal prices are: US$325 per oz. for gold, US$5.50 per oz. for silver, US55 per lb. for zinc and US25 per lb. for lead.

Annual production in the first five years should average 235,000 oz. gold, 2 million oz. silver, 19,700 tonnes zinc and 18,200 tonnes lead. Production in each of the remaining 14 years of the mine’s life is forecast at 153,000 oz. gold, 2.4 million oz. silver, 31,300 tonnes lead and 25,000 tonnes zinc.

Cash costs are pegged at US$72 per oz. gold, net of byproduct credits, for the first five years, and an average of US$50 per oz. thereafter.

Skouries, a porphyry deposit with 130 million tonnes grading 0.9 gram gold per tonne and 0.6% copper, is to be developed after Olympias. No permits have been obtained to date. A 1999 feasibility study concluded that the deposit could support a 16,000-tonne-per-day operation over 20 years. Production in the first five years is forecast at 200,000 oz. gold and 32,500 tonnes copper. Cash costs are pegged at US$22 per oz., net of copper credits. Capital costs are estimated at US$240 million.

As for the TVX-Normandy joint venture, operations are running as planned. TVX expects its share of gold production to top 243,800 equivalent-ounces in 2001, at a production cost of US$251 per oz. The TVX-Normandy mines include La Coipa in Chile, Crixas and Brasilia in Brazil, New Britannia in Manitoba, and Musselwhite in Ontario. All are run in partnership with third parties, and each has at least six years of reserves.