Explorer Starfield Resources (SRU-T, SRFDF-O), which is advancing the Ferguson Lake base metal and platinum group metal (PGM) project in Nunavut, is taking over fellow junior Nevoro (NVR-T, NEVIF-O), which owns the Stillwater base metal and PGM project in Montana.
The friendly, all-share transaction, which will see each Nevoro share exchanged for 0.87 of a Starfield share, is subject to a vote by Nevoro shareholders and court approval. The management and boards of both companies, and a special committee of the Nevoro board, are in favour of the takeover. If both Nevoro’s shareholders and the court approve, the takeover will probably proceed in August.
The deal values Nevoro shares at 15¢ apiece based on their closing price on June 22, a 64% premium to the 20-day volume-weighted average trading price. Nevoro has 152 million shares outstanding, and Starfield 333 million shares. On closing, Starfield will have 477 million shares, of which 72% will be owned by Starfield’s current holders, and 28% by Nevoro’s holders. According to the latest financial statements, the combined company would have a cash position of $8.7 million with no long-term debt.
Nevoro’s Stillwater project in south-central Montana is near Nye, 130 km southwest of Billings. A part of the project is immediately south of Stillwater Mining’s (SWC-N) producing Stillwater PGM mine, while another portion is 7 km southeast of Stillwater Mining’s producing East Boulder PGM mine.
Historic resources on the Stillwater project include 20.9 million tonnes grading 0.62% nickel and 0.45% copper in the past-producing Mouat mine area; 12.7 million tonnes of 23% Cr2O3 in the past-producing Mountain View mine; 8.2 million tonnes of 20% Cr2O3 in the past-producing Benbow East mine; 5.4 million tonnes of 22% Cr2O3 in the Nye basin area; and 19 million tonnes of 22% Cr2O3 in the past-producing Benbow mine.
Based on 33,000 metres of drilling in 150 holes by Anaconda in the 1970s, historic resources in the past-producing Mouat and Benbow mines, plus resources at Nye basin, were estimated at 93 million to 121 million tonnes grading 0.6% nickel, 0.5% copper and 0.06% cobalt.
The Mountain View and Benbow mines produced chrome during the Second World War and the Korean War, but since then, the availability of plentiful chrome from South Africa has kept these mines closed.
Nevoro believes that the chromite resource at Stillwater, with historic estimates of 45 million tonnes grading 22% Cr2O3, for 22 million lbs. Cr2O3, is the largest known in North America. The 2008 discovery of chromite at the Ring of Fire near McFauld’s Lake, Ont., also looks sizable, although there are no resource estimates there yet.
The main PGM targets include Crescent Creek, with a 3.7-km strike length, and Mouat, with a 2.5-km strike length. There is no historic PGM resource estimate for the project.
Until recently, the Stillwater project covered 16.5 sq. km, but in mid- June Nevoro enlarged the project by buying Beartooth Platinum’s (BTP-V, BTPUF-O) landholdings in the area. With that acquisition, Nevoro now controls about 73 sq. km.
Starfield is planning to dispose of Nevoro’s second flagship project, Moonlight, near Susanville in northern California.
Nevoro also owns 50% of the Golden Loon polymetallic exploration project in B. C., of which a 75% stake has been optioned to another company. It also has eight early stage gold projects in Nevada
The asset that Starfield brings to the table is the Ferguson Lake project in Nunavut. Indicated resources there stand at 15.3 million tonnes grading 0.71% nickel, 1.04% copper, 0.08% cobalt, 0.28 gram platinum per tonne and 1.64 gram palladium. Inferred resources are 28.9 million tonnes grading 0.67% nickel and 1.01% copper.
Last year, Starfield filed a scoping study that, in addition to the indicated resources, only took into account inferred resources from two zones out of a total of four. These inferred resources amounted to 19.4 million tonnes grading 0.68% nickel, 1.13% copper, 0.08% cobalt, 0.28 gram platinum and 1.75 gram palladium.
The scoping study calculated that the combined resource would produce 34.2 million tonnes of feed grading 0.6% nickel, 0.95% copper and 0.07% cobalt. It projected a mine life of 17 years, with average annual production of 27.5 million lbs. nickel, 43.6 million lbs. copper, 2.9 million lbs. cobalt and 1.6 million tonnes sulphuric acid.
Based on prices of US$8 per lb. nickel, US$2 per lb. copper, US$25 per lb. cobalt and US$80 per tonne sulphuric acid, and preproduction capital expenses of $1.35 billion, the pretax internal rate of return was projected at 13.4%, and the net present value at a 10% discount rate was projected at $321 million. The simple payback period of preproduction capital was pegged at 6.4 years.
Ferguson Lake is landlocked. Starfield envisages a 285-km slurry pipeline and an electric power line either to Rankin Inlet to the east, or to Arviat to the southeast. Both communities are on Hudson Bay.
The mine would crush the rock and prepare a slurry that would be pumped in the pipeline. The slurry would be processed in a mill and a plant at Rankin Inlet or Arviat. The plant would also produce electric power for the mine at Ferguson Lake.
Among the synergies that the companies highlight is the possible application of a novel hydrometallurgical process using solvent extraction. The process was developed by Starfield, and the companies hope that it can be used at Stillwater.
After the discovery of a micro-diamond at Ferguson Lake, Starfield is looking for a joint-venture partner to explore for diamonds.
On the news, Starfield shares gained 2¢ to 17.5¢, and Nevoro shares added 1¢ to 12.5¢. Over the past year, Starfield shares have traded in a range of 7¢-$1.25, and Nevoro shares in a window of 2.5-37¢.
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