Westfield’s sale of Chilean mine draws criticism

While Westfield directors have done nothing illegal in agreeing to sell the company’s mining assets which included a 35% stake in an 85,000-oz-per-year Chilean gold mine and a promising zinc property in Manitoba, some shareholders are upset that the nature of the company has been completely altered without their consent. Stripped of its mining interests, Westfield is now a cash-rich holding company, not the growing gold producer in which investors thought they had been investing.

“What they have done is almost unbelievable,” said a Toronto broker who had been buying Westfield shares on clients’ behalf because of the Chilean gold mine.

Before the agreement was signed, Westfield’s most prized asset was the Choquelimpie gold-silver deposit in Chile, which Mike Cahill, a long-time Westfield shareholder, says could produce as much as 130,000 oz gold next year at a maximum cost of $225(US) per share. A joint venture involving Shell Chile (42%) and Citibank N.A. (23%), it hosts 7.7 million tons of open pit reserves grading 0.058 oz gold and 1.75 oz silver per ton. Westfield’s exploration portfolio also included a Manitoba zinc-copper project that is being drilled by Minnova Inc. (TSE).

In addition, Westfield held a 10% stake in Northgate which has been moving rapidly to simplify a complicated array of assets and become an operating mining company.

Because control of Westfield was recently sold by Australian gold producer Whim Creek Consolidated to a Bronfman-controlled Bermuda banking company, minority shareholders have been waiting for a major announcement.

As a result of the sale, Westfield is now a 53% owned subsidiary of American Resource which, like Northgate, is connected to the Bronfman’s vast financial empire.

The American Resource deal prompted a Toronto broker to remark: “We anticipated that Northgate wanted the assets. But we didn’t think they would go about it like this.”

Under the agreement, Westfield has transferred all of its North and South American mining assets to Norwest Holdings which was set up last year to hold the 15% stake previously held by Northgate and Westfield in Whim Creek Consolidated.

In February, Northgate and Westfield’s stake in Whim Creek was sold to Dominion Mining, another Australian gold producer.

In addition, Northgate has also acquired Westfield’s 51% stake in Norwest Holdings for $6 million net of repayment of a $8.5 million owed to Northgate by Westfield. Northgate already held the remaining 49% stake in Norwest before the transaction was completed.

As part of the transaction, Westfield has repaid all its outstanding debts to Northgate and Whim Creek.

While a Westfield spokesman said shareholders can still participate in the transferred assets through the company’s 10% stake in Northgate, at least two Westfield shareholders are examining their options.

They say they are particularly upset that the company’s main asset, the Choquelimpie interest, has been sold at a time when the operation is just starting to fulfill its potential.

“Finally, when your ship comes in you realize that your ship is the Titanic,” said one long-time Westfield shareholder who estimates that his shares are worth only $2 without the mining assets, compared with $7 before the deal was announced. The shares were trading recently at $1.34 in a 52-week range of $1-$2.10.

However, according to Northgate President John Kearney, the deal was approved unanimously by an independent committee of directors, consisting of Westfield directors who are not officially associated with Northgate.

Kearney is one of six Northgate executives who have seats on Westfield’s 13-member board of directors.

“All of the money which Westfield invested in the Chilean mine was borrowed from Northgate and that money was long overdue,” said Kearney.

“Westfield owed $8.5 million to Northgate and $8.6 million to Whim Creek which it had no way of paying back and we had no money available for exploration,” Westfield President Danesh Varma told The Northern Miner.

“Depending on how Northgate performs, we will either increase our stake in Northgate or look at other mining-related investments,” said Varma. “This is an opportunity for us to start again.”

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