Viceroy, Baja and Loki plan a three-way merger

A proposed merger among three Toronto-listed juniors — Viceroy Resources, Loki Gold and Baja Gold — is expected to reverse the perception that Viceroy has limited production potential.

The combined company will feature a new mine development, together with an advanced gold project.

Under the agreement, Baja and Loki will be amalgamated, with one share in each company exchangeable into 0.7 and 1 share, respectively, of the new company.

Viceroy will then complete the merger by issuing one Viceroy share for each 2.3 shares of the amalgamated company, thereby acquiring a 100% interest in the new entity.

Viceroy currently has 25.3 million shares outstanding on a fully diluted basis. The merger, which should be concluded by early July, will boost that number to 48.7 million.

Ross Fitzpatrick, currently president of Viceroy, will become chairman and chief executive officer; Paul Saxton, president of Loki, will become president of Viceroy; and Ronald Netolitzky, chairman of Baja, will head up Viceroy’s international exploration arm.

Saxton says the merger is an excellent fit and offers something for all shareholders.

Annual gold production for the combined company is expected to increase to 230,000 oz. per year by 1999, up from the 110,000 oz. projected for fiscal 1996.

Principal assets of the new company will be a 75% interest in the Castle Mountain heap-leach mine in California, a 100% interest in the Brewery Creek mine development in the Yukon, and a 40% stake in the Paredones Amarillos property, a gold project being developed in Mexico.

Viceroy holds a 75% interest in the Castle Mountain open-pit mine, as well as equity interests in three exploration companies, including 7 million shares of Channel Resources (TSE), 5.7 million shares of Oro Belle Resources (VSE) and 2.6 million shares of Pacific Wildcat Resources (VSE).

Minable reserves at Castle Mountain, as of March 31, 1995, totaled almost 29 million tons grading 0.035 oz. gold. Production for the year ended March 31, 1996, is expected to be 147,000 oz. (110,250 oz. net to Viceroy) at a cash cost of roughly US$200 per oz.

Viceroy is debt-free and, at the end of fiscal 1995, had $46 million in working capital.

Brewery Creek

Loki Gold’s principal asset is Brewery Creek, an open-pit, heap-leach gold project in the Yukon which is expected to start up in September.

Development plans call for mining of eight deposits containing a total of 18.4 million tons grading 0.043 oz. gold. The overall stripping ratio is projected at 1.2-to-1.

Annual production is forecast at 80,000 oz. gold at a cash cost of US$173 per oz.

The capital cost for Brewery Creek will be about US$41 million, which is being funded through a US$26.5-million loan and share issue completed last year.

Baja Gold’s principal asset is its 49% interest in the Paredones Amarillos property in Mexico.

Echo Bay Mines (TSE) has already vested for a 51% interest in the project and is expected to increase this to 60% in the near future through the payment of US$1 million to Baja. Under the joint-venture agreement, Baja’s funding obligations are carried through to the completion of a feasibility study, with a provision for payback from cash flow.

William Meek, a spokesman for Baja, reports that Echo Bay has budgeted US$5 million for the property this year, which will be used to finance infill drilling, metallurgical work and permitting efforts.

A full feasibility study should be ready by September.

The minable resource, at a 3-3.5-to-1 stripping ratio, is estimated at 30 million tons grading 0.04-0.044 oz. gold.

Saxton says preliminary estimates by Baja, based on a 11,000-ton-per-day milling operation using flotation and carbon-in-pulp leaching, project annual production at 150,000 oz. gold at a cash cost in the range of US$225 per oz.

Ball park estimates place the capital cost of the project at US$80-85 million.

Baja currently has 16 million shares outstanding on a fully diluted basis and $2 million in working capital.