In its struggle to fend off
The shell company will pay $262 million in cash and shares up front plus US$3.90 or the prevailing market price (whichever is less) for each ounce of silver delivered. Thereafter, the per-ounce price will be increased to adjust for inflation. Wheaton is obligated to deliver 120 million oz. silver over the next 25 years.
As part of the deal, Chap Mercantile, which will be renamed Silver Wheaton, will carry out an equity financing to raise $30-50 million. The funds, less $1 million, will go toward the Luismin acquisition, with the balance made up of Silver Wheaton shares at a deemed price of 40 apiece. The shares issued to Wheaton will be subject to a 4-month hold period.
In the end, Wheaton would be left with 540 million shares or an 80% stake in Silver Wheaton, assuming the financing reaches its goal of $50 million.
Chap Mercantile also plans to consolidate its shares on a 1-for-5 basis and expand its board of directors to include John Brough, Peter Gillin, Eduardo Luna, Wade Nesmith and Wheaton CEO Ian Telfer. Eduardo Luna, a director of Wheaton and president of Luismin, will act as chairman and interim CEO.
The agreement calls for each company to be granted the right of first opportunity on any precious metal exploration, development, or producing properties acquired (and advanced to the feasibility or production stage) by the other in Mexico during the next three years.
If either company exercises its right, the property will be owned 51% by Wheaton and 49% by Silver Wheaton. Wheaton can maintain its pro rata interest in Silver Wheaton for three years as long as it holds at least a 20% interest.
Telfer says the deal was not designed as a response to Coeur d’Alene’s bid, and indeed is slated to close following the expiry of that offer. “In the event Coeur completes its bid for Wheaton on Aug. 27, Coeur will have the option not to proceed with this transaction.”
He also said that there had not been any discussion as to whether Coeur might be interested in bidding for the new silver vehicle rather than Wheaton as a whole.
In a publicly released letter to Wheaton’s board of directors, Coeur CEO Dennis Wheeler expressed “puzzlement” at Wheaton’s plan, stating that, based on the limited information available, the transaction is not one Coeur would undertake or approve. Wheeler also suggests that the plan looks like an obvious takeover defence.
Telfer’s version of the timing of the deal’s development was the source of some contention during a recent conference call in which two analysts corroborated Telfer’s timeline. Telfer also said the creation of Silver Wheaton would have gone ahead had a proposed merger with
In his letter, Wheeler also questioned the timing of the deal, noting that the planned spinoff was never mentioned in Wheaton River’s proxy circular for the failed merger with Iamgold.
During 2003, Luismin produced about 6 million oz. silver; the operations are expected to churn out 6.8 million oz. silver in 2004, rising to 7.5 million oz. in 2005 and 8.4 million in 2006.
At the end of 2003, Luismin’s proven and probable reserves totalled almost 3.3 million tonnes grading 4.65 grams gold and 311.6 grams silver per tonne. Inferred resources (excluding reserves) totalled 15 million tonnes grading 3.1 grams gold and 290.4 grams silver.
“Over the past twenty years, Luismin has converted resources to reserves at a 97% rate, so we’re extremely confident there’s in excess of twenty years of reserves going forward,” says Telfer.
He says the plan allows Wheaton to unlock the value of Luismin’s silver assets, noting that in 18 months, when two other construction-phase gold mines start up, silver will have declined to 11% of his company’s revenue.
Telfer expects that once the new vehicle goes public, its book value will jump to US$160-175 million from the current US$40 million. Initially, Silver Wheaton will trade on the TSX Venture Exchange; on closing, it is expected to flip over to the TSX. Wheaton plans eventually to have the shares trade on the American Stock Exchange.
The deal, which is slated to wrap up in early September, is subject to, among other things, the approval of shareholders of Chap Mercantile and regulators.
Coeur recently mailed out its offer directly to Wheaton’s U.S.-based shareholders. The offer will be sent to Canadian shareholders once a registration form is filed with Canadian regulators. In the meantime, Coeur has released its National-Instrument-43-101-compliant reserve and resource figures at the request of the British Columbia Securities Commission.
Coeur is offering 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’s special committee is reviewing Coeur’s detailed offer and will provide a full report to the board. The company will then issue its recommendation to shareholders.
In related news, Wheaton directors Frank Giustra and Neil Woodyer have stepped down from the board to remove any perception of a conflict of interest that might arise from their dual roles as directors and advisers. Wheaton also says that no Wheaton director has any interest in Chap Mercantile, and there are no fees payable to Endeavour as part of the proposed transaction.
Iamgold’s poison pill
Meanwhile, the battle between
Iamgold’s 1-month plan allows shareholders to buy additional shares at half the going rate, thereby flooding the market and making a takeover prohibitively expensive. The plan is triggered by a bid for at least 20% of Iamgold’s shares, and expires in mid-August.
“The Iamgold poison pill is simply the latest in a series of blocking tactics taken by Iamgold to prevent its shareholders from being given an opportunity to consider our offer,” says Golden Star CEO Peter Bradford. “The Ontario Superior Court ruled that Iamgold has been in play since we first made our proposal on May 27. We believe it was clearly improper to adopt a poison pill without shareholder approval, three days before our offer was due to expire.”
Golden Star has extended the deadline for its bid to July 30 to allow the OSC time to consider its request; the offer was originally set to expire on July 16. The company also says it requires just 50.1% of Iamgold’s shareholders to tender to its bid, down from the original 66.7%.
Iamgold says that without approval from two-thirds of its investors, Golden Star would not be able to manditorially acquire the balance of the company’s shares, possibly leaving it with only a majority stake. As a result, says Iamgold, Golden Star might not be able to use Iamgold’s cash to fund its development plans.
Golden Star has also amended the due-diligence condition on its offer, such that it will decide when it is satisfied. The company says it has yet to be granted access to Iamgold’s books. Iamgold says it will provide Golden Star with confidential information under terms to be agreed on, and that the company has already had ample time to review a significant amount of confidential information. Iamgold says the information has also been provided to other parties.
Golden Star’s bid stands at either 1.25 of its shares or 1.15 shares plus 50 for each Iamgold share. The company will also pay 20 per share provided there is no break fee payable owing to the failure of the merger plans between Iamgold and Wheaton.
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