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By Rose Ragsdale
For Mining News 

Diamond hunters may join forces

Canada's Stornoway Diamond presses for consolidation with country's Ashton Mining and Contact Diamond, combo value C$140M

 

Last updated 8/27/2006 at Noon



Stornoway Diamond Corp. of Vancouver, B.C., launched an ambitious bid in July that, if successful, will create a mid-tier diamond exploration and development company in Canada. The complex three-way combination of Stornoway with Ashton Mining of Canada Ltd. and Contact Diamond Corp. is valued at C$140 million.

Considered a significant consolidation of leading exploration companies in Canada's growing diamond industry, the transaction would have a market capitalization of more than C$200 million, enough financial strength to pursue even more acquisitions and mergers, according to Stornoway CEO Eira Thomas.

"The Canadian international diamond industry is ripe for consolidation, and we believe that the first mover will command an advantage in accessing financial resources and further merger-and-acquisition opportunities," Thomas said in announcing the deal July 24. "Small- to medium-size properties are being found and once-marginal projects are becoming increasingly attractive due to depleting industry reserves strengthening prices."

Most of the key players in the proposed combination say they are happy with the deal. That includes Contact Diamond and its 31 percent shareholder Toronto-based Agnico-Eagle Mines Ltd. and British mining giant Rio Tinto Ltd., which agreed to tender its 51.7 percent ownership of Ashton Mining through two subsidiaries to the bid.

Ashton criticizes deal

The sole exception is Ashton Mining's management. Robert T. Boyd, president and CEO of Ashton, told the company's minority shareholders in late July that Stornoway's unsolicited bid is "opportunistic and coercive" and urged them to take no action until further notice.

Stornoway's Thomas said the deal will allow for greater value for Ashton shareholders by removing market valuation impediments inherent with the presence of a single majority shareholder.

She said Ashton also would have increased liquidity due to a larger number of shares outstanding, a larger shareholder base and an enhanced profile.

For each common share of Ashton Mining, Stornoway offered shareholders either $1.25 in cash; or one common share of Stornoway stock, plus 1 cent in cash, subject to a total cash consideration of $59.5 million.

In response, Ashton formed a special committee of independent directors to evaluate the proposal and other viable alternatives. Ashton retained National Bank Financial and Borden Ladner Gervais LLP for advice, and was expected to report to the stockholders by Aug. 25.

Contact Diamond stockholders will get 0.36 of a Stornoway share for each Contact share, a deal worth about 45 cents a share.

Contact's controlling shareholder, Agnico-Eagle, has agreed to tender its 13.8 million shares, or 31 percent of the company, to the bid.

The transaction also is subject to the approval of Canadian regulators.

No majority shareholder

If the deal is approved by all parties involved, Agnico-Eagle will own 14 percent of the new company. Stornoway current shareholders will hold 49 percent, Rio Tinto and Ashton will each hold 15 percent and Contact will hold 7 percent.

In addition, the combined company will own a 50 percent interest in the Renard diamond project in northern Quebec, as well as advanced diamond exploration projects in Nunavut, Alberta and along the northern Ontario border with Quebec.

In announcing the bid Stornoway said Ashton Mining is widely recognized as the leading and pre-eminent explorer in the Canadian diamond industry. Ashton enjoys an outstanding record of discoveries and a diversified portfolio of promising projects that cover the spectrum from early stage reconnaissance to advanced evaluation.

Ashton has been exploring for diamonds in the Slave craton region of the Northwest Territories and Nunavut since the corporation was established in 1993. During this time, Ashton has evaluated more than 6 million acres of claims in joint venture with 40 different partners. Ashton also has conducted extensive regional reconnaissance programs encompassing 263,500 square miles in both territories over a variety of geological terrains.

Ashton exploration success

Ashton's programs of heavy mineral sampling, geophysical surveys and drilling have resulted in the discovery of a total of 15 kimberlites through April 2005. Twelve of these kimberlites are diamondiferous and five have been the subject of mini-bulk sampling programs which collected one tonne of material or more.

In addition to numerous 100 percent owned properties in Nunavut and the Northwest Territories, Ashton is currently working in joint ventures or under option agreements with a number of exploration companies to seek diamonds in the two arctic territories. These include the Kikerk Lake, Cross Property, Roundrock and Star Property joint ventures.

As of July 2006, Ashton and its joint venture partners controlled more than 304,251 acres of mineral rights in the NWT and Nunavut.

Ashton's most ambitious project is a $29 million program currently under way in Quebec to collect a 10,000 tonne bulk sample from the Renard project.

Ashton's competitive advantages, according to Stornoway, include extensive diamond exploration experience and the acknowledged expertise of its key personnel, as well as the corporation's comprehensive diamond processing and laboratory facilities in North Vancouver, B.C. These facilities include a five-tonne-per-hour dense media separation plant, an X-ray sorter unit, a caustic dissolution circuit and a fully-equipped indicator mineral and diamond observation laboratory.

Another promising portfolio

Contact Diamond brings to the deal properties in Ontario, Quebec, the Northwest Territories and Nunavut. Contact has said its overriding objective as a company was to rapidly enter into development of a new Canadian diamond mine, whether through discovery, acquisition or joint venture.

In addition to its 100-percent-owned Timiskaming project in Ontario and Quebec, Contact currently has a total of three joint venture projects with partners Trigon and Stornoway.

Stornoway also has exposure to close to 18 million acres of prospective diamond properties in under-explored regions of northern Canada and Africa. Seventeen separate project areas in Nunavut, Alberta, Manitoba, the Northwest Territories and Botswana make up the land package.

Since 2000, the company has been involved in the discovery of 62 kimberlites, 31 of which have proven diamondiferous.

Under the deal, Stornoway's Thomas will remain CEO and director of the merged company and Catherine McLeod Seltzer will continue as chairman, while Contact Diamond's CEO Matt Manson will become president.

 

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