Pembridge offers cash and shares for Minto mine

U.K.-based Pembridge Resources (LON: PERE) is set to acquire the Yukon’s sole producing hard-rock mine. On Feb. 14, the company announced a deal with Capstone Mining (TSX: CS) to buy the Minto copper-gold-silver operation, 240 km north of Whitehorse.

The terms include US$37.5 million in cash plus shares representing 9.9% of Pembridge.

Covering 28 sq. km, the Minto property hosts proven and probable reserves of 3.9 million tonnes at 1.67% copper, 5 grams silver per tonne and 0.62 gram gold per tonne. The property’s current metal reserves total 65,000 tonnes copper, 655,000 silver and 78,200 oz. gold. It has measured and indicated resources of 31 million tonnes of 1.15% copper, 4 grams silver and 0.42 gram gold.

Pembridge president Peter Bojtos. Credit: Pembridge Resources.

Capstone had intended to place the operation on care and maintenance at the end of 2017, but rising copper prices triggered a decision to extend operations through mid-2021.

The company also renegotiated a precious metals stream with Wheaton Precious Metals (TSX: WPM; NYSE: WPM) with silver-ounce production and up to 30,000 oz. gold per annum.

“It became apparent to us early on in the due diligence process that Minto was the poor stepchild in the Capstone family,” Pembridge president Peter Bojtos said by phone from the mine site.

“They were clearly committed to some nice mines in other jurisdictions, and that was where all the capital was being deployed. Meanwhile, Minto was getting the leftovers. So the operation has really been starved of investment for a number of years, and we saw that as an opportunity because for us, it’s really a flagship asset.”

Minto declared commercial open-pit production in 2007. Capstone added an underground component in 2014 using room-and-pillar and long-hole stoping retreat mining methods.  The 4,000-tonne-per-day processing plant produces concentrate averaging between 35% and 40% contained copper.

Capstone president and CEO Darren Pylot described Minto as a “non-core asset,” and said the deal would strengthen the company’s balance sheet.

The mine chipped in 16,332 tonnes copper, 170,809 oz. silver and 25,205 oz. gold last year. It could produce 19,000 tonnes copper in 2018 at all-in sustaining costs from US$2.55 to US$2.65 per pound.

Copper concentrate in a storage facility at the Minto mine. Credit: Capstone Mining.

“There’s certainly going to be a capital injection in the beginning because we need to increase the mine life at an operation that has basically been living from year to year,” Bojtos added. “We believe we’ll find enough material to keep going for many years based on the geology.

“We’ll also look at modifying the mining method to make full use of the current reserves. They’re leaving quite a lot behind in pillars right now. Due to a lack of capital, Capstone never invested in a back-fill plant. So there will be changes in the mill,” he said.

Pembridge CEO David Linsley. Credit: Pembridge Resources.

Pembridge said it has found “a number of potential operating efficiencies” that could lower Minto’s production costs. The company has reportedly conducted due diligence on the asset for one year.

Pembridge assembled its team as a special-purpose acquisition company to buy operating assets in low-risk jurisdictions. It is undertaking a US$50-million financing to fund the Minto deal.

“We anticipate we’ll be able to attract debt options and offtake financing,” Pembridge CEO David Linsley said. “There are all sorts of working capital options. We could end up raising more capital when all things are taken into account. We’re certainly not going to bootstrap the situation because we want to assure we have sufficient funding to get the operation to where we want it to be.”

Pembridge graduated to the London Stock Exchange soon after Linsley’s appointment last year. It had a £2.3-million market capitalization at the time of the deal. The company’s advisory board includes: Frank McAllister, former CEO of Stillwater Mining; and Guy Le Bel, who served as vice-president of evaluations at Capstone.

“Yukon has been picking up as a mining jurisdiction in the past few years. You look at the majors investing there and all the exploration that is being undertaken,” Bojtos said. “Many people in the mining business are quite interested in the territory. They’re very much out there saying: ‘Come take a look at us.’ And we did.”

The deal is scheduled to close in April.