Placer Dome buys stake in Vengold

Placer Dome (PDG-T) has acquired a 16.8% interest in Vengold (VEN-T) by subscribing to 23.6 million of the company’s shares at $1.75 each, for gross proceeds of $41.3 million.

Vengold’s primary asset is a 10.3% interest in Lihir Gold (LIHRY-Q), which owns the Lihir gold mine in Papua New Guinea. The open-pit mine is scheduled to produce about 625,000 oz. in 1998 at a cash cost of less than US$200 per oz.

At the end of 1997, minable reserves at Lihir were estimated at 101.8 million tonnes grading 4.39 grams gold per tonne, for 14.2 million contained ounces.

The Lihir mine is managed by a wholly-owned subsidiary of Rio Tinto (RTP-N), which holds a 17% interest in Lihir Gold. Australian-based Niugini Mining, which is 50.5% owned by Battle Mountain Gold (BMG-T), holds a 17% interest, the Papua New Guinea government holds an 8.5% share and landowners own 7%.

The remaining interest in Lihir is held publicly.

At presstime, Vengold was in the process of closing a financing with a syndicate of underwriters, led by Midland Walwyn Capital, that agreed to purchase up to 25 million of its shares. The purchase price of the offering has been lowered to $1.75 from $1.83 per share, and the commission has been reduced to 4% from 4.5%.

The fully exercised offering and Placer Dome’s investment will boost Vengold’s cash position to about $95 million; Vengold intends to use this wealth to increase its position in the Lihir gold mine.

Hugh Leggatt, a spokesman for Placer, says the size of the Lihir mine fits Placer’s strategy, and that the company is positioning itself, should a good opportunity arise, to increase its participation. “We feel it will give us a good window on the project and a good feel for it,” says Leggatt.

Placer has been granted the right to maintain up to a 20% interest in Vengold and will be allowed a single representative on Vengold’s board.