Brisbane-based resources firms Metallica Minerals and Melior Resources on Thursday announced a binding merger agreement, creating a diversified Queensland mining company with near-term production potential and a pipeline of future growth opportunities.
The merger will combine mineral sands and bauxite assets, which the companies say share similar project features and will benefit from favourable commodity price outlooks.
Melior owns the Goondicum ilmenite project, in north Queensland, which is fully funded and set to enter into production in the fourth quarter of this year. The project is forecast to be cash flow positive in the second quarter of next year, delivering pretax cash flow of $51-million over the first three years of full production.
The Goondicum mine is forecast to produce an average of 160 000 t/y of ilmenite and 38 000 t/y of apatite.
The merged entity will also own 50% of the Cape York heavy mineral sands and bauxite project joint venture, consisting of the Urquhart Point heavy mineral sands (HMS) project and the adjacent Urquhart Point bauxite (UPBx) project. Both projects are located just south of Weipa on the western side of Cape York Peninsular in north Queensland. The HMS project is small scale; however, it has a granted mining licence and an unused 120 t/h mobile HMS processing plant. UPBx also has a granted mining licence and all environmental approvals in place necessary to start mining; however, work is continuing on the most efficient means of shiploading.
Other projects in its fold will be the Cape Flattery silica sands project and the Esmeralda graphite project.
Metallica also has a A$5-million receivable as part of the recent sale of Metallica’s Sconi cobalt/nickel project to Australian Mines.
The merger will be by way of a court approved plan of arrangement in which Metallica will acquire all of the issued and outstanding common shares of Melior in exchange for Metallica ordinary shares at an agreed exchange ratio of 20 Metallica shares for every one Melior share.
On completion of the merger, Melior shareholders will hold 64% of Metallica’s issued capital and Melior will become a wholly owned subsidiary of Metallica. Metallica will remain listed on the ASX and Melior will be delisted from the TSV-V and cease to be a reporting issuer in Canada.
Based on Melior’s closing share price on September 11, the exchange ratio represents consideration of A$0.0449 a Metallica share which is a premium of 45% to Metallica’s closing price on September 11. Based on the respective three-month volume-weighted average prices of Metallica and Melior, the consideration represents a premium of 23%.
“The merger with Metallica is an attractive and low risk proposition providing a stronger platform for growth via an enhanced pipeline of development assets, a strengthened balance sheet and an ASX listing,” said Melior CEO Mark McCauley.
Metallica chairperson Peter Turnbull said that the merger was seen as a transformational deal for both companies.
“Melior’s Goondicum ilmenite project shares similar attributes to Urquhart bauxite in that it is fully funded and will be brought into production relatively quickly for a modest capital outlay and will provide a valuable source of near-term cash flow. We look forward to combining the respective skills of the two companies to successfully develop those projects and pursue further growth opportunities to build a significant, profitable mining house generating excellent returns for shareholders.”
Following the merger, the Metallica board of directors will consist of three directors from Metallica – Simon Slesarewich, Turnbull and Ian Jacobson – and three directors from Melior – McCauley, Martyn Buttenshaw and George Lloyd. Lloyd will assume the independent, nonexecutive chairperson’s role. Slesarewich will retain the MD’s role and McCauley will assume an executive director role.
On completion of the merger, the merged entities will have approximately $6.6-million of cash and liquid securities
The Queensland Resources Council (QRC) has welcomed the proposed merger and said that it was proof of growing confidence in the state’s resources industry.
QRC CEO Ian Macfarlane said he welcomed the recognition, in the merger announcement, on a pipeline of longer term development and exploration assets, all located in Queensland.
“At a time when the resources sector is creating a new job every hour and a $1-billion in exports every week, the proposed Metallica-Melior is further good news for a sector doing great things in Queensland,” he said.