Wheaton silver spinoff adds a new twist

Wheaton River Minerals (WRM-T) has spun another twist into its battle with unwelcome suitor Coeur d’Alene Mines‘ (CDE-N) by agreeing to sell all of the silver produced from its Luismin mining operations in Mexico to Chap Mercantile (CPCh-V).

Chap Mercantile, a shell company, will pay $262 million in cash and shares up front; the company will also pay US$3.90 or the prevailing market price (whichever is less) for each ounce of silver delivered.

As part of the deal, Chap, which will be renamed Silver Wheaton, plans an equity financing to raise between $30 million and $50 million. The funds will go toward the Luismin acquisition, with the balance of the price made up of Silver Wheaton shares at a deemed price of 40 apiece. The shares issued to Wheaton will be subject to a four-month hold period.

Chap also plans to consolidate its shares on a 1-for-5 basis, and to expand its board of directors to at least five, including John Brough, Peter Gillin, Eduardo Luna, Wade Nesmith and Ian Telfer. Eduardo Luna, a director of Wheaton and president of Luismin, will act as chairman and interim CEO.

In the end, Wheaton would be left with an 80% stake in Silver Wheaton, assuming the financing reaches its goal of $50 million.

“We have been working on this transaction since early 2004. We delayed the launch of Silver Wheaton in order to focus on the proposed transaction with Iamgold," Wheaton’s chief executive Ian Telfer said in a prepared statement.

"The formation of Silver Wheaton will permit Wheaton to unlock significant value within Wheaton for the benefit of the Wheaton shareholders. Silver Wheaton will be a pure silver play and Wheaton will continue to own 80% of Silver Wheaton."

Silver Wheaton is expected to produce 6.8 million oz. of silver in 2004, rising to 7.5 million oz. in 2005, and 8.4 million in 2006.

Telfer says the deal has not been designed in response to Coeur d’Alene’s bid, and in fact is slated to close following the expiry of that offer. “In the event that Coeur completes its bid for Wheaton on Aug. 27, 2004, Coeur will have the option not to proceed with this transaction,” he adds.

Telfer said there had been no talks with Coeur as to whether it might be interested in bidding for the new silver vehicle rather that Wheaton as a whole.

Wheaton also recently accused Coeur of continuing to "confuse the market with its offer and misleading statements,” after Coeur said that it had mailed copies of its offer to Wheaton shareholders. In fact, the company had only mailed to U.S.-based shareholders, having failed to file a takeover bid circular with Canadian regulators. The Idaho-based miner plans to remedy that as soon as possible.

The agreement with Chap also 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.

The deal, which is expected to wrap up in early September, is subject to, among other things, regulatory and Chap shareholder approval.

In other 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. Both will continue to advise Wheaton in their roles with Endeavour Financial.

Investors seemed ill-impressed with Wheaton’s plans, the company’s shares were just a penny higher at $3.82 in mid-afternoon trading in Toronto following the news on July 15.