An unfriendly takeover bid of Magma Metals (MMW-T, MMW-A) by Australia’s Panoramic Resources (PAN-A) sent Magma’s shares in Toronto up 77% to close at 15¢ on Feb. 3 with nearly 3 million shares changing hands.
Panoramic already owns 9.34% of Magma, making it the junior’s second-largest shareholder. The Perth-based nickel producer is primarily interested in Magma’s flagship platinum-palladium-copper-nickel project called Thunder Bay North, 50 km northeast of Thunder Bay in northwestern Ontario.
Magma’s board described the timing of the bid as opportunistic and has advised shareholders to take no action until the company gets financial advice.
Panoramic is offering Magma shareholders two Panoramic shares for every 17 Magma shares, valuing the junior at A14.94¢ per Magma share based on Panoramic’s A$1.27 closing share price on Feb. 2. The offer is an 86.8% premium to Magma’s 8¢ close on the Australian Stock Exchange (ASX) on Feb. 2 and an 88% premium to Magma’s one-month, volume-weighted 7.95¢ average price on the ASX.
According to Panoramic, its offer also represents a 206.7% premium to the approximate market-implied enterprise value of Magma’s exploration assets as of Feb. 2.
Panoramic says the offer is conditional on Magma not spinning off its gold projects in Western Australia. Last year Magma announced plans to raise funds by spinning off its Lake Grace, Griffins Find, Laura River, Roe and Mount Jewell gold projects in Western Australia into a gold-focused exploration company in 2012’s first half.
If Magma shareholders agree to the offer, Panoramic says, they will become “part of a larger and more diversified company with a market capitalization pre-takeover offer of A$263 million, a portfolio of operating mines, potential development projects and exploration properties and a net cash and receivables balance of A$90 million as of Dec. 31, 2011.
Magma completed a scoping study of its Thunder Bay North project in February 2011 that concluded the project generated an undiscounted pre-tax cash flow of $164 million with a 13% internal rate of return (IRR), net present value (NPV) at an 8% discount rate of $41 million and a net present value at a 5% discount rate of $77 million. Those numbers were based on a base case using consensus forecasts from long-term metal price analysts. In the upside case, based on metal prices and exchange rates, the undiscounted pre-tax cash flow grows to $360 million, the IRR to 27%, the NPV (8%) to $164 million and the NPV (5%) to $222 million.
The project has open-pit resources of 8.46 million tonnes grading 2.13 grams platinum-equivalent per tonne, with 1.04 grams platinum per tonne, 0.98 gram palladium per tonne, 0.25% copper and 0.18% nickel for 580,000 oz. platinum-equivalent metal in the indicated category, and 53,000 tonnes grading 2 grams platinum-equivalent with 0.96 gram platinum, 0.89 gram palladium, 0.22% copper and 0.18% nickel for 3,000 oz. platinum-equivalent metal in the inferred category.
Underground resources stand at 1.03 million tonnes grading 3.48 grams platinum equivalent with 1.63 grams platinum, 1.51 grams palladium, 0.39% copper and 0.24% nickel for 115,000 oz. platinum-equivalent metal in the indicated category, and 212,000 tonnes grading 3 grams platinum equivalent with 1.40 grams palladium, 1.29 grams platinum, 0.34% copper, 0.23% nickel for 20,000 oz. platinum-equivalent metal in the inferred category.
The scoping study evaluated open-pit and underground mining scenarios, and concluded that the best option was an open-pit mine in the Current Lake and Bridge zone areas from which 10 million tonnes of material at an average grade of 1.9 grams platinum equivalent would be extracted. The open pit would be mined at a rate of 1.5 million tonnes per year over a seven-year mine life, with an overall strip ratio of 8.3 to 1.
The underground resource in the Beaver Lake area, which is open to the southeast, will be drilled further to evaluate the resource potential with the aim of determining a resource big enough to support an underground mine.
A significant part of the resource underlies Current Lake, a small and shallow lake covering 1 sq. km with water depths reaching 10 metres, but averaging 6 metres. The scoping study envisioned de-watering the lake by building two diversion channels and three small dams at the lake’s northeast end at a $3.7 million initial capital cost.
Magma believes there is potential for further discoveries and resources in the 80-sq.-km area of intrusive complexes around the defined mineral resource. The company plans an exploration diamond drilling program of 40,000 metres in 2012.
Last December, highlights from step-out drilling at Thunder Bay North included 5 metres grading 3.76 grams platinum and palladium, 0.77% copper and 0.32% nickel up to 1 km east of the mineral resource in the Current Lake intrusive complex. Reconnaissance rock chip sampling returned up to 1.3% nickel and 0.6% copper from a sulphide-rich outcrop near Pic River, 240 km northeast of Thunder Bay.
Thunder Bay North lies in the northern part of the Proterozoic mid-continent rift region, which Magma describes on its website as an “important, emerging nickel-copper-platinum group metals province” with geology that is “analogous to that of the giant Norilsk-Talnakh nickel-copper-PGM camp in Russia.”
“Mineralization has been known in the mid-continent rift for many years. However, up until recently, it appeared to be mostly of relatively low grade,” the company outlines. “The relatively recent Eagle [with 3.6 million tonnes at 3.5% nickel, 3% copper and 1.6 grams platinum, palladium and gold] and Tamarack discoveries in the U.S., as well as Magma’s TBN discovery, have demonstrated that higher-grade mineralization is also present and that the province has significant potential to become a major North American nickel-copper-PGM camp.”
Magma shares closed on Feb. 3 at 15¢ per share within a 52-week range of 7¢–45.5¢, with 267.4 million shares outstanding.