South African ties could force review of HudBay bid

Manitoba Energy Minister Harold Neufeld says he welcomes Minorco’s recent offer to provide financial support for a $187-million modernization program at Hudson Bay Mining & Smelting’s (TSE) Manitoba metallurgical complex.

Luxembourg-based Minorco through its U.S. subsidiary is offering 56% owned Inspiration Resources (TSE) $100 million in cash for all the shares of Hudson Bay Mining which ranks as Canada’s fourth largest producer of copper and zinc.

If the deal goes through, Hudson Bay will go ahead this summer with a construction program designed to instill a 25% reduction in sulphur dioxide emissions at its Flin Flon smelting operations by Jan. 1, 1994.

As failure to meet the deadline could force HudBay to lay off some of its 2,560 employees, Neufeld said he is moving quickly to bring the various parties involved in the proposal together. “Minorco’s involvement will bring us a step closer to an agreement,” said Neufeld, who claimed that a provincial government offer to provide $55 million toward the project still stands.

But before an agreement is signed, there are still a number of hurdles to be overcome. Although the federal government had agreed to inject $25 million into the project, the change in ownership and Minorco’s connection to Anglo America of South Africa could lead to an Investment Canada review. “Until there is a deal, there is nothing to review,” said Eric Alexander, spokesman in the Ministry of Energy, Mines and Resources.

The offer is also subject to the approval of the board of Inspiration Resources, following the recommendation of the transaction by an independent committee.

HudBay has been seeking government backing for the plan for well over a year. But according to Gerard Munera, chief executive officer of Minorca U.S.A, the Bank of Nova Scotia was unwilling to lend $80 million toward the project without guarantees from Minorco.

“The bank didn’t consider the financial structure of Inspiration Resources and HudBay to be strong enough,” said Munera during a telephone interview with The Northern Miner.

He described the plan as essential for the future profitability of Hudson Bay Mining which last year reported a $2.3-million loss on revenue of $110 million compared to a profit of $11.8 million in 1989. Should Inspiration Resources agree to sell, Minorco has offered to provide a $20-million interim bridge loan prior to Sept. 30 to allow Hudson Bay to begin installing a zinc pressure leaching system and Noranda converter.

As the conversion will take two and a half years to complete, Powell said the company can’t afford to miss another summer construction season if it wants to meet the 1994 deadline.

The offer doesn’t prevent Inspiration from soliciting alternative offers until July 1 and it could sell to another buyer if the rival offers at least $5 million (plus interest) more than the amount offered by Minorca. Under the Minorco offer, Inspiration can also sell to a rival if the purchaser agrees to assume interim financial support provided by Minorco. Meanwhile, Munera flew to Luxembourg this week to discuss the offer at a regularly scheduled Minorco board meeting.