Ian Telfer, CEO of
He took the unusual step of offering up the phone number for Coeur d’Alene Mines second-quarter conference call and the office number for Coeur d’Alene boss Dennis Wheeler, urging shareholders to ask him when he’ll make his offer and why he is making it.
Later in the day, one Wheaton investor managed to do just that, confronting Wheeler on what he summarized as a “parasitic bid that is holding back the price of Wheaton shares. If you had currency to offer, you would have offered it by now. You can’t afford this company. It’s out of your league. Go away! If you add another share to [the offer], your stock’s going to trade at two dollars.”
Wheeler responded: “This is a free country and you’ve had an opportunity to express your view. Thank you.”
Sept. 9 is the deadline for the creation of Wheaton’s silver spinoff, Silver Wheaton.
During the previous conference call, Telfer lambasted Coeur’s offer: “At the present time, no offer has been made in Canada; Coeur is not a bidder, though it continues to put out press releases asking to be treated like a bidder. Golden Star was able to put out an offer [for
Wheeler countered that Coeur would soon mail definitive proxy materials for approval by Coeur shareholders at a meeting slated for the second half of September; an offer would be made to Canadian shareholders thereafter. He blamed the delay on stringent regulatory rules in Canada and the fact that documents had to be translated into French.
Telfer went further, saying “no single Wheaton shareholder has indicated any interest in Coeur d’Alene, or its paper, money, management or assets. A number have phoned Dennis Wheeler and told him this.”
Wheeler called the assertion untrue, adding he had received several expressions of support from Wheaton River’s shareholders, or obviously he would not still be pursuing the bid.
Coeur’s bid remains at 0.796 of one of its shares — or $5.47 in cash, up to a limit of $570 million in cash — for each share of Wheaton. If all of Wheaton’s shareholders elect to take the cash, they would be limited to $1 per share, with the balance made up with shares. Wheaton says it will not make a recommendation to shareholders until the offer has been sent to investors on both sides of the border.
Any formal offer for Wheaton River in Canada must remain open for at least 35 days.
Almost as an aside, Wheaton reported sharply higher second-quarter earnings of US$21 million, as revenue tripled to US$89.3 million. In the first half, earnings more than tripled to US$54.8 million (US10 per share), while revenue jumped more than fourfold to US$202.5 million.
The impressive increases reflect the 2003 acquisition of a 37.5% interest in the Alumbrera gold-copper mine in Argentina and the Peak gold mine in Australia. The company also realized higher prices across the board.
So far this year, Wheaton has produced 252,700 oz. gold, 3.3 million oz. silver, and 34,191 tonnes copper, all ahead of the year-ago pace. Total cash costs per equivalent gold ounce fell to minus US$26, from US$119 per oz. a year earlier.
Looking ahead, the company expects to produce 540,000 oz. gold-equivalent at a cash cost of less than US$50 per oz. in all of 2004. By 2006, when the Los Filos project in Mexico and the Amapari project in Brazil are expected to be up and running, production is forecast at 900,000 equivalent ounces at less than US$100 per oz.
By quarter’s end, Wheaton had more than halved its long-term debt to US$65.5 million: the company’s cash and equivalent position stood at US$103.5 million.
For its part, Coeur ended the second quarter with a “comprehensive loss” (Coeur’s accounting term) of US$6.1 million (or US3 a share), compared with a year-earlier loss of US$4.2 million (US3 a share). The bigger loss is attributed to increased spending on expansion and exploration. Revenue between the two periods edged 2% higher to US$27.1 million.
Coeur’s “comprehensive loss” piled up to US$7.9 million (US$3 per share) during the first half of 2004; still, that’s better than the US$35.8 million (US26 per share) it lost a year earlier when it retired debt arising from a major restructuring. Revenue was little-changed at US$56.1 million.
Telfer couldn’t resist taking a shot at Coeur’s loss, saying “they went around during the discussion of this merger and told a number of our shareholders that they had turned the corner and would be profitable going forward, and yet we have another quarter with Coeur d’Alene losing money. In our view, they continue to mislead shareholders in their press release, comparing some operating statistics to the first quarter of 2004 and others to the second quarter of 2003, whichever made them look better.”
Coeur said it would restate results for 2003 and the first quarter of 2004 to correct a timing error in accounting for price changes for concentrate sales under some contracts. The company says the changes boost revenues and trim its loss.
So far in 2004, Coeur has churned out 6.8 million oz. silver and 49,960 oz. gold, less than a year ago in both cases. Total cash costs climbed US$1.17 per silver oz. to US$5.65 per oz. Also, realized prices for silver and gold were both higher. The company expects to pour 14.4 million oz. silver and 142,000 oz. gold in all of 2004.
Looking ahead, Coeur figures the startup of the San Bartolome project in Bolivia will boost its silver production by 40%, beginning in 2006. The Kensington project in Alaska is slated to begin producing the same year, and should increase Coeur’s gold production by 75%.
So far, Coeur has spent about US$2 million in its quest to take out Wheaton. At the end of June, Coeur had cash and equivalents totalling US$164.9 million; total liabilities and shareholder’s equity was US$419.1 million.
Regarding the Silver Wheaton transaction, Telfer says plans call for expanding the company via acquisitions. He adds that several potential targets have already been identified.
Under the plan, Wheaton River will sell all the silver produced from its Luismin operations in Mexico to
As part of the deal, Chap has privately placed 175 million subscription receipts priced at 40 each for gross proceeds of $70 million. The proceeds, less $1 million, will be applied to the Luismin acquisition. The shares issued to Wheaton will be subject to a 4-month hold period.
Originally, the Chap financing was planned to max out at $50 million, but it was boosted to $70 million because of excessive demand. “We had almost US$200 million in orders and raised the amount of the financing to US$70 million,” says Telfer. “Wheaton will still get its share of the US$50 million, with US$20 million staying with Silver Wheaton.”
Each subscription receipt allows the holder to buy one Chap share plus half a 5-year warrant at no additional consideration. Each warrant is good for an additional share at 80 apiece. The securities carry a 4-month hold period.
Proceeds from the placement will be held in escrow pending completion of the Luismin transaction, which is subject to the signing of definitive agreements and the approval of regulators and Chap shareholders. The deal is expected to wrap up in early September, at which time Chap will be renamed Silver Wheaton.
The group of investment dealers that arranged the financing will receive commissions and fees totalling 6% of the gross proceeds.
In the end, Wheaton River will hold about 75% of Silv
er Wheaton’s 724 million outstanding shares. Originally, the $50 million financing would have left Wheaton with an 80% interest. Shares in Chap have moved to tier 2 of the TSX Venture Exchange.
Telfer says the scheme gives Wheaton shareholders the valuation of 20 years of cash-flow up front in cash and shares. He figures the deal adds about 35 to the value of every Wheaton River share. The difference between the US$3.90 sale price and cash costs of around US$2.50 per oz. will be used to reduce Luismin’s gold production costs.
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