Westmin shareholders approve sale of petroleum division

Although the non-arms-length transaction still requires favorable tax rulings and the approval of Norcen shareholders, the stage is set for Westmin to return to its mining roots with a lighter debt load and a new mandate for growth.

The company will operate under the name Westmin Mines. Head office will be moved to Vancouver from Calgary and some layoffs are expected in the process.

Paul Marshall, president of Westmin and chairman of Norcen Energy, said the decision to sell the petroleum division assets for a total consideration of $472 million was made reluctantly.

“This transaction will replace what would have been a slow tortuous journey to financial health with a strong balance sheet and substantially improved earnings and far less dependence on the vagaries of world markets,” he said. By concentrating in a single industry, management also believes Westmin Mines will better reflect its value on equity markets.

Under the terms of the $472 million sale agreement, Westmin will buy $315 million of various subordinated debentures of a subsidiary of Norcen. The remaining cash proceeds of $157 million will be used to retire long-term debt.

Marshall argued that although the company could adequately service its $280-million debt load, the situation did not allow for expansion in either division. The transaction is expected to reduce Westmin’s debt to about $130 million. Westmin had put its mining division on the block earlier this year in a bid to improve its financial position, but Marshall told sharehold ers no acceptable offers were received.

Despite some tough grilling by shareholders on the tax-related complexities of the transaction, Marshall strongly defended the sale of the petroleum division. The division brought in $4.3 million in operating profit during the 1989 first quarter, up from $2.8 million for the same period in 1988.

“We had to do something to turn this company around,” he said, dismissing a suggestion that the deal represents a hidden agenda for the mining assets to eventually end up as part of Noranda Inc. Noranda, Westmin and Norcen Energy are all controlled by the Brascan Limited/Brascade Holdings group.

Westmin incurred considerable debt to bring its polymetallic H-W mine/mill complex on Vancouver Island into production, and then to upgrade mill throughput to 4,400 tons per day.

Westmin also was responsible for its share (50.1%) of the $92 million in capital costs for the 2,200-ton- per-day Premier Gold project near Stewart, B.C. The open pit operation is now in the tune-up phase and commercial production is expected to begin later this year.

Westmin’s mining division had an operating profit of $3.5 million in its 1989 first quarter, compared to $8.2 million in the same period a year earlier.

The company said production was affected by power problems, lower zinc and copper grades and higher operating costs. A stronger Canadian dollar also hurt on earnings, as did settlement of forward sales contracts which left Westmin unable to benefit from better than anticipated metal prices for zinc and copper.

]]>