Pegasus shareholders ratify pioneering rights plan

Pegasus said the measure was necess ary in today’s takeover climate, a view obviously shared by the growing number of companies that have adopted similar rights plans.

As a Canadian company with the majority of its shares held in the U.S., Pegasus was also seeking to provide protection against takeover tactics using differences between U.S. and Canadian securities law.

In simple terms the Pegasus rights plan allows shareholders to purchase shares at half their fair market value should any bidder take up a position of more than 10% without management and/or shareholder approval.

Unlike some plans however, the Pegasus rights plan does allow “permitted bids” that meet certain standards. But the plan’s defense mechanism — the threat of significant dilution — forces potential bidders to come to the front door to negotiate offers with management or to obtain shareholder approval.

This provision preserves the shareholders’ right to accept or reject a bid whether or not the board believes the bid represents fair value.

Having put in place this defence strategy, Pegasus management intends to go on the offensive this year to increase gold production to over 300,000 ounces, to cut production costs and to increase reserves through both development of properties and acquisitions.

During 1988 the heap leach pioneer turned out 283,800 oz of gold, a 24% increase over the previous year. The company operates five precious metals mines in the western U.S., and also produces significant amounts of silver, lead and zinc.

This increase in production combined with a 8.6% reduction in cash production costs (to $234 per oz recovered) led to a 47% increase in revenues even though gold prices were considerably lower than the previous year.

Revenues reached $162.8 million(US) in 1988, while operating cash flow increased to $43.1 million, or $1.81 per share. Earnings increased by 23% to $17.8 million or 75 cents a share.

Shareholders were also told that ore reserves at existing mines were increased to 3.2 million ounces of gold, or five million oz gold equivalent at year end.

Despite a call for an improved dividend policy by one irate shareholder who also challenged the generosity of the directors’ and employees stock option plans, Pegasus officials said the company’s performance and rate of return to investors compares favorably to other major North American gold producers.

“Pegasus is now in an excellent position to improve shareholder value through quality growth,” said James Foreman.

This theme was also stressed by John Willson, who recently replaced Foreman as president and chief executive officer. Willson said the company would be looking at a number of acquisitions and joint venture opportunities in the coming year.

The most recent includes a formal offer for shares of Pangea Resources, an Australian firm with most of its assets in North America. A key asset is the producing Paupers Dream gold-silver mine in Montana.

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