Bigger is better for junior explorers Magellan and Chapleau

Junior explorers Magellan Minerals (MNM-V) and Chapleau Resources (CHI-V) believe they’d be better off if they combined their exploration and development efforts in northern Brazil.

Under a proposed business combination announced today, Magellan would offer Chapleau shareholders 0.267 Magellan shares for each Chapleau share..

All outstanding Chapleau options and warrants would be swapped for Magellan options and warrants in an amount and at exercise prices adjusted according to the same exchange ratio.

The merger would result in a combined land position of 840 sq km in Brazil’s Tapajos gold province, a region that between 1978 and 1995 produced an estimated 30 million ounces of gold, largely from alluvial sources.

Magellan’s key asset is its Cuiu-Cuiu project in northern Brazil’s Para state, where it has identified five major gold-in soil anomalies through soil sampling.

Drilling last year at Cuiu-Cuiu’s central anomaly returned values of up to 220 metres grading 2.02 grams gold per tonne.

The Cuiu-Cuiu district is 180 km southwest of the small city of Itaituba, the regional hub for the Tapajos mineral province.

In its heyday from 1972-1992, an estimated 5,000 to 10,000 artisanal miners are believed to have lived and worked in the area.

Of the 1.5 million to 2 million ounces of gold they extracted at Cuiu-Cuiu, more than 95% of it was from alluvial and near-surface saprolitic and lateritic material in an 11 km by 7 km area. According to Magellan’s website, the mineralized structure on the company’s licence area stretches for more than 17 km from the southeast to the northwest.

So far Magellan has spent about C$3.5 million on Cuiu-Cuiu, including a 2,700-metre drill program in 2006, a 7,000-metre drill program in 2007-2008, in addition to an aero geophysical survey and over 6,500 surface soil and rock chip samples.

Chapleau will be bringing significant assets of its own to the table. Chapleau’s gold projects in Brazil’s Para state include Coringa and Mato Velho, totaling 37,128 hectares in the Tapajos gold province.

Coringa is Chapleau’s flagship project, 250 km south of Magellan’s Cuiu-Cuiu discovery, and is made up of a series of gold-bearing veins that extend over a combined strike length of 10 km.

So far an 8,785-metre drill program along 2 km has cut high-grade gold mineralization over strike lengths of up to 400 metres, with values up to 65.77 grams gold per tonne over 2 metres.

Chapleau has yet to complete a National Instrument 43-101 compliant resource on Coringa.

Three km northwest of Coringa, reconnaissance drilling at Chapleau’s Pau de Merenda anomaly has returned values of up to 47 metres grading 1.76 grams gold per tonne, and limited drilling at the Jerimum Cima anomaly returned values of up to 39 metres grading 5.13 grams gold per tonne.

Magellan’s current president and chief executive, Alan Carter, would assume the posts of president and chief executive of the new entity. Carter’s career achievements include shepherding Magellan through an initial public offering recently that raised C$11 million.

“Magellan has actively been seeking to acquire gold assets in northern Brazil that have the potential to develop into significant deposits and mines,” Carter said in a prepared statement. “The attraction of Chapleau is the fact that it is close to completing a resource estimate, and the project has considerable upside potential.”

Chapleau’s current president, Ian Gendall, will become chief operating officer of the combined companies. During his career Gendall has discovered several porphyry copper-gold deposits in southern Ecuador.

If the plan goes ahead, Magellan will have about 55.8 million shares outstanding, of which current Magellan shareholders will own about 55% and former Chapleau shareholders will own about 45%.

Under the proposed deal, Magellan has also agreed to invest $500,000 as a private placement in Chapleau at a price of 15¢ per unit.

Each unit will be made up of one share of Chapleau and one warrant, with each warrant entitling Magellan to purchase one additional share of Chapleau at a price of 25¢ for 18 months.

At presstime Magellan was trading at about 66¢ per share. The company has a 52-week trading range of 11¢-$1.160 per share and has 26.2 million shares outstanding.

Chapleau is trading at about 19¢ per share and has traded within a 52-week band of 8¢-46¢ per share. The junior has 94.1 million shares outstanding.