Panoramic launches hostile bid for Magma Metals

An unsolicited takeover bid for Magma Metals (MMW-V, MMW-A) by Australia’s Panoramic Resources (PAN-A) sent Magma’s shares in Toronto up 76.5% to close at 15¢ on Feb. 3, with nearly three million shares changing hands.  

Panoramic Resources currently owns 9.34% of Magma, making it the junior’s second-largest shareholder.   The Perth-based nickel producer is primarily interested in Magma’s flagship platinum-palladium-copper-nickel project called Thunder Bay North about 50 km northeast of Thunder Bay in northwestern Ontario.

Magma’s board described the timing of the bid as opportunistic and has advised shareholders to take no action until the company has had time to seek financial advice.

Panoramic is offering Magma shareholders two Panoramic shares for every 17 shares held of Magma, valuing the junior at 14.94 Australian cents per Magma share based on the closing share price of Panoramic on Feb. 2 (A$1.27). The offer is an 86.8% premium to Magma’s last close on the Australian Stock Exchange on Feb. 2 (8¢) and an 88% premium to Magma’s one month volume weighted average price on the ASX (7.95¢).

According to Panoramic, its offer also represents a 206.7% premium to the approximate market implied Enterprise Value of Magma’s exploration assets as of Feb. 2.

Panoramic says the offer is conditional on Magma not spinning off its gold projects in Western Australia. Last year Magma announced plans to raise funds by spinning off its gold projects in Western Australia (Lake Grace, Griffins Find, Laura River, Roe and Mt. Jewell) into a gold-focused exploration company in the first half of 2012.

If Magma shareholders agree to the offer, Panoramic says, they will become “part of a larger and more diversified company with a market capitalization (pre-takeover offer) of A$263 million, a portfolio of operating mines, potential development projects and exploration properties and a net cash and receivables balance of A$90 million as of Dec. 31 2011.

Magma completed a scoping study of its Thunder Bay North project in February 2011, which concluded the project generated an undiscounted pre-tax cash flow of $164 million with an internal rate of return of 13%, a net present value at an 8% discount rate of $41 million and a net present value at a 5% discount rate of $77 million. Those numbers were based on a base case using consensus forecasts from analysts of long-term metal prices. In the upside case (based on current metal prices and exchange rates) the undiscounted pre-tax cash flow grows to $360 million, the IRR to 27%, the NPV (8%) to $164 million and the NPV (5%) to $222 million.

The project has open-pit resources of 8.46 million tonnes grading 2.13 grams platinum-equivalent per tonne (1.04 grams platinum per tonne, 0.98 gram palladium per tonne, 0.25% copper and 0.18% nickel) for 580,000 ounces of platinum-equivalent metal in the indicated category and 53,000 tonnes grading 2.00 grams platinum-equivalent (0.96 gram platinum, 0.89 gram palladium, 0.22% copper and 0.18% nickel) for 3,000 ounces of platinum-equivalent metal in the inferred category.

Underground resources stand at 1.03 million tonnes grading 3.48 grams platinum-equivalent (1.63 grams platinum, 1.51 grams palladium, 0.39% copper and 0.24% nickel) for 115,000 ounces of platinum-equivalent metal in the indicated category and 212,000 tonnes grading 3.00 grams platinum-equivalent (1.40 grams palladium, 1.29 grams platinum, 0.34% copper, 0.23% nickel) for 20,000 ounces of platinum-equivalent metal in the inferred category.

The scoping study evaluated several open pit and underground mining scenarios and concluded that the best option was an open pit mine in the Current Lake and Bridge zone areas from which about 10 million tonnes of material at an average grade of 1.9 grams platinum-equivalent would be extracted. The open pit would be mined at a rate of 1.5 million tonnes of resource per year over a seven-year mine life with an overall strip ratio of 8.3:1.  

The underground resource in the Beaver Lake area, which is open to the southeast, will be drilled further to evaluate the resource potential with the aim determining a resource big enough to support an underground mine.

A significant part of the resource underlies Current Lake, a small and shallow lake covering about 97 hectares with water depths of up to ten metres but averaging six metres.The scoping study envisioned de-watering the lake by building two diversion channels and three small dams at the northeast end of the lake  at an initial capital cost of about $3.7 million.

Magma believes there is potential for further discoveries and additional resources in the 80 sq km area of intrusive complexes around the currently defined mineral resource. The company plans an exploration diamond drilling program of 40,000 metres in 2012.

In December last year, highlights from step-out drilling at Thunder Bay North included 5 metres grading 3.76 grams platinum and palladium, 0.77% copper, and 0.32% nickel up to 1 km east of the mineral resource in the Current Lake intrusive complex.  Reconnaissance rock chip sampling returned up to 1.3% nickel and 0.6% copper from a sulphide-rich outcrop near Pic River, about 240 km northeast of Thunder Bay.

Thunder Bay North lies in the northern part of the Proterozoic Midcontinent Rift region, which Magma describes on its website as an “important emerging nickel-copper-platinum group metals province” with geology that is “analogous to that of the giant Norilsk-Talnakh nickel-copper-PGM camp in Russia.”

“Mineralization has been known in the Midcontinent Rift for many years; however up until recently it appeared to be mostly of relatively low grade,” the company outlines on its website. “The relatively recent Eagle (3.6 million tonnes at 3.5% nickel, 3.0% copper and 1.6 grams platinum, palladium and gold) and Tamarack discoveries in the United States as well as Magma’s TBN discovery have demonstrated that higher grade mineralization is also present and that the province has significant potential to become a major North American nickel-copper-PGM camp.”

In Toronto, shares of Magma closed on Feb. 3 at 15¢ per share within a 52-week range of 7¢-45.5¢ and has about 267.4 million shares outstanding.