Placer bids for Eskay

Placer Dome (TSE) has made an all cash offer of $67.50 per share for Stikine Resources (TSE), the 50% owner of the Eskay Creek property. Alternatively, shareholders have the option to take 3.5 common shares of Placer for each Stikine share held. The bid pits two of Canada’s largest gold producers against one other. In April, Corona (TSE) initiated an all-paper takeover bid for Stikine valued at $60-70 per share.

Acceptance of Corona’s offer would see the formation of a new company that would have full ownership of the rich Eskay Creek property, north of Stewart, B.C.

Corona would hold about 45% of the new company while former shareholders of Prime Resources (VSE) and Stikine Resources would hold about 47% and 8% respectively.

Based on exploration drilling up to April 11, Stikine estimates a geological reserve on the property of 6.49 million tons grading 0.54 oz. gold per ton and 14.13 oz. silver at a cutoff grade of 0.05 oz. gold per ton.

Corona already has its foot in the door at Eskay Creek, with a holding of about 20% of Prime’s outstanding stock and a reported “lock-up” agreement with the major shareholders of Stikine to vote their 40% equity position in favor of the merger.

John Toffan, chairman and a major shareholder of Stikine, declined to comment on the nature of any agreement made with Corona or on whether his stock would be, or could be, tendered under the Placer offer. In any event, for the Corona merger to be successful, it will require 75% approval by Stikine shareholders.

Even if the offer for Stikine is successful, Placer will not have operatorship of the property, usually a prerequisite before a major mining company starts handing out big cheques. A cash offer for 100% of Stikine is worth about $230 million.

Sources on the street doubt that Placer would make an offer for Stikine without coming to some agreement beforehand with Prime and Corona over the development of the property.

Peter Steen, president of Corona, said that the company had been in discussion with Placer regarding the future development of the property before the takeover offer was made, but that no agreements had been reached. In fact, the offer came as a surprise to Corona and Steen noted: “The only plus as far as we are concerned is that Placer is only confirming Corona’s assessment as to the value of the property.”

Asked if Placer had reached an informal agreement with any of the companies involved before making the offer, Hugh Leggatt, spokesman for Placer, noted that they hadn’t, and that the company simply felt that it should take a position in the property.

Leggatt said that the offer will be mailed to shareholders shortly and will expire on June 19.

It could be said that Placer’s hand was forced, in that if no bid were made prior to the shareholder vote expected in July on the proposed Corona merger, Placer would remain on the sidelines of the play.

Leggatt noted that the offer was not subject to a minimum tender percentage and that Placer would evaluate its next move after the offer expires.

Murray Pezim, chairman of Prime, said he was “tickled pink” over Placer’s interest in the property but speculated that the company would have to pay more than $67.50 per share. He interjected that Placer was going after the wrong company and that he would not be surprised to see that company’s interest turn to Prime Resources, noting that a major does not put up that kind of money without being the operator of the property.

The market seems to agree with Pezim’s predictions, evidenced by Stikine pushing past the takeover price to $70 per share and Prime’s move to new highs of more than $9 per share.