Recession drives miners into mergers
Tough economic conditions precipitate flurry of consolidation among majors, juniors that do business in Alaska, Northwest Canada
Last updated 8/30/2009 at Noon
The recession is taking its toll among mining companies with properties in Alaska and northwestern Canada as mergers and acquisitions surged in this sector during the second quarter, in step with a global industry trend.
Companies across the exploration and development spectrum from mining giants to the smallest juniors closed on deals with firms that are struggling to survive the recent cash crunch as independent entities.
The Wall Street Journal reported in early August that according to data provider Dealogic, value of proposed takeovers in the mining sector soared to US$122.1 billion in the second quarter, more than double the next-highest total from recent years, US$57.2 billion in the first quarter of 2008.
Xstrata Plc's proposed merger of equals in June with Anglo American Plc, one of the 50-50 partners in the proposed Pebble Project in Southwest Alaska, led the surge in activity.
The newspaper said Dealogic values an Xstrata-Anglo combination at US$48.3 billion.
Xstrata said the new company would generate at least $1 billion a year in cost savings, have exposure to a greater mix of commodities and be better positioned to compete against larger peers such as BHP Billiton, the Wall Street Journal reported.
Anglo has resisted the approach as lacking strategic merit, and has called the terms "totally unacceptable."
Smaller offers have met with more success. Deals of US$100 million or less have rebounded from the first quarter, when activity hit its lowest level since 2006. The Wall Street Journal said these deals are less about size and savings, and more about adding a single resource to a company's portfolio.
Here are some of the deals with an impact on the Far North that juniors announced or completed in the second quarter.
Mergers affect Alaska projects
Rimfire Minerals Corp. and Geoinformatics Exploration Inc. reported completion of their merger Aug. 5. The two juniors combined to form a new entity, Kiska Metals Corp., with an extensive property portfolio including its flagship Whistler Project located 150 kilometers, or 92 miles, northwest of Anchorage.
Rimfire and Geoinformatics said the merger gives the new company ample funds to consolidate and continue advancing an extensive portfolio with NI 43-101-compliant indicated and inferred resources of 1.31 and 4.44 million gold equivalent ounces, respectively, while allowing cost savings.
Many of the projects in Kiska's portfolio are part of joint ventures with majors and other juniors, which will enable the junior to participate in upside potential while limiting exploration spending, Rimfire and Geoinformatics said.
The new company will be led by the current Rimfire management team, including President and CEO Jason Weber and Mark Baknes, vice president, exploration.
Kiska Metals Aug. 13 reported startup of 2009 exploration at Whistler, a gold-copper project comprising440 square kilometers, or 170 square miles, of Alaska state claims. The project consists of the Whistler Zone, a gold-copper porphyry deposit with indicated and inferred resources of 1.31 million ounces and 4.44 million ounces gold-equivalent, respectively, numerous similar targets including the Raintree West and Rainmaker discoveries where gold-copper mineralization with comparable grades to the Whistler Zone was recently discovered and regional targets that may be prospective for different mineralization styles than at the Whistler Zone.
The 2009 program will include collecting 341 line-kilometers of induced polarization geophysics, evaluating regional targets on the property, and launching a 7,000-meter, 20-hole drill program in September due for completion in mid-2010.
The IP and drill program constitute the entire work program required for Rio Tinto Ltd.'s Kennecott Exploration to make a decision regarding its back-in rights on the project. If Kennecott exercises its back-in rights, it must refund two times the aggregate of Geoinformatics and Kiska's exploration expenditures on the property and fund Whistler exploration through a positive pre-feasibility study to achieve a 51 percent interest. Kennecott can elect to fund the project through to a positive development decision to earn a 60 percent interest.
In Alaska, Kiska's exploration portfolio also includes the Muddy Creek Project, seven individual high-grade gold-silver and base metals prospects located about 8 kilometers, or 5 miles, southwest of Whistler; the Uncle Sam Gold Project located east of Sumitomo's Pogo Mine in east-central Alaska and the Goodpaster Project, which consists of more than 700 square kilometers of claims surrounding and on trend with Pogo. Rubicon Minerals Corp. has an option to earn an initial 60 percent interest in the properties.
Combination touches B.C., Yukon
In British Columbia, Kiska owns interests in nine properties, including 100 percent of the Williams Project in the north-central region, which has a gold vein and porphyry copper-gold prospects. Fourteen holes drilled at the T-Bill vein prospect within a 300-by-300-meter area have intersected 11 separate intercepts averaging more than 12 grams per metric ton gold. Drilling is targeting a set of parallel vein corridors underlying a 2-by-3-kilometer gold-arsenic soil geochemical anomaly.
In Yukon Territory, Kiska owns the Boulevard Property, a gold target located 35 kilometers, or 23 miles, south of Underworld Resources' recent Golden Saddle gold discovery. Silver Quest Resources Ltd. has optioned Boulevard to earn 100 percent interest of the project. Kiska also holds a 20 percent interest in a joint venture with Fronteer Development Group Inc. in a 374-square-kilometer land, or 144.4-square-mile, package prospective for iron oxide copper-gold deposits in Yukon's Wernecke Mountains.
Kiska is also exploring numerous other properties in Ontario, Mexico, Nevada and Australia.
Merger to benefit Alaska project
Victory West Moly Ltd. agreed to acquire XS Platinum Ltd. The Western Australia-based explorer said XS Platinum plans to begin producing and selling platinum and gold by the end of 2009.
Victory West, which is exploring for molybdenum in Indonesia, agreed to issue 250 million of its shares and 100 million options exercisable at A25 cents per share for five years to acquire XS Platinum. The company also agreed to advance A$10 million to the platinum company to be used to purchase equipment and conduct a trial mining operation on placer platinum acreage that covers the historic Platinum Creek Mine in Southwest Alaska.
The acquisition of XS Platinum will better position Victory West to become a multiresource company with assets of strategic significance and economic importance, the junior said.
XS Platinum is an unlisted public company that owns 195 placer and hard-rock mining claims in the Salmon River Valley near the township of Platinum. More than 500,000 ounces of platinum have reportedly been produced since the 1920s on the 3,000-acre, or 1,245-hectare, property.
XS Platinum plans to reprocess dredge tailings from mining carried out on the property between 1937 and 1976. These tailings are believed to contain significant amounts of fine-grained platinum and gold that the junior hopes to recover using modern gravity separation techniques.
XS Platinum also aims to explore the potential to extract platinum and gold from the virgin gravels on the property that have not been the subject of historical mining activities. Victory West also said Platinum Creek has a number of the mining claims that cover hard-rock prospects that are thought to be the source of the platinum group elements in the overall alluvial deposits.
XS Platinum intended to conduct a small-scale bulk-sample program in August, which should provide the company with valuable production and geological data, and achieve actual platinum and gold sales by year's end. Victory West said all necessary mining, processing, sales and environmental approvals are in place.
Victory West said XS Platinum acquired the Platinum Creek Mine from Hanson Industries Inc. in November 2007 for US$50 million to be payable in 10 installments between the purchase date and December 2015 with a simple interest of 7.5 percent annually on the balance owed.
Victory West also said it, along with XS Platinum, will continue with ongoing due diligence on each other and work toward merging the two companies around the end of the year.
B.C. firms to combine
Imperial Metals Corp. and Selkirk Metals Corp. July 27 said they have agreed to combine by way of a plan of arrangement, subject to shareholder and regulatory approval. The business combination will pair Imperial's proven development, operating and financial capability with Selkirk's portfolio of development stage and advanced exploration projects.
The companies said the combined corporation will be virtually debt-free and able to use cash flow from existing operations to further explore and develop an expanded mineral asset base.
Under the terms of the agreement, Selkirk shareholders will receive, at the option of the holder, either C12 cents cash for each of their shares, or one common share of Imperial for every 30 shares of Selkirk held, provided that Imperial shall not be required to issue more than 2.2 million shares in the exercising of the share options.
If Selkirk shareholders' elections result in more than 2.2 million Imperial shares being issued, the Imperial shares will be allocated on a pro-rata basis, with the balance being paid in cash.
Imperial is a mine development company that operates the Mount Polley open-pit copper-gold producing mine in central British Columbia, the Huckleberry open-pit copper-molybdenum producing mine in northern British Columbia, the development-stage Red Chris property in northwest British Columbia, and a development stage gold property in Nevada.
Selkirk is a junior with a large portfolio of exploration properties predominantly in British Columbia, including the Ruddock Creek zinc-lead project and the Catface copper project, both of which have a defined resource and development potential. Both Imperial and Selkirk are based in Vancouver, B.C.
Juniors combine forces
Diamondex Resources Ltd. and Triex Minerals Corp. agreed to merge in a transaction that will bring benefits to both companies. Diamondex shareholders will gain access to working capital to advance the projects they owned, while Triex shareholders will get a substantial premium for their shares. The combined company also will boast a more diversified, multicommodity portfolio of established properties located in Ontario, Saskatchewan, Alberta and northern Canada, and identified exploration targets focused on base metals, gold, diamonds and uranium.
The new company also will enjoy significant savings in general and administrative expenses and the benefits of a combined management and board expertise.
Diamondex and Triex have agreed to immediately negotiate a definitive agreement, incorporating terms of the binding letter agreement and other customary terms and conditions of transactions of this nature. The deal is also subject to TSX Venture Exchange and shareholder approval, and is expected to close in mid-October.
Diamondex was founded as an exploration company focused on the discovery of primary diamond deposits in Canada. Through the advancement of original conceptual models and the successful execution of regional exploration plays, the company assembled a property portfolio that, at its peak, exceeded 9 million acres. Among its holdings are seven properties in Northwest Territories and one project in Nunavut.
Triex explores for uranium with the potential for low-cost production, located in areas with established infrastructure, in jurisdictions where permitting is favorable and where government policies are supportive of uranium exploration and development activities. Its current portfolio of eleven main properties includes four properties in Hornby Bay Basin, Nunavut and the Boulder Creek Project in Alaska, and significant projects in the Athabasca Basin of northwestern Saskatchewan, the world's premier exploration district for high-grade uranium deposits.
Opportunities in Nunavut
Triex Minerals Corp. operates five key projects in the Paleoproterozoic Hornby Bay Basin, which straddles the Nunavut-NWT border in northern Canada.
Total area of the properties is more than 223,000 hectares.
These properties, Mountain Lake, Dismal Lakes, West Dismal, Kendall River and Leith Peninsula, are owned 50-50 with Pitchstone Exploration Ltd. The Mountain Lake uranium deposit, the only defined uranium resource in the basin, anchors the holdings.
It is 8.2 million pounds U3O8 (3,700 tonnes U3O8) inferred resource in 1.6 million tonnes, with an average grade of 0.23 percent U3O8 using a cutoff grade of 0.10 percent U3O8 and a minimum thickness of 1.0 meter (CIM guidelines and definitions).
Progress in Northwest Alaska
The Boulder Creek Property is located on the Seward Peninsula in northwestern Alaska. It is about 50 kilometers, or 31 miles, from the coastal village of Elim, and 170 kilometers, or 106 miles, east-northeast of Nome.
The Boulder Creek Project was actively explored for four successive summer field seasons between 2005 and 2008. Work focused on resource delineation drilling at the Boulder Creek uranium deposit, and on reconnaissance exploration for additional deposits in the surrounding region.
Resource delineation drilling at Boulder Creek is complete. Reconnaissance exploration resulted in the 2007 discovery of a new surface uranium occurrence, named Fireweed, and located some 25 km north along-strike from Boulder Creek. The Fireweed occurrence has yet to be fully explored and evaluated.
Triex has no committed plans for exploration in 2009.
Uranium firms merge
Another combination that affects Far North properties is the merger of Titan Uranium Inc. and Uranium Power Corp. completed July 31 under a plan of arrangement they entered in May. As a result, Titan has acquired all of the issued and outstanding common shares of Uranium Power.
"The closing of the transaction marks a significant milestone for Titan Uranium," said President and CEO Brian Reilly. "I would like to welcome the new officers and directors of the company and thank the outgoing officers and directors for their contributions. Titan is well-positioned for future growth in the uranium sector."
Titan is driven by advancing exploration projects to discovery in the proven Athabasca and prospective Thelon basins located in Saskatchewan and Nunavut, respectively. The junior said it has gained market recognition for its ability to attract strategic partners to participate in exploration on its properties by virtue of its 1.6 million-acre land position and its technical expertise. Titan's option agreement participants include: Japan Oil, Gas and Metals National Corp., Vale Exploration Canada Inc., and Mega Uranium Ltd. These optionees are expected to contribute C$4.7 million in exploration programs managed by Titan in 2009.
The merger with Uranium Power adds a number of highly prospective properties, mainly in the Lower 48, to Titan's portfolio.
Prime among these is a 50 percent interest in the Sheep Mountain deposit which has an NI 43-101-compliant Inferred Resource (on a 100 percent basis) of 4.6 million tons, averaging 0.17 percent U3O8, (15.6 million pounds contained U3O8).