Kaizen sizes up Tower Resources

Since its reverse takeover in December 2013, junior explorer Kaizen Discovery (TSXV: KZD; US-OTC: CCNCF) has closed two acquisitions and is zeroing in on a third. 

The Vancouver-based junior has signed an exclusivity agreement with Tower Resources  (TSXV: TWR) and will decide in the coming weeks of due diligence whether it will pull the trigger on a deal.

“They were on our short list of possible targets for the last six months or so,” Kaizen president and CEO Matthew Hornor says. “Their projects are highly prospective.”

Tower has several prospects close to Kaizen’s existing exploration ground at its Tanzilla copper-molybdenum-gold porphyry project and its Aspen Grove copper-gold-silver exploration project, both in B.C., and Hornor says he believes the proposed combined landholding would enhance the potential to make a significant mineral discovery.

Tower’s 164 sq. km Rabbit North property, a porphyry copper and gold project, is 85 km north of Aspen Grove and situated between Teck Resources’ (TSX: TCK.B; NYSE: TCK) Highland Valley copper mine and New Gold’s (TSX: NGD; NYSE-Arca: NGD) New Afton copper-gold mine, while the junior’s 160 sq. km JD property in north-central B.C., is 180 km southeast of Tanzilla and 50 km north of AuRico Gold’s (TSX: AUQ; NYSE: AUQ) Kemess projects. The JD property hosts high-grade, near-surface epithermal gold-silver targets in addition to several porphyry copper targets.

“We’re buying a discovery that has a lot of drill holes in it, so it’s not just greenfield,” Hornor says in an interview from his office in Vancouver. “There’s also a copper porphyry showing in the south, which is the metal our Japanese partners are interested in. As for Rabbit North, it is close to our Aspen Grove project and hasn’t really been properly tested and the showings and outcroppings are pretty eye-popping, so we think it’s one of the best underexplored projects in B.C.” 

From Tower’s perspective, president and CEO Mark Vanry says, a deal with Kaizen makes a lot of sense. “The big reason is access to capital on a go-forward basis; access to world-class blue-chip Japanese partners; and to further diversify our portfolio,” Vanry says. “We also really like the exploration potential of Kaizen’s projects from a technical point of view.”

He adds that there’s still a lot of due diligence that needs to be done on both sides, “but we’re both optimistic that it will come to a positive conclusion.”

Vanry is Tower’s largest shareholder. Management, insiders and founders own 30% of the company.

Hornor notes that whether or not the Tower acquisition goes ahead, he expects to complete another acquisition before year-end. “After Tower we’re probably good for one more this year, and then we’ll take stock and look around, and see how best to proceed,” he says. “We’re really looking forward to putting our hands on something in South America — we’re actively reviewing projects down there, mainly in Peru, Colombia, Chile and Brazil.” 

Hornor says Kaizen would like to have projects in both hemispheres, so that when it’s too cold to work in North America the company’s geologists can get busy in South America.

For those wondering how a junior in today’s market with a 26¢ share price and a $41-million market cap can afford to make so many acquisitions in such a short time, the answer is because it’s got powerful backers. Not only has Kaizen partnered with Japan’s Itochu — a leading trading house and metal supplier to Japanese industry — but its largest shareholder is HPX TechCo, a subsidiary of High Power Exploration, a private company indirectly owned and controlled by mining magnate Robert Friedland.

In January 2014, Kaizen and Itochu reached an agreement to evaluate opportunities to explore and develop select international mining projects. Itochu invested $5.1 million in Kaizen through a private placement for a 6.4% stake. 

In July, Itochu agreed to jointly explore Kaizen’s latest Canadian copper-gold porphyry projects. It acquired a 40% stake in Aspen Grove for $4-million cash and an initial 15% interest in Tanzilla for $250,000 in cash, with an option to acquire another 10% interest in that project.  Under the deal Itochu will be entitled to off-take from both projects in proportion to its ownership interests and promised to help arrange project financing and support from Japanese financial institutions for developing the two projects.

“We’re a junior but we’re partnered with Itochu, and that gives us the ability to act like we’re not a junior mining company,” Hornor says. “We have seven geologists and do more work than a lot of people think. Many juniors have just one geologist on staff so we have the ability to do more work than most.”

Last month, Kaizen scored a major victory when it appointed David Broughton as executive vice-president of exploration. Broughton also serves as the executive vice-president of exploration at Ivanhoe Mines (TSX: IVN; US-OTC: IVPAF) and has overseen Ivanhoe’s discovery of two world-class mineral deposits: Kamoa, a copper deposit in the Democratic Republic of the Congo, and the Flatreef platinum group metals, nickel, copper and gold discovery in South Africa’s Bushveld Complex. 

Before joining Ivanhoe, Broughton was the exploration manager of sediment-hosted copper deposits for Phelps Dodge Exploration Corp./Freeport Exploration. 

Hornor, too, has kept his connection with Ivanhoe, where he continues in his role as executive vice-president — a post he has held since May 2010. Hornor was instrumental in Itochu’s US$280-million investment in Ivanhoe’s Platreef platinum and nickel project in South Africa, and has known Friedland for the last 38 years.

Before joining Ivanhoe, Hornor worked as a lawyer in Tokyo. He began working with Friedland a decade ago after spending time with the mining executive when he was in the Japanese capital developing deals involving the Oyu Tolgoi project in Mongolia. (Hornor’s ties with the Friedland family actually date from elementary school when he was classmates in first grade with Friedland’s daughter, and through her, Friedland’s son Govind.)

As for the downturn in the mining industry, Hornor says he is using it to his advantage and the timing, frankly, couldn’t be any better.

“In this market, there are many junior mining companies who are looking for partners to help them. We respond to multiple phone calls and reverse inquiries a day, asking us whether we’re interested in looking at one or more of their companies,” he says.

“Last year we heard that 70% of all the juniors had $200,000 in working capital, which was a nice way of saying a lot of junior mining companies are about to go out of business unless they do something . . . for most people it is the worst market, but since we’re on the buy side, it’s created quite a good position for us, and from that respect, it could not be better.”