Taseko to buy Curis

B.C. copper miner Taseko Mines (TSX: TKO; NYSE-MKT: TGB) has tabled a friendly, all-share bid for Vancouver-based junior copper developer Curis Resources (TSX: CUV; US-OTC: PCCRF) and its wholly owned Florence in situ copper project beside the town of Florence in south-central Arizona.

Taseko is offering 0.438 of a share for every Curis share held, which represents $1.055 per Curis share, or a 21% premium, based on the last 20 trading days for both stocks. Before the offer, Taseko already owned 12.9 million Curis shares, or 17.3%.

The friendly bid was announced after markets closed on Sept. 8. The next day Taseko’s stock dropped 12¢, or 5%, to close at $2.20, after trading much of the day at $2.15. Curis shares rose only 4¢ to 94¢, which translates into a $71-million market capitalization, given its 74.8 million outstanding shares.

The takeover is expected to close in November, after which Taseko will have 222.1 million shares outstanding, with current Taseko shareholders owning 88% and former Curis shareholders holding the rest.

Curis’ directors unanimously endorse the deal, except for Russell Hallbauer, who is also CEO of Taseko and has refrained from getting involved in the Curis board’s decision. But both companies are affiliated with Vancouver’s Hunter-Dickinson group of companies.

The takeover requires approval by two-thirds of the votes cast by Curis shareholders, and there is a $3-million break fee payable to Taseko. Taseko is also providing a $2-million convertible bridge loan to Curis to ensure it has enough liquidity until the takeover is complete. Before the bid, Curis had $1.5 million in cash.

Taseko’s chief asset is its 75% ownership in the operating Gibraltar copper–molybdenum mine in central B.C. It also owns the sidelined New Prosperity copper–gold deposit in central B.C., and the Aley niobium project in the province’s far north.

Curis argues the offer presents “numerous benefits” to its shareholders, including access to existing financial resources to fund Florence; an ownership stake in Gibraltar; a stable cash-flowing asset; growth potential from New Prosperity and Aley; enhanced trading liquidity; and wide analyst coverage.

Moreover, it says advancing Florence through the permitting, construction and commissioning will be “greatly aided by the depth and breadth of experience of Taseko’s management and board of directors.”

Probable reserves at Florence total 340 million tons (308 million tonnes) of oxide material grading 0.36% copper, for 2.4 billion contained lb. copper. Measured and indicated resources — again all oxide — add another 429 million tons (389 million tonnes) at 0.33% copper, for 2.8 billion lb. copper. The reserve estimate makes use of 502 holes totalling 577,000 ft. (176,000 metres).

Curis’ prefeasibility study of Florence completed in March 2013 envisages an in-situ recovery (ISR) mine that would produce 75 million lb. copper annually at cash-operating costs of US$1.11 per lb., with an initial capital requirement of US$210 million. (ISR is more often associated with uranium mining in highly oxidized terrain.)

Speaking for Taseko, Hallbauer said in a release that Florence is a “quality project in a secure mining jurisdiction with a supportive local population, and we believe our board of directors and management have the permitting and operational excellence to advance to commissioning in a timely manner.”

Curis is in the final stages of permitting for a $30-million production test facility at Florence. It would include a 24-well ISR well field and a solvent extraction-electrowinning plant that would produce copper cathode, and cost another $10 million to $15 million to operate.

Curis says it has also been working on engineering, test work, environmental studies and permitting for commercial operations at Florence.

During a Curis conference call to discuss the transaction with analysts and investors (Taseko was not present on the call and did not hold its own call), Curis president and CEO David Copeland said the transaction “will give us an excellent base to move forward within the Arizona community, especially — and certainly with the permitting agencies.”

He added that “I’m sure it’s on everyone’s question list: ‘Why didn’t we do a financing in a more conventional format?’ Our last financing was at 75¢ and we could probably do a financing [of $10 million to $15 million] at 80–90¢, but it would be with a discount, and it would definitely be with a warrant of some kind, which represents dilution. We see this as an accretive transaction that avoids dilution and allows us to go the distance, and advance the project rapidly.”

BHP spent close to $100 million advancing the project in the late 1990s, before Curis bought the project outright in 2010. On the conference call Copeland said that BHP had already obtained permits from the state and the federal governments for test work at the site.

“Those permits have not been cancelled,” Copeland said. “They have been in suspension, and essentially we are renewing and updating those permits from a technical perspective. We essentially have our permits from the state that allow us to proceed on the demonstration plant.”

Regarding Curis’ legal problems with Florence and local opposition to mine development, Copeland noted that the town had tried to condemn Curis’ facilities and buildings.

“We reached a settlement with them, wherein they paid us a substantial sum and discontinued their action,” Copeland said. “Basically it came down to them realizing they were acting outside their jurisdiction and ability, and their legal advisors advised them to settle with us.”

He said there was another action — not against Curis, but against the state — for the issuance of the state environmental and operational permits for the demonstration plant, and that had gone to a court hearing.

“Both sides have presented their arguments, and I can tell you hands down the opposition had no real expertise of any consequence to speak to the technical aspects,” Copeland said. “This is a technical permit … if one is going to attack that permit, it has to be on a technical basis.”

Curis expects a ruling on the latter legal action near the end of October.