Yamana proposes Viceroy takeover
2006-08-17 05:55 ET - News Release
See News Release (C-YRI) Yamana Gold Inc
Mr. Peter Marrone of Yamana Gold reports
YAMANA TO ACQUIRE VICEROY SOLIDIFYING ITS POSITION AS LEADING INTERMEDIATE GOLD PRODUCER
Yamana Gold Inc. has agreed to make a takeover bid to acquire all of the outstanding common shares of Viceroy Exploration Ltd. in exchange for Yamana common shares. Yamana has agreed to offer Viceroy shareholders 0.97 of a Yamana common share for each Viceroy common share held. Based on today's respective Toronto Stock Exchange closing prices of $11.20 for Yamana and $8.65 for Viceroy, the transaction value is $10.86 per Viceroy common share, representing a premium of 25.5 per cent. Based on the 20-day volume-weighted average of Yamana's share price, the transaction value is $11.19 per Viceroy common share, representing a premium of 27.0 per cent over the 20-day volume-weighted average price of Viceroy's common shares. Yamana and Viceroy have entered into a support agreement pursuant to which the board of directors of Viceroy has unanimously supported the transaction and recommend that shareholders tender their shares to the bid.
The successful completion of the transaction results in Yamana adding a new advanced stage project in a highly prospective exploration district, further solidifying Yamana's position as a leading intermediate gold producer. Viceroy's principal asset is the advanced exploration-stage Gualcamayo gold project in San Juan province, Argentina. Yamana, following this transaction, will have the following profile:
projected annualized production of one million ounces by 2008 up from estimated gold production of approximately 600,000 ounces in 2007 (not including Yamana's other development stage projects);
total measured and indicated resources of approximately 11.8 million ounces of gold plus inferred resources of approximately 6.9 million ounces before accounting for the Gualcamayo resource update expected to be completed by the end of August;
proven and probable gold reserves of approximately 7.2 million ounces (included in above measured and indicated resource). This does not include potential mineral reserves at Gualcamayo which are still subject to a planned feasibility study;
proven and probable copper reserves of approximately 2.3 billion pounds;
one of the largest Brazilian exploration landholdings with a significant presence in three major gold belts; and
addition of the Gualcamayo exploration district in Argentina along with other assets held by Viceroy.
Viceroy is also pleased to announce the assay results from hole No. QD-321, which is stepped out over 50 metres to the northwest of hole number QD-309. It returned 118 metres at a weighted average grade of 2.4 grams per tonne, including 92 metres at 2.6 grams per tonne. Hole No. QD-309 had previously returned 129.7 metres of a grade of 2.62 grams per tonne, including 100 metres of 3.23 grams per tonne (see Viceroy news issued in Stockwatch on July 11, 2006). Hole No. QD-322 which is stepped out over 50 metres to the southeast of QD-309 is currently in progress. The results from QD-321 corroborate the view that there could be a significant down-dip extension of the QDD structure, which is still open along strike.
The transaction provides the following anticipated benefits to Yamana and Viceroy shareholders:
adds an advanced stage project with a growing resource base;
adds long-term gold production and potential from Gualcamayo which is expected to contribute to Yamana's production goal of one million ounces by 2008;
increases operational strength and management depth through the addition of Viceroy's team;
leverages Yamana's mine building expertise derived from constructing the Sao Francisco and Chapada mines;
uses Yamana's available cash and significant cash flow and lower-cost Brazilian capital cost structure to develop Gualcamayo;
further enhances both companies' long-term exploration potential;
solidifies Yamana's positioning among the top intermediate global gold producers;
broadens shareholder base and increases share-trading liquidity; and
adds projects, currency and country diversification.
Yamana believes that a positive feasibility study at Gualcamayo could result in the definition of mineral reserves in the range of two million ounces based on its assessment of the mineral resources and that Gualcamayo could produce 160,000 ounces annually.
This transaction allows Viceroy shareholders to continue to participate in the development of Gualcamayo without facing the risks normally associated with a single-project company. Furthermore, Viceroy shareholders benefit from the exploration and development upside of Yamana's properties in three major Brazilian gold belts and significant cash flow from its operations.
Delivered on promises -- extending the vision
Peter Marrone, president and chief executive officer of Yamana, said: "In our strategic vision which we developed in late 2005, the goal was to produce one million ounces of gold by 2008. With this acquisition, we will have the assets in place to allow us to meet that goal. The purchase of Viceroy adds another large-scale, long-life project to Yamana's existing assets. We expect the planned feasibility study to confirm our expectation of mineral reserves and production levels at Gualcamayo. Yamana's mine building team is near completion of the Chapada mine and has already successfully commissioned the Sao Francisco mine. The resulting in-house expertise and lower-cost structure in Brazil will add significant value to the Gualcamayo project. Further, the similarities in proposed mining methods at Gualcamayo and those employed by Yamana should allow for a smooth start-up and operation following completion of a feasibility study and development of Gualcamayo. The addition of Viceroy's operating management to Yamana will enhance the depth of Yamana's team and help facilitate the successful development of Yamana's future projects such as C1 Santa Luz, Sao Vicente and Ernesto. This transaction solidifies Yamana's standing among the top tier of intermediate-size global gold producers."
Patrick Downey, president and chief executive officer of Viceroy, said: "This transaction helps Viceroy achieve its corporate objectives of building Gualcamayo while maintaining significant leverage to the project's future and other prospective exploration projects, and at the same time achieving an immediate premium along with further valuation upside in Yamana's shares. Yamana's team has demonstrated success in integrating management teams and providing significant value appreciation from its previous acquisitions. Viceroy shareholders will continue to have significant upside from Gualcamayo, while participating in the operational and exploration valuation upside from Yamana with reduced risk from the diversification of assets. We are confident that we will continue to benefit from Yamana's shares as they are one of the most attractively valued global intermediate gold producers."
Summary of the transaction
The acquisition of Viceroy will be completed by way of a takeover bid whereby Yamana will offer to acquire each outstanding Viceroy common share in exchange for 0.97 of a Yamana common share. In the event that Yamana acquires 100 per cent of the outstanding shares of Viceroy, the combined company will be held approximately 85 per cent by existing Yamana shareholders and 15 per cent by existing Viceroy shareholders. The total number of Yamana common shares outstanding will be approximately 344.4 million, on a pro forma basis. The transaction values Viceroy at approximately $515-million (U.S.) on a non-diluted basis.
The acquisition has the unanimous approval of the boards of directors of Yamana and Viceroy. The board of directors of Viceroy, having received the unanimous recommendation of a special committee of directors, is recommending that holders of Viceroy common shares tender their shares to the Yamana offer. Each of Canaccord Adams and Genuity Capital Markets have provided an opinion to the special committee of the board of directors of Viceroy that the consideration to be offered to Viceroy shareholders pursuant to the offer is fair, from a financial point of view, to the holders of common shares of Viceroy other than Yamana.
Management and directors of Viceroy have entered into lock-up agreements with Yamana under which they have agreed to tender 3.2 million voting shares, representing a 6-per-cent interest in Viceroy.
Me. Downey will join the management of the combined company in the role of executive vice-president, operations, with the primary responsibility of developing Gualcamayo. Viceroy's team in Argentina will be joining Yamana.
Commenting on management, Peter Marrone said, "Yamana and Viceroy have been involved in strategic discussions for some time and in that time, it has become very apparent that not only do Viceroy and Yamana share a common strategic outlook, but we espouse a common vision for our shareholders."
Full details of the offer will be included in the formal offer and takeover circular to be filed with the regulatory authorities and mailed to Viceroy shareholders in accordance with applicable securities laws. The offer will remain open for 35 days following the mailing date and will be subject to certain conditions relating to receipt of requisite regulatory approvals, the absence of any material changes and acceptance of the offer by Viceroy shareholders owning not less than two-thirds of the Viceroy common shares on a fully diluted basis. A resource estimate will be made available around the time of mailing of the circular.
If the support agreement is terminated in certain circumstances, Viceroy has agreed to pay Yamana a termination fee of 3.25 per cent of Viceroy's market capitalization on a fully diluted basis.
Yamana's financial adviser is National Bank Financial Inc. and its legal advisers are Cassels Brock & Blackwell LLP and Dorsey & Whitney LLP. Canaccord Adams and Genuity Capital Markets acted as financial advisers to the special committee of the board of directors of Viceroy. Viceroy's legal advisers are DuMoulin Black LLP and Blake, Cassels, & Graydon LLP.
Quality control
Exploration on the Gualcamayo project is being conducted under the supervision of Rick Diment, PGeo, the company's qualified person as defined under National Instrument 43-101. All samples were collected in accordance with industry standards. Samples were submitted to Alex Stuart Assayers, Argentina, S.A., in Mendoza, Argentina, for fire assay and ICP analysis. Check assays were submitted to ALS Chemex, an ISO-9001: 2000 certified lab, in the Santiago, Chile, facility. Accuracy of results is tested through the systemic inclusion of standards, blanks and checks assays.
Conference call
A conference call is scheduled for Thursday, Aug. 17, 2006, at 10 a.m. Eastern Time.
Call-in numbers:
Local and international: 416-644-3425
North American toll-free: 866-250-4877
A replay of this conference call will be available from Thursday, Aug. 17, 2006, 12 p.m. ET, until Thursday, Sept. 24, 2006, 11:59 p.m. ET.
Replay numbers:
Local and international: 416-640-1917
Pass code: 21200311 (pound sign)
North American toll-free: 877-289-8525
Pass code: 21200311 (pound sign)
A presentation providing further information on these transactions and on the business combination will also be available on Yamana's and Viceroy's web sites at www.yamana.com and www.viceroyexploration.com, respectively.
A table summarizing the reserves and resources for each of Viceroy's and Yamana's projects is provided as follows:
Resources summary Measured Indicated
tonnes grade tonnes grade
(000s) (g/t) (000s) (g/t)
Fazenda Brasileiro -- UG (1) 1,158 3.140 2,722 2.990
Fazenda Brasileiro -- OP (1) 249 2.420 937 1.550
Fazenda Nova (1) 4,226 0.840
Sao Francisco (1) 24,398 0.600 55,574 0.660
Chapada (1) 25,200 0.300 396,200 0.220
Jacobina project (3) 3,400 2.680 24,500 2.560
San Andres (2) 38,975 0.780
Sao Vicente (1) 20,786 0.580 16,228 0.520
C1 Santa Luz (1) 18,400 1.660
Ernesto (1) 160 5.260 682 5.230
Viceroy (4) 4,698 1.187 34,496 1.127
tonnes grade tonnes grade
Copper (000s) (%) (000s) (%)
Chapada 25,200 0.34% 396,200 0.30%
Resources summary Measured and indicated Inferred
tonnes grade ounces tonnes grade ounces
(000s) (g/t) (000s) (000s) (g/t) (000s)
Fazenda
Brasileiro --
UG (1) 3,880 3.030 378.1 780 4.280 107.4
Fazenda
Brasileiro --
OP (1) 1,185 1.730 66.1
Fazenda Nova (1) 4,226 0.840 114.2 95 0.500 1.5
Sao Francisco (1)79,971 0.640 1,651.5 60,495 0.450 879.1
Chapada (1) 421,400 0.220 3,045.5 250,870 0.150 1,226.0
Jacobina
project (3) 27,900 2.570 2,311.0 33,600 2.800 3,029.0
San Andres (2) 38,975 0.780 978.9 29,700 0.650 625.0
Sao Vicente (1) 37,015 0.560 660.5 5,658 0.610 111.0
C1 Santa Luz (1) 18,400 1.660 982.4 2,013 3.090 199.7
Ernesto (1) 842 5.240 141.8 483 4.600 71.4
Viceroy (4) 39,195 1.136 1,428.0 14,232 1.339 610.0
11,758.0 6,860.1
tonnes grade lb tonnes grade lb
Copper (000s) (%) (000s) (000s) (%) (000s)
Chapada 421,400 0.30% 2,809.3 250,870 0.25% 1,393.7
Reserves Proven Probable Proven and probable
tonnes grade tonnes grade tonnes grade ounces
(000s) (g/t) (000s) (g/t) (000s) (g/t) (000s)
Fazenda
Brasileiro
-- UG (1) 1,100 3.100 969 2.490 2,069 2.817 187.4
Fazenda
Brasileiro
-- OP (1) 249 2.420 249 2.420 19.3
Fazenda
Nova (1) 3,330 0.862 3,330 0.862 92.3
Sao
Francisco
(1) 20,121 0.610 43,885 0.680 64,006 0.660 1,362.4
Chapada
(1) 18,379 0.330 292,135 0.250 310,514 0.260 2,547.5
Jacobina
project
(3) 3,065 2.208 18,517 2.173 21,580 2.180 1,510.0
San
Andres
(2) 17,339 0.860 17,339 0.860 477.1
Sao
Vicente
(1) 15,207 0.630 8,678 0.570 23,885 0.610 470.0
C1 Santa
Luz (1) 9,200 1.880 9,200 1.880 556.0
7,222.0
tonnes grade tonnes grade tonnes grade lb
Copper (000s) (%) (000s) (%) (000s) (%) (000s)
Chapada 18,379 0.42% 292,135 0.34% 310,514 0.34% 2,349.7
Notes:
As of Dec. 31, 2005
As of Dec. 31, 2004
As of Dec. 15, 2005
As of Dec. 8, 2004
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