Placer makes bid for Musto

For the second time in just over a year, a bid has been launched for the shares of International Musto Explorations (TSE). At stake is a half interest in one of the world’s largest undeveloped gold-copper porphyry deposits, Bajo de la Alumbrera in northwestern Argentina.

The most recent contender is Placer Dome (TSE), which announced that it will offer $12.50 each for all of Musto’s common shares. The aggregate acquisition cost for the more than 34 million Musto shares issued is estimated to be $425 million.

The Placer offer, which is expected to remain open for 21 days, is subject to the obtaining of 90% of the outstanding Musto shares.

“If no other offers are received, the deal could be resolved in about a month,” Musto President Lukas Lundin tells The Northern Miner. But he adds that eight other companies have shown an interest in his company. “There is more to come,” predicts Jonathan Challis, vice-president of mining research at C.M. Oliver. “Placer won’t be the only bidder. We could see other bidders from Europe, Australia and North America.”

In February, 1994, Metall Mining (TSE) made an offer to buy all the outstanding shares of Musto for $16.25 each (at that time, there were about 14.8 million shares outstanding). Metall’s offer, estimated to be worth $240 million, was one of four proposals received by Musto to joint-venture or sell an interest in the Alumbrera deposit.

Musto management rejected the Metall offer and opted instead for a joint venture with Australian-based MIM Holdings, which is a partner with Placer in the Porgera gold mine in Papua New Guinea. Under the agreement, MIM agreed to pay Musto US$130 million for a half interest and management of the deposit. Of this sum, US$10 million was repayment of Musto’s investment in the project, and US$120 million was a funding commitment to the project. A recent feasibility study estimates development costs at US$780 million. Minable reserves at Alumbrera are calculated to be 619.3 million tons grading 0.02 oz. gold per ton and 0.51% copper. These figures do not include the results from 26,240 ft. of drilling carried out subsequent to the feasibility study, which are expected to enhance reserves greatly.

Annual metal production is estimated to average 500,000 oz. gold and 373 million lb. copper over a 16-year mine life, at cash costs in the lower one-third of world averages.

With gold expected to provide about 40% of the revenues over the mine life, Placer believes the acquisition of the deposit is consistent with its strategic focus on continued growth in gold. The project also provides Placer with an entry into Argentina, which, according to Hugh Leggatt, Placer’s director of media relations, “should have a strong mining industry in the future.”

As part of the offer, Placer has entered into a “lock-up” agreement with Adolf Lundin, who holds about 36% of the outstanding Musto shares. Under the agreement, Lundin has agreed not to withdraw his shares unless a competing bid is made for cash consideration of at least 50 cents per share more than the Placer offer.