Ursa Major And Canadian Arrow Consider Merger

Nickel prices are still in the dumps but that’s not stopping nickel juniors Canadian Arrow Mines (CRO-V, CDARF-O) and Ursa Major Minerals (UMJ-T, UMJMF-O) from planning ahead for a price comeback.

The two companies are considering merging to create what they say will be a stronger, more diversified nickel development company.

In fact, Canadian Arrow president and CEO Kim Tyler says the junior nickel sector is in need of consolidation because there are so many companies out there.

“This is the start of it,” says Tyler, who believes things have to turn around. “We believe strongly that the future is not going to be what it was in the last six months.”

Ursa Major Minerals president and CEO Richard Sutcliffe says Ursa Major won’t stop with the Canadian Arrow merger.

“We would like to be a leader in the consolidation process,” Sutcliffe says.

If the deal goes through, Canadian Arrow shareholders will receive one newly issued Ursa Major share for every 1.5 Canadian Arrow shares, warrants and options. The company will keep the Ursa Major listing because it’s listed on the Toronto Stock Exchange, whereas Canadian Arrow is listed on the TSX Venture Exchange. The companies have agreed on an exclusivity period during which they will complete due diligence and a definitive agreement for the merger.

The merger would pair up nickel juniors with complementary differences, the companies say, pointing to Canadian Arrow’s higher-grade underground Kenbridge deposit near Kenora, Ont., and Ursa Major’s Sudbury-area lower-grade open pits that also produce copper and precious metal byproducts. They also point to different management niches: Canadian Arrow’s management used to work for majors like Rio Tinto, Suncor Energy and Vale Inco, while Ursa Major has a background in the junior mining realm.

Ursa’s portfolio includes the fully permitted Shakespeare open-pit nickel project, located 70 km west of Sudbury. Ursa was shipping ore to the Strathcona mill, owned by Xstrata (XSRAF-O, XTA-L) subsidiary Xstrata Nickel, until October, when the project was put on care and maintenance as nickel plunged to nearly US$4 per lb. Sutcliffe says the company needs to see nickel above US$7 per lb. to restart production, though recently it’s been hauling a 5,000-tonne stockpile left over from last year, which is generating some revenue for the company.

A feasibility study for Shakespeare, released in early 2006, put probable reserves at 11.2 million tonnes grading 0.33% nickel, 0.35% copper, 0.02% cobalt, 0.19 gram gold per tonne, 0.33 gram platinum and 0.37 gram palladium, for about 86 million lbs. of nickel plus byproducts. There is another 15 million lbs. nickel in indicated resources.

Ursa Major had been hauling at a rate of about 500 tonnes per day but the project, which started production in 2007, has the capacity to support a 4,500-tonne-per-day operation if it had its own mill. The feasibility study put the cost of a mill at $140,000. Sutcliffe says the company is currently in talks with Xstrata to start hauling ore again but admits it will be a while before it can go ahead with building its own mill.

“We are going to need capital markets that allow project financing for driving the mill build-outs,” Sutcliffe says. “A modest improvement in nickel prices would allow us to resume haulage operations with Xstrata and we’re in discussion with them on that.”

Ursa Major’s other prospective project is the Shining Tree nickel-copper property about 110 km north of Sudbury. The near-surface deposit has an indicated resource of about 1 million tonnes grading 0.71% nickel, 0.36% copper and 0.02% cobalt and an inferred resource of 1.5 million tonnes grading 0.67% nickel, 0.36% copper and 0.03% cobalt.

Canadian Arrow’s main asset is its Kenbridge nickel-copper project near Kenora. The company has been sitting tight since finishing a preliminary economic assessment last August, before Lehman Brothers collapsed. The study suggested it would cost $108 million in capital expenditures to get the project up and running.

The deposit has a 620-metre shaft but has never been mined. Measured and indicated resources total 7.1 million tonnes grading 0.62% nickel, 0.33% copper and 0.016% cobalt for 44,320 tonnes of nickel (98 million lbs). Canadian Arrow needs cash for a feasibility study, but has been waiting for markets to improve.

Should the two nickel juniors merge, they won’t be taking any action right away. Their combined treasury of about $1 million means the new company will be looking for strategic financing opportunities as it does a little drilling and waits for the nickel price to rebound.

If and when it does, Tyler believes that Kenbridge and Shakespeare could be among the lowest-cost nickel producers in the province and would be two of the first to go into production.

Canadian Arrow shares were down 1¢ on the news at 7¢ apiece on a trading volume of 120,000. The company has about 71 million shares outstanding.

Ursa Major shares were unchanged at 14¢. The company has 44 million shares outstanding.