Mercator to buy Creston Moly for $195 million

Vancouver – Mercator Minerals (ML-T) has entered an agreement to buy Creston Moly (CMS-V) in a friendly merger with significant potential for synergies that values Creston at $195 million.

Creston Moly shareholders are to get 0.15 of a Mercator share and 8¢ for each Creston share held, which translates to a 40% premium to each company’s 20-day volume weighted average share price.

Both companies are billing the merger as a perfect match, combining Mercator’s producing Arizona-based Mineral Park copper-moly project, and its El Pilar copper project just over the border in Mexico, with Creston Moly’s El Creston copper-moly project a little further south in Mexico. With El Pliar set for development in 2012 and El Creston in 2013, the combined company could soon transition into a major producer.

“It was a transaction that could move Mercator certainly into a whole new league of players,” said Mike Surratt, current president and CEO of Mercator in a conference call. “We’ll certainly move up to that intermediate level of producers and we’ll certainly enhance our access to capital.”

Combined, the company will be able use the cash stream from Mineral Park to help develop the advanced stage El Pilar and El Creston, as well as use its larger pipeline of project to potentially ease financing.

Surratt plans to step down as CEO once the companies combine, with Creston Moly’s president and CEO Bruce McLeod taking over the lead role. Surratt will stay on as a technical adviser on a consultancy basis, while Gavin Thomas will stay on as no-executive chairman. Commenting on the deal, McLeod staked his reputation on its soundness.

“My agreement to join the company as a CEO is, I hope, a resounding approval of the due diligence of Mercator and its assets,” said McLeod in the conference call.

Along with simple geographic and resource overlap, the two executives highlighted the strong parallels between the producing Mineral Park project and the pre-feasibility-stage El Creston. The two projects have the same planned throughput and processing methods.

“We’ll just roll up the drawings and take them down and build it again” said Surratt in the call. “There’s certainly that potential; that circuit would fit perfectly.”

Even given the need to adapt to slightly different terrain and other variations, the parallels will significantly reduce detailed engineering costs and reduce the need for trial and error in the design.

“We can put things in that we will know will run and work” said Surratt.

Mercator also has several million dollars worth of equipment that could be used at one of the new project, including an extra mill and transformers.

The El Creston project has a measured and indicated resource of 215.4 million tonnes grading 0.071% molybdenum and 0.06% copper. The recent prefeasibility study estimated an after tax net present value of US$561.9 million at an 8% discount and an after tax internal rate or return of 22.3%.

Mercator’s Mineral Park mine hosts proven and probable reserves of 520 million tonnes grading 0.13% copper, 0.039% molybdenum and 2.74 grams silver per tonne. Mercator’s El Pilar project has proven and probable tonnes grading 0.31% copper, with an after tax NPV of US$229 million and an after tax IRR of 25.3%.

Creston Moly also holds the Moly Brook molybdenum property in Newfoundland and the Ajax molybdenum property in British Columbia.

The deal will take place through a plan of arrangement, with a shareholder vote in mid to late June. The board of directors of Creston has unanimously recommended the deal. Both companies have agreed to pay $5.5 million in some circumstances if the deal does not go through.

Creston Moly currently has 286 million shares outstanding while Mercator has 200 million shares outstanding.

On a rough day for markets, Creston Moly’s share price was up 11¢ or 23.9% to close at 57¢ on 40 million shares traded, and Mercator Minerals share price was down 33¢ to close at $3.36 on 4 million shares.


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