NGEx to spin out South American exploration company

NGEx Minerals (TSX: NGEX; US-OTC: NGXXF) plans to spin out its Valle Ancho copper-gold project into a new company – a move that will let the Canadian developer concentrate on advancing its Lunahuasi and Los Helados properties near the Chile-Argentina border.

Shareholders of Vancouver-based NGEx will receive 0.2 shares of the new company for each NGEx share held, according to a statement issued late Thursday. The new company — provisionally dubbed “Spinco” — plans to list on Canada’s TSX Venture Exchange.

NGEx shareholders will be asked to approve the transaction at a meeting that’s due to be held in the fourth quarter. A two-thirds majority of votes cast will be required.

The move continues a long tradition of NGEx spinning out exploration assets. Examples over the last decade include South America-focused Filo Mining, which was acquired last year by Lundin Mining and BHP (LSE, NYSE, ASX: BHP) for about $4 billion (US$2.9 billion), Josemaria Resources and LunR Royalties (TSX: LUNR), which was spun out in October. Lundin Mining’s founding family owns 36% of NGEx.

“This is consistent with the company’s strategy to create value through divestitures and will further streamline the company’s focus on Lunahuasi,” TD Securities mining analyst Craig Hutchison said Friday in a note.

While Valle Ancho represents only 1% of NGEx’s estimated net asset value, or $75 million, “the company could surface more value as a separate vehicle with a renewed focus on exploration,” he added.

District scale

Located on the eastern side of Chile’s Maricunga gold belt and its extension into Argentina, Valle Ancho is an underexplored district-scale copper-gold exploration package that covers about 1,090 sq. km.

Since earning a 100% interest in the project in 2022, NGEx has advanced Valle Ancho through mapping, geophysics, geochemistry and drilling. Results from a 2022 drill program demonstrated the occurrence of significant porphyry copper and gold mineralization, NGEx says. Several drill-ready targets have been identified.

NGEx will provide the new company with enough funding to support at least 12 months of exploration and corporate activities following out spinout. NGEx head Wojtek Wodzicki will lead the new company as CEO and chairman, with other Lundin Group executives also involved in management.

“In our view, Valle Ancho has progressed beyond a typical early-stage prospect and represents a large-scale exploration opportunity,” Jefferies mining analyst Fahad Tariq said in a note. He called Valle Ancho “a logical candidate” for a spin-out.

“The rationale for the transaction is compelling, as we think the project is overlooked in NGEx’s valuation despite promising drill results and drill-ready targets,” Tariq added. “The spin-out should sharpen focus on Lunahuasi and Los Helados while unlocking value, highlighting re-rating potential.”

New projects

Over time, Spinco will look to add new projects to its portfolio in addition to advancing Valle Ancho, NGEx said.

Valle Ancho could command a “premium” valuation given the encouraging drill results generated to date and strong investor appetite for Lundin-led copper-gold exploration stories in Chile and Argentina following the success of Josemaria, Filo and Lunahuasi, Tariq also said.

“With Valle Ancho, a district-scale copper-gold exploration opportunity that resembles the Vicuña District in its earliest days as its foundational asset, and lead by a number of the team pivotal in discovering the Vicuña District, this next iteration of NGEx’s spin-out strategy will aim to not only advance its current assets but also to grow by opportunistically building a portfolio of highly prospective exploration projects,” Wodzicki said in the statement.

NGEx shares rose 1.9% to C$27.42 in Toronto Friday morning, valuing the company at about C$5.9 billion ($4.2 billion). Over the past 12 months, the stock has ranged between C$19.42 and C$32.41.