Metall to buy seven mines from West German parent

Held by Metall’s West German parent company Metallgesellschaft AG, the seven mines include two zinc and lead mines, two barite mines, a fluorspar and barite mine and participation in a tungsten mine.

At Metall’s recent annual meeting in Toronto, President Klaus Zeitler was unable to say exactly when and how Metallgesellschaft will transfer its stake in the mines to Metall.

“We are considering at the present time to purchase these mines and create a European company into which we would incorporate all our European and geographically adjacent assets,” said Zeitler.

If and when the transaction is completed, those assets would include 10 mines and development projects around the world with approximately 2,500 employees and annual sales of over $200 million.

As the worldwide mining wing in Metallgesellschaft’s huge resource empire, Zeitler says Metall is capable of managing such a large concern (even though some of its assets are based in far-flung places like Australia and Papua New Guinea). Metall is a 62.7%-owned subsidiary of Metallgesellschaft.

Zeitler and Metall Chairman Heinz Schimmelbusch told reporters after the meeting that the transaction would make operational sense to both companies.

It would also help to close the gap between the revenues which Metall earns from investments and operations.

Metall holds a 7.5% stake in Ok Tedi Mining Ltd. which produced 580,000 oz gold and 52,677 tonnes copper in 1988. It also has 49% interest in Temagami Mining Co., the company which controls Vancouver resource giant Teck Corp. (TSE).

Of the $39.7 million or $1.06 per share which Metall reported in net earnings last year, $30.06 million was derived from the company’s investment in Teck, Ok Tedi and a 10% stake in Vancouver-based Cominco Ltd. (TSE).

But a couple of recent transactions will beef up the operation’s side of a company which already includes a Turkish zinc project and an Australian gold mine.

The most recent transaction was the acquisition for $83 million(US) of Copper Range Co. which owns and operates the White Pine copper mine in White Pine, Mich. The operation produced 42,000 tonnes of copper cathode and one million oz silver (as a byproduct) last year.

With 188 million tons of grade 1.08% copper on its own lands and an additional 20 million tons of grade 1.40% copper on contiguous leased l ands, Copper Range has sufficient reserves to sustain the operation for at least 30 years, according to Metall.

“There are excellent opportunities in expanding the operation through joint venture and exploration possibilities,” said Zeitler.

At the annual meeting, he revealed that Metall can acquire from Metallgesellschaft a 50% stake in a Tunisian lead-zinc orebody with mineable ore reserves of at least five million tons grading 17% combined zinc-lead.

“To date shares of Metall have traded at a discount because earnings and cash flow have been derived largely from investments,” said chief financial officer Douglas Scharf. “We expect the shares to trade at a multiple of earnings because of the acquisition of Copper Range.” The shares were trading recently at $12 on The Toronto Stock Exchange in a 52-week range of $14.63 and $8.63.

Even though the Copper Range deal has trimmed Metall’s cash resources ($120 million at year- end), the company plans to make more money available for acquisitions by issuing $100 million worth of convertible subordinated debentures. Metall has already been given the green light to file a preliminary prospectus.

Under an agreement with Metallgesellschaft, Metall has the right of first refusal on any mining opportunities offered to its parent company.

Meanwhile, Metall has been operating a pilot plant with fresh oxidized ore at its 49%-owned Cayeli zinc-copper project in Turkey. With a production decision expected later this year, mineable grade of the 14.5 million tons of probable reserves has increased to 8.9% zinc and 4.3% copper from 5.4% zinc and 4.7% copper.

“Once in operation, this mine will be comparable in size to the Westmin Resources’ (TSE) HW mine on Vancouver Island,” said Zeitler. That mine produced 1.1 million tonnes last year.

Metall’s share of production from the 25%-owned Callion gold property in Western Australia last year was 7,000 oz. With development under way on the sixth and final level, the company is hoping that Callion will lead to other joint venture opportunities in Australia’s Kalgoorlie region.

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