Running out of financial flexibility, Bruce McLeod’s Mercator Minerals (ML:TSX) has agreed to a merger/takeover by Intergeo which is a subsidiary of ONEXIM Group(controlled by Russian oligarch, Mikhail Prokhorov worth an estimated $13 billion). The deal will see Mercator’s assets get a much needed injection of capital. Intergeo’s controlling shareholder Daselina (part of ONEXIM) will provide a $14 million bridge loan as well as $100 million (including the loan) by way of $0.13 per share private placement. They will then rename it to Intergeo Mining and it will be rolled back 1:50. Current Intergeo and Mercator shareholders will own the combined company 85% and 15%, respectively.
John Lill, CEO of Intergeo, stated: “We believe there are tremendous opportunities to create value based on a well-funded business plan for Mineral Park and the combined portfolio of world-class development properties in El Pilar and Ak-Sug. We intend to focus our efforts initially on optimizing Mineral Park, bringing El Pilar to production and then developing Ak-Sug in a financially disciplined manner. We have assembled a highly experienced management team and board of directors to execute our vision.”
The combined company will have the Mineral Park copper-molybdenum mine in Arizona which produced 87 million pounds of copper equivalent in 2012 at an average cash cost of $2.51 per pound. There is a 20 year remaining mine life on the project. It is higher cost, however, with adequate financial backing it should be a viable project going forward. Intergeo believes they will be able to expand the existing resource and improve recoveries from optimized blending and regarding in the circuit.
Mercator is also bringing the El Pilar “construction-ready” project into the combined company. The project is slated to cost $459 million to produce average annual copper volumes of roughly 80 million pounds. The mine has adequate resources for a 13 year mine-life. Although not clear yet, it appears the intention is move this into full-scale construction in the near-term. This offers lower cost production at an average cash cost of $1.34 per pound, LOM. Mercator also brings El Creston in Mexico to the table as well, although that is largely undiscussed.
Finally, besides the financial backing, Intergeo is bringing the Ak-Sug large-scale copper development project located in Southern Siberia. The plan is to build this large open-pit copper porphyry after El Pilar around 2018-2019. The initial capex is $1.9 billion. Cash costs are second quartile, at $1.16 per pound.
This looks like a ‘best case scenario’ for Mercator given their looming debt obligations and the soft molybdenum market. Judging by Mr. McLeod’s comment (below) it appears this was their last resort option.
Bruce McLeod, President and CEO of Mercator, stated: “We are very pleased to be announcing this transaction today. It is the result of a comprehensive process undertaken to evaluate the strategic alternatives available to the company, and we believe it represents the most compelling opportunity for Mercator.”
Although this substantially dilutes Mercator shareholders, it is better than the alternative, and they benefit from having a large pocketbook behind them as well as access to a large development option in Siberia. Mr. McLeod is an astute deal man having laid the groundwork for Capstone Mining (CS:TSX) via founding Sherwood Copper which was merged in 2008 to create today’s Capstone. He also founded Creston Moly which was acquired by Mercator at a substantial value gain for shareholders.
Mercator shares have plummeted over 90% this year.
Here’s the chart:
Related: The Merger Presentation