Arena Minerals (AN-V) is batting three for three
Nov 4th 2015
Teck Resources (TCK.B-T) has become the third company this year to sign a joint-venture option agreement with prospect developer Arena Minerals on its Atacama property in Chile, 50 km from the port of Antofagasta.
The October transaction with Teck follows similar joint-venture option agreements with Japan Oil, Gas and Metals Corp. (JOGMEC) in July, and B2Gold (BTO-T) in February.
The option deals cover about 85% of the Atacama property, which Arena Minerals picked up from industrial minerals producer Sociedad Quimica y Minera de Chile (SQM-NY), in July 2013.
SQM had held the land package for several decades and focused its business on mining nitrates from the top five to ten metres of overburden on various parts of the property, rather than exploring for copper, despite the large number of known copper porphyry systems in the district.
The Atacama property, for instance, is just 3 km from KGHM’s Sierra Gorda mine; 8 km from BHP Billiton’s (BHP-NY) Spence mine (which ranks among the top 20 copper producers in the world); 16 km from Antofagasta’s (ANTO-LSE) El Tesoro and Esperanza mines; 11 km from Glencore’s (GLEN-LSE) Lomas Baya mine; and 27 km from Anglo American’s (AAL-LSE) Mantos Blancos mine.
One of the things that attracted so many companies to Arena’s 92,000-hectare property, says CEO William Randall, is that it is close to the Antofagasta Calama Lineament (ACL), an area famous for clusters of porphyries such as Chuquicamata, Codelco’s main asset, and the Spence and Sierra Gorda porphyries. (The porphyries are formed where the lineament intersects major north south structural features.)
Another key aspect is that it is ground that has seen very little, if any, exploration for copper and gold. “There is a big gap of known copper porphyry deposits, despite the favorable setting,” Randall says, “because it has been in the hands of industrial minerals giant SQM for several decades.”
Following the discovery of the Spence deposit more than a decade ago, a number of companies approached SQM to acquire land in the vicinity, but no deals were done. “Our property missed a lot of exploration that resulted from the Spence discovery, so it was basically undrilled and untested before us,” Randall says.
Under Arena’s latest deal, Teck has the option to acquire up to a 60% interest in two separate claim blocks, the Solitario and Paciencia North prospects. Teck will be required to spend an aggregate maximum of US$19.5 million on exploration in two stages over a six-year period. In addition, Teck will have to complete two equity financings in Arena at 27¢ per share (a premium to the market) for a total of C$1.5 million (C$1 million on signing and C$500,000 before July 26, 2016.) It also has to make a one-time cash payment of US$450,000 and a recurring annual payment of US$100,000.
Teck will have a second option to acquire an additional 11.25% interest by spending US$15 million more on exploration before July 26 2021, or delivering a feasibility study before July 26 2023.
Arena’s management team decided it should try to find partners for Atacama when the company was “sitting at a sub-$15 million” market capitalization. “We realized that to properly drill these areas that we had defined, we’d probably have to raise US$10 to US$20 million, and at that market cap it would be highly punitive to our shareholders,” he continues. “So we contacted a long list of companies, primarily focusing, given the market, on large companies with good financial resources and with exploration teams that could do the work properly. We also had to juggle areas of interest, but it was these three that fit all of our requirements, because they wanted different pieces of land that didn’t overlap.”
The first option deal Arena did with B2Gold was for two claim blocks, Pampa Paciencia and Cerro Barco. The second, with JOGMEC, was for three claim blocks: Carmen Alto, Pampa Union and Cerro Guacate Sur. The claims under option to JOGMEC and B2Gold are contiguous, while Teck’s claims are north and south of B2Gold’s Pampa Paciencia.
The porphyry deposits Arena and its partners are targeting, are very large, Randall says, “and a discovery of one would be of a magnitude that majors would be interested in.”
The three deals collectively give Arena more than US$56 million to spend on exploration. In addition to the 79,000 hectares covered by the current option agreements, Arena has 13,000 hectares of ground remaining (on which it has identified three prospects so far) that could be available for future deals.
The company has about 79.5 million shares outstanding, of which insiders hold about 14%; mining entrepreneur Ross Beaty holds about 12%; SQM owns about 5%; and Teck Resources about ?4%.
“We had met with Ross Beaty on previous occasions, and he was very impressed with our land package in Chile” says Randall. “He acquired his 12% stake post the B2 Gold transaction.”
Randall says that despite the poor market conditions and the perceived risk that Arena wasn’t going to be able to finance the property, completing the first joint-venture option demonstrated that it “had the ability to execute the plan and complete the SQM Option Agreement"
“Since then we have completed the other two deals, which takes out the risk completely,” he says. “We won’t need to finance for the next couple of years, so Beaty has gained exposure and has been a supportive shareholder, evidenced by his recent participation in the Teck private placement, which was done at a premium to market.” |
