Securities Law & Instruments

Headnote

Mutual Reliance Review System for Applications -- Related party transactions -- acquisition of mining properties and assets from a related party -- board of directors of target corporation has determined that terms of acquisition not less advantageous to Wesdome than if acquisition was by a party dealing at arm's length -- target corporation will disclose details of the transaction in a press release and in a material change report -- since the outside shareholders who intend to provide written consents to the transaction own more than 50% of common shares held by all minority shareholders, approval of the transaction by majority of minority shareholders at a shareholders' meeting would be foregone conclusion -- Wesdome will send copy of the press release and material change report to each outside shareholder -- exemption from shareholders' meeting and information circular requirements granted subject to certain conditions.

Rule Cited

Rule 61-501 -- Insider Bids, Issuer Bids, Going Private Transactions and Related Party Transactions, ss. 5.4 and 9.1.

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUEBEC AND ONTARIO

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

WESDOME GOLD MINES INC.

 

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of Quebec and Ontario has received an application pursuant to section 9.1 of Rule 61-501 of the Ontario Securities Commission ("Rule 61-501"), section 9.1 of Policy Statement Q-27 of the Commission des valeurs mobilières du Québec ("Policy Q-27") and other Applicable securities legislation in Québec and Ontario (collectively the "Legislation") that in connection with the acquisition by Wesdome of mining properties and assets from a related party, Wesdome be exempt from the shareholders' meeting and information circular requirements set forth in section 5.4 of Rule 61-501 and section 5.4 of Policy Q-27;

AND WHEREAS under the Mutual Reliance System for Exemptive Relief Applications (the "System"), the Commission des valeurs mobilières du Québec is the principal regulator for this application;

AND WHEREAS, unless otherwise defined, the terms herein have the meaning set out in National Instrument 14-101 Definition or in Notice 14-101 of the Commission des valeurs mobilières du Québec;

AND WHEREAS Wesdome has represented to the Decision Makers that:

1. Wesdome is a corporation existing under the laws of Quebec and is in the business of mining exploration. Its head office and all of its assets are located in Val d'Or, Quebec. Wesdome is a reporting issuer in the Provinces of Quebec, Ontario, Alberta and British Columbia and is not in default under the securities legislation of any of these jurisdictions.

2. The authorized capital of Wesdome consists of an unlimited number of common shares without par value, of which 19,006,284 common shares are issued and outstanding. The common shares of Wesdome are listed on the TSX Venture Exchange (the "TSX-V").

3. Western Quebec Mines Inc. ("Western Quebec") is a mining company existing under the laws of Québec. Its head office and all of its assets are located in Val d'Or, Quebec. Incorporated in 1945, Western Quebec has a successful record of operating gold mines and milling operations. The common shares of Western Quebec are listed on the Toronto Stock Exchange.

4. In 1999, Western Quebec merged certain of its Val d'Or properties and assets with those of Dynacor Mines Inc. to create Wesdome.

5. As a result of this merger, Western Quebec currently owns 12,857,322 common shares of Wesdome, representing approximately 67.65% of all the common shares of Wesdome issued and outstanding.

6. The Wesdome group of properties consists of seven contiguous claim groups covering much of the northern portion of the Lac de Montigny in the Val d'Or mining camp. It is adjacent to the Kiena Complex, currently held by McWatters Mining Inc. ("McWatters").

7. The Kiena Complex is comprised of 165 claims and one mining concession. The assests forming part of the Kiena Complex also include the former Kiena mine and the related mill, together with ancillary equipment and inventory.

8. The Wesdome property, owned by Wesdome, is contiguous to the Kiena Complex.

9. The Shawkey property, held by Western Quebec, is located approximately 1.5 km east of the Kiena Mine shaft.

10. Pursuant to a purchase agreement dated December 1, 2003 (the "Kiena Agreement"), Western Quebec has agreed to purchase from McWatters the Kiena Complex for an aggregate cash consideration of $2,000,000 including a non-refundable cash payment of $200,000 plus a 4% net smelter return royalty ("NSR") on certain defined existing resources to be processed from the Kiena property. Any new resources found on the Kiena property or any existing resources in excess of the amount defined will be subject to a 2% NSR to McWatters. In addition, Western Quebec has agreed to purchase the related inventory and equipment for their fair value estimated to be $1,000,000. Western Quebec has also agreed to pay an amount of $1.50 per tonne of ore processed at the Kiena mill from any source for up to 5,000,000 tonnes with $1.50 per tonne payable on ore processed from any source thereafter. The total purchase price of $3,000,000 was negotiated at arm's length between Western Quebec and McWatters.

11. Western Quebec wishes to transfer in favour of Wesdome the Shawkey and McKenzie Break properties, and to assign in favour of Wesdome its rights under the Kiena Agreement (the "Transaction").

12. Assuming the Transaction is consummated, Wesdome intends to spend $5,000,000 on an underground program consisting of an exploration drift from Kiena into Shawkey and extensive exploration work on known zones.

13. On October 31, 2003, the Board of directors of Wesdome has appointed a committee of independent directors to study the Transaction (the "Independent Committee"). The Independent Committee retained Geologica Groupe-Conseil Inc. ("Geologica") to undertake a formal valuation of the Shawkey and McKenzie Break properties (the "Valuation"). In the Valuation, Geologica valued the Shawkey property at $5,048,775 and the McKenzie Break property at $2,779,569.

14. The value being ascribed by the parties to Western Quebec's right to acquire the Kiena Complex is $385,000 which represents the payment by Western Quebec of the $200,000 deposit in respect of the Kiena Agreement as well as Western Quebec's expected out-of-pocket expenses in connection with the Kiena transaction.

15. The consideration payable for the Transaction will be paid by the issuance, in favour of Western Quebec, of an aggregate of 6,650,000 treasury common shares of Wesdome, at a price of $1.10 per common share ($7,315,000), as follows:

(i) Shawkey property:

4,300,000 common shares ($4,730,000)

(ii) McKenzie Break property:

2,000,000 common shares ($2,200,000)

(iii) Assignment of the Kiena Agreement:

350,000 common shares ($385,000)

16. After the Transaction, Western Quebec will hold 19,507,322 common shares of Wesdome, representing 76.03% of all the issued and outstanding common shares of Wesdome.

17. The Transaction is subject to a certain number of conditions, including, without limitation, the approval of all applicable regulatory authorities.

18. The Independent Committee has reviewed the Transaction and recommended approval of the Transaction. Upon the recommendation of the Independent Committee, the Board of directors of Wesdome has considered and approved the Transaction.

19. Western Quebec is a "related party" of Wesdome in accordance with the definition contained in Rule 61-501 and Policy Q-27 because it owns more than 10% of all the issued and outstanding common shares of Wesdome.

20. Consequently, the Transaction is a "related party transaction" under Rule 61-501 and Policy Q-27. Wesdome is therefore required to comply with the valuation and minority approval requirements of Rule 61-501 and Policy Q-27 applicable to related party transactions. Moreover, pursuant to section 5.4 of Rule 61-501 and Policy Q-27, Wesdome must call a shareholders' meeting and send an information circular to its shareholders.

21. The board of directors of Wesdome, acting in good faith, has determined that the terms of the Transaction are not less advantageous to Wesdome than if the Transaction was with a party dealing at arm's length with Wesdome.

22. Upon final regulatory approval, including approval by the TSX-V, Wesdome will disclose the details of the Transaction in a press release and in a material change report (the "Disclosure Document"). The Disclosure Documents will disclose (i) a description of the transaction and its material terms, (ii) the purpose and business reason for the transaction, (iii) the effect of the Transaction on Wesdome's business and affairs and (iv) the interest in the Transaction of every interested party and the nature of any benefit that will accrue as a consequence of the Transaction to every such person. The material change report will also include a summary of the Valuation.

23. It is expected that shareholders beneficially owing a majority of the shares held by persons who deal at arm's length with Wesdome (the "Outside Shareholders") will provide their written consent (the "Consent") to the Transaction. None of the Outside shareholders are participating to the Transaction. Since the Outside Shareholders who intend to provide written consents to the Transaction own more that 50% of the common shares held by all minority shareholders, the approval of the Transaction by a majority of the minority shareholders at a shareholder's meeting would be a foregone conclusion.

24. Wesdome will send a copy of the Disclosure Document to each Outside Shareholder.

25. The Consent will provide the relevant details of the Transaction and include an acknowledgement by each Outside Shareholder that the Disclosure Document describes the Transaction in sufficient detail to allow the Outside Shareholder to make an informed decision.

AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each of the Decision Makers (collectively the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that to do so would not be prejudicial to the public interest;

AND WHEREAS each of the Decision Maker is satisfied that the test contained in the Legislation that provides the Decision Makers with the jurisdiction to make the Decision has been met;

THE DECISION of the Decision Makers under the Legislation is that Wesdome shall not be subject to the shareholders' meeting and information circular requirements set forth in section 5.4 of Rule 61-501 and section 5.4 of Policy Q-27, provided that:

(a) the Outside Shareholders consent in writing to the Transaction which consent must contain an acknowledgement that they are aware of the terms of the Transaction and must be filed with the Decision Makers; and

(b) Wesdome complies with other applicable provisions of the Legislation in connection with the Transaction.

December 22, 2003.

"Stéphane Garon"