VANCOUVER — Kincora Copper (TSXV: KCC; US-OTC: BZDLF) hopes that a renewed sense of political stability in Mongolia will reinvigorate investor interest, and it is doubling down on the country with a deal that gives the junior one of the largest land positions in the prospective South Gobi region.
In May Kincora struck an agreement with Robert Friedland’s privately held High Power Exploration (HPX) to consolidate over 1,500 sq. km of exploration licences along strike from Turquoise Hill Resources (TSX: TRQ; NYSE: TRQ) and Rio Tinto’s (NYSE: RIO) Oyu Tolgoi copper-gold mine.
The transaction also gives Kincora access to HPX’s exploration expertise and “one of the world’s largest” regional geological and geophysical databases.
“The tough markets definitely helped get the consolidation over the line, so to speak, and the recent moves by the government regarding Oyu Tolgoi, and foreign investment generally, definitely improved investor perception of the country,” Kincora president and CEO Sam Spring said during an interview. “It took some time for the government to work through the details, but most of these issues have been resolved regarding the mining law, and exploration licences are being issued again for the first time in around five years.”
Under the deal, Kincora will issue a 59 million shares and 29.5 million warrants to HPX subsidiary High Power Ventures (HPV), which would own 12% of Kincora. Friedland’s involvement is significant due to his primary role in the Oyu Tolgoi discovery, which fuelled the rise of the first iteration of his initial Ivanhoe Mines vehicle.
Meanwhile, Kincora is revising its capital structure and balance sheet. In early June, the company announced a 10-to-1 share rollback and $4-million private placement. The first $2 million will consist of 5.3 million post-consolidated shares priced at 37.5¢ each.
There is also a debt conversion with China-based private equity firm Origo Partners. Under the arrangement, $2 million in outstanding notes will be converted into Kincora shares under the same terms as the private placement.
“We’ve essentially received support from our largest shareholder, who has allowed us to clean up our balance sheet,” Spring said.
“When you take our recent moves in entirety, we’re really trying to recapitalize and restructure to have a nice, clean corporate vehicle that has the right team and technology to get to work on this newly consolidated and, quite frankly, exciting land package,” he said. “For HPX … they value retaining exposure to these assets as well, so everyone keeps skin in the game.”
The company reported that it has “firm commitments” to complete the financial requirements of the Origo loan note conversion, the private placement and the merger with HPX.
Kincora’s next step is a desktop review of the new data acquired in the merger, which covers “at least” [six] advanced porphyry prospects and one epithermal gold target, including what it classifies as “the most significant, untested complex in the [Oyu Tolgoi] belt.” HPX subsidiaries have spent over US$25 million on the portfolio since 2007.
Kincora spent the 2015 field season working on its Bronze Fox property in Mongolia, where hole F47 cut 18 metres of 0.6% copper equivalent from 29 metres deep. Previous drilling by Ivanhoe east of this zone returned intersections of both high and lower-grade gold and copper in a “favourable porphyry setting both due to depth of the system.”
“We did a nice drill program at Bronze in 2014 that hit a lot of smoke,” Spring continued. “We were limited at the time since one of our licences was being reviewed, but last year we resolved that and spent time reviewing the data, and getting out in the field to go over the surface geology. We’ll look for something a bit closer to surface that could be de-risked more efficiently. We’ve been keen to get out there and do trenching that would lead into that shallower drilling.”
Kincora shares has traded within a 52-week range of 1¢ to 5¢, and closed at 3.5¢ at press time. The company has 314 million pre-consolidated shares outstanding for an $11-million market capitalization.
It hopes to complete the private placement and equity restructuring early in the third quarter.
HPV has rights to maintain its ownership percentages with more capital raises.
“It really wasn’t so long ago that major miners and strategic groups were keen on getting a foothold in the South Gobi, and we were having a lot of conversations,” Spring said. “The rocks haven’t changed and now there really aren’t too many companies that have managed to survive the downturn … we’re seeing some positive momentum now, and there’s potential for the South Gobi to really rival some of the major copper belts in South America.”