VANCOUVER — In November Western Pacific Resources (TSXV: WRP) was forced to extend its purchase agreement at the historic Deer Lake polymetallic mine, located 266 km southwest of Salt Lake City, Utah. But with a new strategic partner on-board, it looks like the company is about to hit the fast track. On Dec. 10, Western Pacific announced it had signed a convertible-note financing with private equity outfit Quintana Minerals.
Quintana is the natural resource arm of Corbin J. Robertson Jr.’s holding company. Robertson is the grandson of Texas oil tycoon Hugh Roy Cullen, and chairman and CEO of Natural Resource Partners (NYSE: NRP), which had a $2.2-billion market capitalization at press time. Quintana will buy secured convertible notes in Western Pacific in the principal amount of US$2.5 million when the deal closes and invest up to US$10 million in the company, conditional on development milestones at Deer Trail.
“I’d like to point out that this is a bit different than the typical private-equity situation. A lot of these groups are sort of ‘loan to own’-type outfits where they lend you money, but what they really want is for your company to default so they can own the asset,” CEO Warwick Smith says during a phone interview. “They typically have mining teams already backing them, and they tend to be more predatory. The Quintana guys back smart management teams and help them build their companies.”
Quintana’s secured notes will mature three years from closing and bear annual compounded interest at 8%. On closing Western Pacific will also revamp its board of directors. Michael Williams and Ralph Rushton will be resigning, with Quintana managing director Oliver Rodz and mining analyst Lawrence Roulston sliding in as replacements.
The company may opt to forward Western Pacific another US$5 million in unsecured notes within the next three years. All notes will be convertible at Quintana’s discretion at 13.3¢ per share of Western Pacific, and carry conditional rights of first refusal.
As long as Quintana holds 20% of Western Pacific’s outstanding shares, it can maintain that position during any public or private offering. Quintana also holds rights to three board positions at Western Pacific, as well as influence over any future acquisitions.
In addition to the equity investment, Western Pacific has secured a base-metal off-take agreement with Quintana’s subsidiary that is worth US$8.5 million. Under the agreement Quintana will buy 100% of the lead production at Deer Trail and 41 million lb. zinc and 60% of total production thereafter, as well as 20% of any other base-metal output at the mine.
“It’s a unique situation . . . I think we’re one of the only companies to solidfy a streaming agreement without any compliant resource,” Smith says. “But Deer Trail is a project that has a lot of underground development, along with the permits in place and a mill on-site. So the deal is sort of structured where we hit these development milestones in order to access the capital.”
Deer Trail’s mineral endowments include gold, silver, lead, zinc and copper, which occur within oxides and sulphides. The site features a 250-tonne-per-day flotation mill, a large-scale mining permit and strong regional infrastructure. Deer Trail hosts several polymetallic, manto-style deposits, with mine workings exposing westerly dipping sedimentary rocks across three units: the Toroweap and Queantoweap formations, and the Callville Limestone.
In September Western Pacific released results from channel samples taken from the historic underground workings at Deer Trail. Western Pacific cut 73 samples from seven mine levels, concentrating on the 3400 zone.
Assays highlights include: 164 grams gold per tonne, 8,090 grams silver per tonne, 2.51% lead, 3.54% zinc and 0.33% copper over 0.54 metre in channel 13-17; 66 grams gold, 412 grams silver, 4.82% lead, 0.74% zinc and 2.91% copper over 0.6 metre in channel 13-9; and 5.1 grams gold, 747 grams silver, 12.9% lead, 13.25% zinc and 0.68% copper across 1.5 metres in channel 13-6.
“The key here is that this agreement is truly a partnership. They have taken seats on the board, and the plan from here is not only to develop Deer Trail, but to add production assets,” Smith says. “We’re aggressively looking for other projects we can put into Western Pacific and develop, with the help of Quintana.”
Western Pacific has traded within a 52-week range of 7¢ to 34¢. The company jumped 44% during two days of trading following its Quintana announcement, and closed at 13¢ per share at press time.
Western Pacific has 36 million shares outstanding for a $4.6-million market capitalization.
“In a market like this there were a lot of people really skeptical about our approach to the Deer Trail transaction. The industry seems to favour juniors just sitting on their cash these days, and I felt like that was totally the wrong way to run a company,” Smith says.
“At the end of the day you run the company for your shareholders, and sitting on cash is just paying salaries, and not building anything. Now we have the opportunity to do that.”
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