Mining News: NovaCopper arranges creative financing
Junior offers to buy out cash-rich Columbia-focused explorer; directors, major shareholders of both companies sign off on deal
In a move that provides the cash needed to advance a feasibility study for the Arctic project in Northwest Alaska, NovaCopper has agreed to purchase Sunward Resources Ltd., a Vancouver, B.C.-based mining exploration company with a copper-gold asset in Columbia and roughly US$20 million in the bank.
Over the several weeks leading up to the April 23 announcement of the potential merger, the value of Sunward’s stock has hovered at roughly US$13 million, substantially less than the cash in the company’s treasury, not to mention the value of its Columbia asset.
“The market had basically discounted the cash they had in the bank, so that provided an opportunity for us, particularly since we have a couple of shareholders in common,” NovaCopper President and CEO Rick Van Nieuwenhuyse explained.
For Sunward shareholders, the deal provides an opportunity realize a benefit to the cash by continuing the exploration and development of a large Alaska project with nearly 10 billion pounds of copper identified to date.
“The combination of Sunward and NovaCopper provides shareholders a single company with a strong balance sheet to advance critical path objectives at our high quality Arctic and Bornite copper-zinc assets in Alaska,” said Van Nieuwenhuyse.
The merger – which already has the support of directors, management and major shareholders of both companies – is expected to get the go-ahead when the proposal comes to a vote in this summer.
Pre-approvedTo complete the deal, NovaCopper will issue Sunward shareholders 0.3 NovaCopper shares for every Sunward share held. This comes to a value of US18.65 cents per Sunward share based on the 20-day volume weighted average price of the NovaCopper shares on the NYSE MKT exchange through April 22.
Sunward has roughly 142.33 million shares outstanding, making the deal worth about US$27.6 million. At the end of 2014, the Columbia-focused exploration company had US$20.95 million in cash and cash equivalents.
NovaCopper pitched the idea of merging with Sunward last year, and after shopping around the junior decided to accept the offer early in 2015.
Haywood Securities Inc., on behalf of NovaCopper, and Cormark Securities Inc., on behalf of Sunward, deemed the deal financially fair to the shareholders of both companies.
The proposed merger also won unanimous approval from the board of directors of both companies. The two directors that sit on the boards of both companies – Novagold Resources President and CEO Greg Lang and Electrum Group President Igor Levental – abstained from voting.
NovaCopper Chairman Thomas Kaplan also abstained from voting due to his relationship with Electrum Strategic Resources L.P., which owns about 27.8 percent of NovaCopper’s issued and outstanding shares, and an Electrum-affiliated fund owns roughly 18.2 percent of Sunward’s issued and outstanding shares.
Sunward’s four largest shareholders – including Gold First Investments Ltd., Electrum Strategic Acquisitions LLC and Paulson & Co. Inc. – which hold roughly 70 percent of Sunward’s issued and outstanding shares, have agreed to vote in support of the arrangement at Sunward’s special meeting of shareholders expected to be held in June or July. This exceeds the 66.66 percent shareholder majority needed to approve the merger.
Together, Electrum and Paulson & Co. also hold about 42 percent of NovaCopper’s shares.
Once pertinent approvals are in place, the merged company will be run by current NovaCopper management and its board of directors will be expanded from seven to nine members to accommodate two nominees by Gold First Investments, Sunward’s largest investor.
Columbia copperIn addition to a substantial bank account, Sunward brings Titiribi gold-copper project in Columbia to the merger. The company, however, has not completed any significant exploration on the property since 2012.
“We are not acquiring the company for its asset, and Titiribi is the only asset they have,” said Van Nieuwenhuyse.
NovaCopper, however, does sees value in the Columbian property.
Titiribi has an NI 43-101-compliant measured and indicated resource of 285.8 million metric tons averaging 0.5 grams per metric ton (4.63 million ounces) gold and a relatively small amount (654 million pounds) of copper. Additionally the project has 349.4 million metric tons of inferred resources averaging 0.53 g/t (6.53 million oz) gold.
“There is good exploration potential there for a big porphyry system, but it is not something we are going to spend a lot of our own dollars on,” Van Nieuwenhuyse told Mining News.
Instead, NovaCopper plans to re-evaluate the geology and seek a partner to continue the exploration of Titiribi. Thanks to very low holding costs, the company can afford to be patient with its re-interpretation and marketing of the property.
Arctic feasibilityFor NovaCopper, the merger is basically a US$20-million financing. Combined with the nearly US$4 million the company already had in its coffers, the merged entity would have plenty of cash to complete a feasibility study for the Arctic deposit, the next step toward developing mines at the world-class copper projects underway in the Ambler Mining District of Northwest Alaska.
In 2011, NovaCopper cut a deal with NANA Corp., the Alaska Native regional corporation for Northwest Alaska, to explore a large swath of land in the Ambler District. Known as the Upper Kobuk Mineral Project, the lands being advanced by this partnership cover the copper-rich Arctic and Bornite deposits, and a number of other prospects on public and NANA lands.
NovaCopper intends to carry out an US$8 million to US$10 million program this year that will focus primarily on infill resource and geotechnical drilling at Arctic. Continued environmental and engineering studies for the feasibility study and work at the Bornite deposit also are planned.
A preliminary economic assessment for developing an open-pit mine at Arctic was completed in 2013.
This scoping level study outlined a 10,000-metric-ton-per-day mill at Arctic that is anticipated to produce roughly 1.5 billion pounds of copper, 1.8 billion lbs. of zinc, 289 million lbs., of lead, 30.5 million oz of silver and 349,000 oz of gold over a 12-year mine-life.
The open-pit for Arctic encompasses an indicated resource of 23.85 million metric tons averaging 3.26 percent (1.71 billion lbs.) copper, 4.45 percent (2.34 billion lbs.) zinc, 0.76 percent (400 million lbs.) lead, 0.71 grams per metric ton (550,000 oz) gold, and 53.2 g/t (40.8 million oz) silver. Additionally, Arctic has an inferred resource of 3.63 million metric tons averaging 3.22 percent (239 million lbs.) copper, 3.84 percent (285 million lbs.) zinc, 0.58 percent (43.2 million lbs.) lead, 0.59 g/t (60,000 oz) gold.
According to the PEA, it will only take about 4,400 meters of drilling to upgrade the inferred resources at Arctic to measured and indicated categories. Another roughly 4,000 meters is needed to gather the geotechnical, hydrological and metallurgical data needed to complete the feasibility study.
Bornite synergiesWhile the 2015 program will primarily focus on advancing Arctic to a project that can be presented to banks and permitting agencies, NovaCopper intends to continue to investigate the viability of mining the near-surface portion of Bornite, a large copper deposit situated about 16 miles south of Arctic.
The potentially open-pittable portion of Bornite contains indicated resources of 14.1 million metric tons grading 1.08 percent (334 million pounds) copper and inferred resources of 109.6 million metric tons grading 0.94 percent (2.3 billion pounds) copper; and the deeper, potentially underground minable portion of Bornite contains inferred resources of 55.6 million metric tons grading 2.8 percent (3.4 billion pounds) copper.
NovaCopper expects that the re-sampling of roughly 13,000 meters of core drilled by Kennecott Copper Co. between 1957 and 1976 will translate to a substantial increase in the indicated resources at Bornite.
While developing a mine-plan for Arctic, engineers also will be contemplating how Bornite will fit into the overall scenario to the maximum benefit of both projects.
“Hopefully, we can find out that there are true synergies, and we find out we can have a single tailings facility and can have a mill that can be used for both deposits,” Van Nieuwenhuyse explained.
If such synergies are identified, engineers will be tasked with finding the best location for such shared facilities and begin formulating ideas about when to phase in Bornite production in relation to Arctic.
Van Nieuwenhuyse said it currently looks like the best scenario is to start mining at the higher-grade Arctic deposit and phase in Bornite production, but at what point would most economical remains an open question.
“Where does Bornite fit in best to maximize the value out of both assets?” he asked, summarizing the trade-off studies that engineers are eyeing as they consider developing the first two mines in the Ambler Mining District.