Falconbridge Gold launch to go ahead in new year

With an unwanted suitor waiting in the wings and continuing uncertainty in the market place, late January may not be the best time to launch a gold company. But Falconbridge Ltd. (TSE) will go ahead anyway and fulfill its obligation to shareholders by spinning out a publicly listed gold producing subsidiary.

Priced at $7.50 each, the 7.6 million shares are scheduled to be listed for trading on the Toronto Stock Exchange Jan 24, and Falconbridge Gold will become the principal gold exploration vehicle in the Falconbridge group.

While even Falconbridge Gold’s new chairman says he could think of better times to bring a new gold producer onto the market, the company is being spun off to share holders as part of a recent agreement in which Falconbridge Ltd. acquired a 24.7% block of its own shares from Placer Dome Inc. and subsidiary McIntyre Mines (TSE).

Capable of producing about 70,000 oz gold in 1989, Falconbridge Gold will own the Owl Creek and Hoyle Pond mines plus a number of exploration properties in the Timmins, Ont., region.

“I think it’s a good deal for shareholders in spite of not being the best time to do it,” said Brian Ferguson who will act as chairman of the new company in addition to his other responsibilities as Falconbridge’s mi ning director.

Shares of the new company will be issued to Falconbridge Ltd. shareholders of record Jan 24, on a one-for-10 basis on Jan 31. No fractional Falconbridge Gold shares are being issued. Instead shareholders will receive $7.50 in cash on the basis of one Falconbridge Gold share held at the time of distribution.

To pay for the dividend, Falconbridge has arranged for a $22.5- million gold loan facility consisting of a $12.5-million revolving term facility and a $10-million operating line of credit.

Pro forma earnings for Dec 31, 1987 are estimated at $506 million or 38 per share, according to a prospectus.

When the dividend is paid out, Falconbridge will hold a 51% stake in Falconbridge Gold and the two companies will share expenses on any newly acquired gold properties on a 50/50 basis. However, the parent company will retain its two gold mines in Zimbabwe and Botswana (they produced 25,000 oz last year) plus all exploration properties outside the Timmins camp.

“We are not doing anything different than what we have done before and as far as operations go, nothing will change in the short run,” said Ferguson who is preparing to go on a promotional road show with financial adviser Merrill Lynch Canada.

In a bid to increase reserves from about 800,000 tons, Falconbridge will spend about $3.5 million this year on underground exploration at the Owl Creek mine which produced 25,886 oz gold in 1987.

An additional $1.5 million has been earmarked for the larger Hoyle Pond. It produced 47,212 oz last year. Falconbridge Gold will also take a hard look at a former Timmins-based gold producer called the Falconbridge Hoyle.

The second largest shareholder (with an 11% interest) in the new company will be Noranda Inc. (TSE) which is expected to increase its stake in Falconbridge Ltd. from 19.9% before the new gold company is launched.

When asked if he had discussed the gold subsidiary with any Noranda officials, Ferguson said he had sent them a prospectus.