Hochschild Mining plc will use a Canadian Buyco to acquire IMZ following a s. 86 spin-off of IMZ's non-targeted assets

Hochschild Mining plc, a UK-listed Latin American miner with 60% ownership of a Peruvian joint-venture company, is interested in the 40% minority stake held by TSX-listed International Minerals Corporation but not in its Nevadan gold assets.  IMZ will transfer its Nevadan assets to a wholly-owned Newco subsidiary (Chaparral Gold) and spin-out Chaparral Gold to its shareholders under a s. 86 reorganization.  As part of the same Yukon plan of arrangement, a wholly-owned Canadian Buyco subsidiary of Hochschild will acquire all the IMZ shares for cash.

This transaction is consistent with a recent tendency to spin-out subsidiaries on s. 86 reorgs (see Fission/Alpha Minerals, Resverlogix/RVX Therapeutics, C&C/Platino, Erdene/Advanced Primary Materials and CTF/FleetCor) rather than s. 84(2) distributions, and a preference of some foreign purchasers to use Canadian Buycos even in the face of the foreign affiliate dumping rules (see IMIC/Afferro, Serabi/Kenai and Coeur d'Alene/Orko).  The RRSP disclosure notes that if Chaparral Gold satisfied the public corporation conditions as late as six months after its first taxation year, it could retroactively elect to be a public corporation from inception.

It is not expected that the spin-off of Chaparral Gold will qualify for US tax purposes as a Code s. 355 tax-free spin-off.  Instead, the plan of arrangement will be treated as a single integrated transaction resulting in a capital gain or loss to US shareholders.

Neal Armstrong and Abe Leitner.  Summary of Circular of International Minerals Corporation under Spin-offs - S. 86 reorganization spin-offs.