Prophecy Platinum and Ursa Major to merge

Looking to add near-term production potential, Prophecy Platinum (NKL-V) has entered a binding letter of agreement to merge with Ursa Major Minerals (UMJ-T) in an all-share deal.

The agreement has Prophecy issuing one share for every 25 Ursa shares, representing 15¢ per Ursa share, or a 130% premium based on March 1 closing prices. Prophecy will issue 3.2 million shares to Ursa shareholders.

The deal gives Prophecy access to the production-ready, Shakespeare platinum group metals-nickel-copper mine located 70 km west of Sudbury, which Ursa was forced to close in early February after it couldn’t find anywhere to process the ore.

For Ursa shareholders, the deal provides greater liquidity, a significant premium to its recent share price and gives shareholders exposure to the sizeable Wellgreen polymetallic deposit in the Yukon.

Ursa’s share price nearly doubled from 6.5¢ to 12.5¢ on the day the deal was announced with 8.1 million shares traded, while Prophecy’s share price dropped 31¢ to $3.39 on 445,000 shares traded.

Prophecy plans to issue a new feasibility study on the Shakespeare mine when the deal goes through, and hopes the project will raise its profile and broaden investment appeal. But Wellgreen will continue to be the company’s flagship project, and certainly its biggest.

Wellgreen hosts 14 million indicated tonnes grading 2.25 grams combined platinum, palladium and gold per tonne, 0.69% nickel, 0.62% copper and 289 million inferred tonnes averaging 1.18 grams combined platinum, palladium and gold, 0.38% nickel and 0.35% copper. The indicated resource translates to 220 million lbs. nickel, 200 million lbs. copper, 16 million lbs. cobalt and 1.04 million combined oz. precious metals, while the inferred resource totals 2.4 billion lbs. nickel, 2.2 billion lbs. copper, 191.3 million lbs. cobalt and 11 million combined oz. precious metals.

The resource estimate on the project, released in July 2011, sent Prophecy’s share price soaring. The company’s share price went from 60¢ to a $5.63 high in a matter of days, peaking a month later at $5.95 before retreating to half that price with the September downturn.

In contrast the Shakespeare mine, based on a 2008 feasibility study, hosts probable reserves of 11.8 million tonnes grading 0.87 gram combined platinum, palladium and gold, 0.33% nickel and 0.35% copper. Ursa, through contract mining, produced 167,000 tonnes of ore from the mine in the year ending Jan. 31, 2011, with a $15-million gross revenue and $2.4-million operating profit.

Based on a 2008 feasibility study on Shakespeare, a 4,500-tonne-per-day operation could sustain a seven-year mine, while the study set a $91.6-million net present value using a 6% discount rate and a 22.6% after-tax internal rate of return. The figures were based on US$9.37 per lb. nickel, about a dollar higher than the current price, while copper was in line with estimates at US$2.11 per lb. But precious metal figures are outdated at US$563 per oz. gold, US$995 per oz. platinum and US$342 per oz. palladium.

The merger is only the latest in numerous business combinations and spin outs engineered by John Lee, chairman of Prophecy Platinum, in the last three years. In late 2009, then-Prophecy Resource optioned into the Lynn Lake nickel-PGM project, funding the initial payment with a $350,000 financing at 5¢ to Lee and others, and Lee soon after became chairman of the company.

In January 2010, using the leverage of its recently acquired Lynn Lake option and two other minor base-metal projects, the company secured a third of Red Hill Energy in a merger that created Prophecy Coal (PCY-T). Red Hill held the advanced-stage Ulaan Ovoo coal project and the earlier-stage but more sizeable Chandgana Tal and Khavtai coal projects in Mongolia, which would become Prophecy’s focus, while initial assets were largely forgotten.

In June 2010, while working to put Ulaan Ovoo into production as quickly as possible, Prophecy signed a merger agreement with cash-strapped explorer Northern Platinum. The deal gave Prophecy access to the Wellgreen project, which holds extensive historic work and multiple non-compliant resources that are subject to limited recent exploration. But the deal for a previously failed Yukon mine sent Prophecy shares downward, because the company was focused on putting a Mongolian coal mine into production.

In early 2011, with Ulaan Ovoo officially open but still not producing much coal, the company spun out its non-coal assets into Pacific Coast Nickel in a reverse takeover, with Prophecy ending up with 90% of the company’s shares following a massive share issuance and rollback, and changing the name to Prophecy Platinum. Because of the spin out, Prophecy Coal owns 22.5 million of Prophecy Platinum’s 55.3 million shares outstanding.

Prophecy Platinum looks like it will go through another merger as it upgrades resources and explores the 17.5-km strike on its Wellgreen property. Prophecy Coal, meanwhile, continues to try and secure profitable offtake deals for Ulaan Ovoo and build a power plant that will be fed by its extensive Chandgana Tal and Khavtai Tal coal fields.

The latest deal between Prophecy Platinum and Ursa Major will be put to a vote by Ursa shareholders in late May, with the deal pending on several conditions.