Over the last two years, the management team at Talon Metals (TSX: TLO; US-OTC: TLOFF) looked at more than 700 projects before it found one that it believed could be a company-maker.
The project it pinpointed was a nickel–copper–platinum deposit in Minnesota, 200 km north of Minneapolis and 85 km west of Duluth, owned by Kennecott Exploration Co., a subsidiary of Rio Tinto (NYSE: RIO; LSE: RIO), and in June it acquired the right to earn a 30% interest in the project.
Talon has described Tamarack to its shareholders as a large igneous intrusive complex with 18 km of strike length that is up to 4 km wide, which is “comparable in footprint size to some of the world’s largest and most prolific nickel–copper–platinum intrusive complexes.” It also highlighted that the project was at an advanced stage when its signed its option agreement because Kennecott had already drilled more than 72,000 metres in 196 diamond drill holes.
The drilling and other exploration work has identified high-grade, semi-massive, massive and mixed mineralized zones that are open in all directions.
Talon has released a maiden resource on part of the Tamarack project called Tamarack North, estimating an indicated resource of 3.8 million tonnes grading 1.81% nickel, 1% copper, 0.05% cobalt, 0.41 gram platinum per tonne, 0.25 gram palladium per tonne and 0.19 gram gold per tonne. That equates to a 2.35% nickel equivalent grade at a 0.9% nickel-equivalent cut-off grade.
Another 3.1 million tonnes are in the inferred category at 1.2% nickel, 0.8% copper, 0.03% cobalt, 0.26 gram platinum, 0.16 gram palladium and 0.16 gram gold, or 1.6% nickel equivalent, at the same cut-off grade.
The two main components of the Tamarack Igneous Complex (TIC), which Kennecott discovered in the 1990s, are the dyke that hosts the main mineralized zones drilled to date (the semi-massive sulphide unit and the massive sulphide unit), and the 138 zone — or 138 mixed zone — as well as the large, layered chamber-complex in the south referred to as the “bowl.”
Sean Werger, Talon’s president, told The Northern Miner that management is particularly pleased that part of the initial resource at Tamarack North is already in the indicated category, which gives the team a high level of confidence in its geological model.
The partners’ initial resource estimate shows the existence of high-grade massive, semi-massive and mixed mineralized zones, which are open in all directions, he added. “The results also confirm the significant potential for the Tamarack intrusive complex, which, with 18 km of strike length, is comparable in footprint size to some of the world’s largest and most prolific nickel–copper–platinum intrusive complexes,” he explained in an email. “To date, only a small portion of the 18 km strike length has been drilled by Kennecott Exploration.”
Under Talon’s earn-in agreement with Kennecott, Talon has the right to acquire a 30% interest in the project over three years by making US$7.5 million in installment payments and spending US$30 million on exploration. Kennecott will continue to be the operator during the earn-in period.
Once Talon completes the earn-in, Kennecott can either proceed with a 70–30% joint-venture (Kennecott 70% and Talon 30%), or give Talon the option to buy its stake in the project for another US$100 million. If Kennecott agrees to sell its stake in the project to Talon, the junior will have 18 months to close the transaction.
Stefan Ioannou of Haywood Securities writes in a research note that while Kennecott optioned Tamarack rather than sell it outright suggests in part “its view on the project’s potential,” at the same time, Talon could get its hands on 100% of the asset if it doesn’t measure up to Rio Tinto’s criteria. “Barring a discovery ‘significant enough’ to satisfy the Rio Tinto Group’s internal threshold (i.e., a world-class discovery), we believe this potential ability to acquire a 100% interest in Tamarack provides Talon with good option value on a meaningful [2%] high-grade nickel sulphide deposit.”
At the end of June, Talon had a $12.7-million treasury and told shareholders that it could generate more cash by selling lump and sinter from its Trairao iron project in Brazil; selling its 14.3 million shares in Tiou, which became free-trading in April 2015; and/or receive up to US$3 million from a royalty it holds on the Boikarabelo coal mine in South Africa, which is expected to start production in early 2015.
Haywood’s Ioannou says Tamarack “is directly comparable” to the Eagle nickel–copper–platinum project discovered by the same Kennecott team in northern Michigan. Lundin Mining (TSX: LUN; US-OTC: LUNMF) acquired Eagle in 2013 for US$325 million, the mining analyst points out, adding that the first saleable concentrate from Eagle is expected to be shipped in the fourth quarter of this year.
Laurence Curtis and Scott Morrison of Dundee Capital Markets point out “the uncanny resemblance” of Tamarck to the Nova project (14.3 million tonnes grading 2.6% nickel plus 0.9% copper) owned by Australia-listed Sirius Resources. “Tamarack has a similar geometry and we believe Nova is almost an identical proxy for the Minnesota project although the genetics may differ,” they write in a research note.
The Dundee analysts note that the companies are planning a late-year drill program and that they expect to update the resource estimate once the program is finished. “We continue to believe that Talon will claw its way up the valuation curve moving forward due to the upside potential at Tamarack and peripheral targets,” they write. “We believe the resource will grow substantially over the next phase of drilling, since the deposit is relatively shallow [less than 500 metres], and has a characteristic geophysical signature that can be used to vector drill holes.”
Over the last year Talon has traded within a window of 16.5¢ to 58¢ per share, and at press time traded at 49.5¢. The junior has just over 92 million shares outstanding.