Mountain Province property spin-out cleans up firm for potential takeover
By: Matthew Hill 13th January 2012
TORONTO (miningweekly.com) – Mountain Province Diamonds said on Thursday it will unbundle the properties it owns around its joint venture with De Beers in Canada’s Northwest Territories, which could make it easier for the Anglo American unit to buy the TSX-quoted firm.
CEO Patrick Evans told Mining Weekly Online the move would simplify negotiations with a potential acquirer when the junior decides to re-engage suitors, most likely after February.
The company had been in takeover talks with “a number of parties” up until August, when it decided to call them off, saying a buyout would be premature as Mountain Province had done too little exploration work to value the diamond tenements it owns around the Gahcho Kué joint venture with De Beers.
Evans said spinning off these properties into a separate company would help solve the valuation problem, along with carrying out further exploration.
Asked how much the spun out company, to be called Kennady Diamonds, might be worth, he pointed to the fact that Mountain Province’s share price had climbed by 9.4%, or C$0.39, in the wake of the announcement.
That value multiplied by the 80-million shares Mountain Province has outstanding gives a figure of around C$31-million.
“That’s not a scientific way but it’s probably not a bad starting point,” Evans said. It should also be noted that less than 25 000 shares changed hands on Thursday.
Salman Partners analyst Raymond Goldie said he attributed no value to the exploration properties at this stage.
Speaking in a telephone interview, he said the unbundling “should make it easy for Mountain Province itself to get taken over”, most likely by De Beers.
The Oppenheimer family last year said it agreed to sell its 40% stake in the diamond giant to Anglo American for $5.1-billion in November. Shareholders in Anglo, which already had a 45% ownership of De Beers, this month voted in favour of the deal.
While Evans won’t name the companies Mountain Province had been in takeover talks with last year, he said that Anglo American was well acquainted with Gahcho Kué, as its technical team had “essentially” taken over from De Beers after the partners completed a feasibility study in October 2010.
“For us, the change in shareholding at De Beers with Anglo effectively having 85% hasn’t really influenced much at the project level,” Evans said.
He also hinted that Anglo would be keen to gain control of the joint venture, located nearby De Beers’ operating Snap Lake mine north of Yellowknife. De Beers owns 51% of the project, with Mountain Province owning the rest.
“There’s only one diamond development project of the scale and size that will interest Anglo, and that’s Gahcho Kue,” Evans said, pointing out that it is the largest and richest known undeveloped deposit globally.
He added that Mountain Province is still unready to re-enter takeover talks, but may do so after it completes drilling at its Tuzo Deep deposit by the end of February.
SPIN OUT
The company said in a statement it will distribute all the shares in the new company, Kennady Diamonds, to existing shareholders, and list the new firm on the TSX-V. Shareholders will vote on the deal in April.
Kennady Diamonds will include thirteen leases and claims located to the west and north of the four leases the Gahcho Kué joint venture owns.
There are already three known diamondiferous, or diamond-bearing, kimberlites pipes on the properties, and Mountain Province completed an airborne gravity radiometry survey over the properties in 2011.
Evans said the parent company would likely inject around C$2-million into the unbundled firm to fund exploration in 2012.
