Vancouver - The assets continue to pile up at Prophecy Resource (PCY-V, PRPCF-Q) with another proposed friendly takeover, this time in the form of Northern Platinum (NTH-V).
If successful, it will be the fourth business combination for the company since October. The deal is part of Prophecy's goal, led by chief executive John Lee, of building a strong resource base from undervalued assets before a future listing on the Hong Kong stock exchange.
At the moment the company is putting most of its efforts into commissioning its Ulaan Ovoo coal project in Mongolia, which was itself acquired through a friendly merger with Red Hill in January, but management is continuing to seeking out other acquisitions.
"We're committing about 90% of our time on the management side on getting our Ulaan Ovoo project into production," said John Lee in a phone interview. "At the same time we're evaluating and in discussion with a number of companies."
Lee has singled out nickel sulphide deposits, preferably with platinum group byproduct, as his target asset and Northern Platinum's Wellgreen project fits the bill.
The project, roughly 300 km northwest of Whitehorse and 14 km off the Yukon highway, currently has an indicated resource of 6.4 million tonnes grading 0.45% copper, 0.43% nickel, 0.31 gram palladium per tonne and 0.38 gram platinum per tonne. The inferred resource stands at 23.9 million tonnes grading 0.28% copper, 0.29% nickel, 0.27 gram palladium and 0.38 gram platinum. The project further hosts a pre-national instrument 43-101 resource of upwards of 50 million tonnes at roughly similar grades.
In the proposed all-share merger, Prophecy will issue half a share and 0.1 warrant for each Northern Platinum share. Each whole warrant can be exchanged for another Prophecy share for 80¢ within 18 months of the deal closing. The deal is a 24.5% premium on Northern's 90 day volume-weighted average price as of June 14 and values the company at roughly $11 million.
The deal also has Prophecy buying out Belleterre Quebec Mines' 50% back-in right to the project for $2.1 million in cash and 3.59 million shares at a deemed price of 59¢ per share. As well Prophecy will issue 712,000 warrants to Belleterre under the same terms as those issued to Northern.
Lee said there is room to explore on the property, noting that much of the 30,000 metres of drilling done so far has targeted a small area on the property.
"It's got a good amount of drill data, but it's all concentrated on a 2 km stretch...but the claims cover 22 sq. km. So there is a lot of potential," said Lee.
Northern Platinum is currently working through a drill program on the project, but the site has seen little exploration outside of sampling in the past decade. Lee did point out, however, that some of the sampling found platinum and palladium grades of over 70 grams per tonne.
The limited exploration, combined with the company's limited funding and marketing made it a good target, said Lee.
"There hasn't been a lot of dollars committed to the project. The company is relatively not-so-well known. It's got a good management but their marketing skill is something perhaps left to be desired," he said.
"We felt that by taking on this project we could add a lot of value both in terms of our fundraising capabilities to advance this property faster and, at the same time, making the story and making the deposit known to a broader investor base," added Lee.
While the company sets itself up for future expansion in Canada, it expects to begin producing coal from Mongolia later this year. The company recently signed a deal with Sojitz Corp. of Japan to market coal from the project to China.
"I think that mix between Mongolia and Canada acts as a good hedge," said Lee. "One is lesser sexy coal revenue, generating cash flow in Mongolia where we have 1.5 billion tonnes, and then the other side of the equation is high grade nickel deposits in a safe jurisdiction."
Lee's intention is eventually to raise substantial capital for the development of Prophecy's other resources with a listing in Hong Kong. He points to SouthGobi Resources' (SGQ-T, 1878-HK) $459 million equity offering on the exchange, the first Canadian mining company to list on both the TSX and the Hong Kong exchange, as an example. He does, however, acknowledge the need for growth before reaching that point.
"We're still very undervalued and our market cap is not conducive to a listing right now in Hong Kong," said Lee. "Everything you do in Hong Kong, in terms of dollar figure, you've got to multiply that by 10 versus the Canadian standard."
To that end the company is working to both increase assets internationally and establish cash flow from Mongolia. Since October, the company has acquired the Lynn Lake nickel project in Manitoba, an 80% interest in the Titan vanadium-titanium-iron project in eastern Ontario and completed the Red Hill merger.
Prophecy's share price closed unchanged at 62¢ on the latest news with 417,000 shares traded. The company has a 52-week share price range between 45¢ and $1.19 and 107 million shares outstanding.
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