Sparton Resources nails $1.7 million loan for China acquisition

Toronto-based junior Sparton Resources (SRI-V) has secured a $1.7 million loan to raise its stake in a coal and germanium producing company in southern China.

Sparton’s wholly-owned subsidiary, Sparton Energy, will use the loan from an unidentified Canadian to buy an additional 34% share in the Linxing 306 Huajun Coal Company — bringing Sparton’s total ownership in the private company to 51%.

“At 51% we control the financial and technical part of the company and from there on we’ll use the cash flow for servicing the debt and then we’ll go out and try to raise more money and acquire the remaining interest,” explained Lee Barker, Sparton’s president and chief executive in an interview, noting the company has the right to acquire as much as 85% of Huajun.

Huajun is in Lincang city in China’s southwestern Yunnan province, which borders Vietnam, Myanmar and Laos. The company was set up by two local businessmen.

Huajun has three small mines which have been operating at their current levels since 2005. The mines produce thermal and germanium coal feedstock as well as 50 tonnes per day of new uranium bearing ash. Huajun has an ash waste pile of about 100,000 tonnes averaging about 170 ppm, or about 0.4 lbs. uranium oxide per tonne.

The acquisition of Huajun is part of Sparton’s secondary uranium recovery programs. Sparton wants to produce clean energy fuel from waste coal ash as well as from tailings from uranium mines.

Certain types of coal ash are high in uranium and other metals. Burning the coal concentrates uranium and other metals like germanium in the waste ash. The radioactive waste ash can’t be recycled into cement, concrete or other materials.

“We’re the only foreign company that can legally produce uranium in China right now and we’re in the process of acquiring projects producing it from uranium mine tailings and radioactive coal ash,” he explains. “We’ve patented our technology processes in China and we’ve got a joint-venture with China National Nuclear Corporation.”

The company argues that the uranium content of waste ash and tailings can be similar to many primary uranium deposits and the time to production is two to three years, vastly favourable to conventional uranium mining of 10-15 years.

With a bigger stake in the Huajun operation the Canadian junior also benefits from becoming a profitable producer of germanium in what it views is an expanding germanium market. Huajun is successfully producing roughly 3,500 kilograms per year of germanium concentrate from burning coal, which is sold to germanium refiners in China and abroad.

With only a handful of germanium producers worldwide, Sparton hopes to become a major supplier of the metal, which is used in manufacturing everything from wireless communications, infrared optics and synthetic fibers to semiconductors, plastics like beverage and food containers, and chemotherapy drugs.

Most germanium is produced as a byproduct of zinc refining. But with the current economic crisis, Barker notes, that supply channel has dried up.

“The germanium market has been very strong simply because of lack of production from zinc refiners and as world technology demand remains strong demand for germanium will remain strong because it’s a remarkable metal.”

Barker estimates that the world produces about 110,000 tonnes of germanium a year and that the Lincang area of China’s Yunnan province makes up between 40% and 50% of that amount.

Barker argues that the company’s secondary uranium recovery strategy meshes with China’s demand for power as well as its desire to clean up radioactive waste sites and recycling waste material.

“Germanium is not restricted in China,” Barker says. “It’s a strategic metal and the government is stockpiling it. It can also be sold outside the country.”

Sparton’s 1.7 million loan for boosting its stake in Huajun carries interest at 17.6% annually payable on a quarterly basis for 18 months and is repayable on or before maturity on Apr. 23, 2011.

The loan can be prepaid at any time prior to 30 days of maturity without penalty. Within 30 days prior to maturity, the parties can each elect for the repayment of the principal in full plus $425,000 in cash.

The lender also can elect to require transfer of Sparton Energy’s 34% interest in Huajun in full satisfaction of the amounts owing under the loan.

In addition, if Sparton Energy goes public, the lender has the right to convert the debt in an amount equal to 150% of the-then outstanding principal amount on the loan.

At presstime, Sparton Resources was trading at 6¢ per share. The company has a 52-week trading range of 2.5¢¢-12¢ per share and 63.5 million shares outstanding.