Virginia Mines (VGQ-T) has sealed a deal with three institutional funds in Quebec that will help finance a $28 million accelerated exploration program on its Coulon project, a copper-zinc-lead-silver deposit in the James Bay region of northern Quebec.
Under the arrangement, Virginia Mines will spin out the Coulon project into a new subsidiary called Mines Coulon Inc. in return for $42 million worth of common shares in the new company and over the next four years (2014-2017), Virginia and the institutional shareholders will subscribe to $28 million worth of the new entity’s shares.
SODEMEX Developpement, a subsidiary of the Caisse de depot et placement du Quebec, the Fonds de solidarite des travailleurs du Quebec jointly with the Fonds regional Nord-du-Quebec, and SIDEX Limited Partnership are all involved in the deal.
Subscriptions will be taken by yearly instalments of $7 million, with the breakdown being SODEMEX $2 million, the Fonds $2 million, SIDEX $1 million, and Virginia Mines $2 million. The financial commitments will give SODEMEX an 11.42% stake in Mines Coulon; the Fonds 11.42%; SIDEX 5.71% and Virginia Mines 71.45%. Virginia will be the operator of the project.
The institutional shareholders also have the right to exchange 75% of their investment in Mines Coulon into common shares of Virginia Mines under various conditions that include the sale of Virginia Mines’ royalty on Goldcorp’s (TSX: G; NYSE: GG) Eleonore project, which is on target for first production in late 2014 (Virginia owns a 2.2%-3.35% sliding-scale production royalty); any change of control of Virginia; the failure of Virginia to subscribe in Mines Coulon or the sale of Mines Coulon.
If Mines Coulon is sold, the shareholders also agree to a royalty structure that would give the first 0.5% exclusively to Virginia and the remaining balance to be divided between the shareholders based on their ownership stakes.
The Coulon project has an indicated resource of 3.68 million tonnes grading 3.61% zinc, 1.27% copper, 0.40% lead, 37.2 grams silver per tonne and 0.25 gram gold per tonne. Inferred resources tally 10.16 million tonnes grading 3.92% zinc, 1.33% copper, 0.19% lead, 34.5 grams silver and 0.18 gram gold.
The project is made up of 498 claims across nearly 25,000 hectares. It host eight lenses and, according to Virginia Mines, is part of one of the most important felsic volcanic belts ever discovered in Quebec. (The belt is larger than 70 sq km.)
Last year, Virginia discovered the richest lens to date (number 257), where drilling returned intercepts of 9.48% zinc, 3.11% copper and 46.16 grams silver per tonne over 15.7 metres and 14.65% zinc, 2.04% copper and 35.83 grams silver per tonne over 7.35 metres.
“This deal funds the asset toward further resource discovery or a sale with only minimal dilution to VGQ shareholders,” Pierre Vaillancourt and Duncan Lai of Macquarie Equities Research write in a research note, adding that they have bumped up their 12-month target price on the stock from $9.00 per share to $14.50.
“We are revaluing VGQ as a royalty company as we project its Eleonore gold mine 2.2-3.5% production royalty will come into fruition in 4Q14.”
The analysts reason that Eleonore is a “coveted royalty” that is “likely near or at the top of the royalty M&A shopping list for most of the royalty players.” They also maintain that they consider Virginia Mines “as one of the most defensive precious metal stocks” they cover because it operates in a safe jurisdiction (Canada), but also because management is “very strong” and there is “significant exploration upside.”
As of Nov. 30 2013, Virginia had working capital of $40.4 million and no debt.
The company has about 33 million shares outstanding. |
