Ventnor and Sandfire: You Know It Makes Sense By Wally Graham of Resources Roadhouse
The proximity, grade and quality of copper at Ventnor Resources’ (ASX: VRX) Thaduna/Green Dragon copper project made it an obvious joint venture partner for Sandfire Resources (ASX: SFR).
After Sandfire made its DeGrussa discovery in 2009 the market’s only question was, ‘who will be next?’
It was a fair question but then the market asked, ‘where will it get more ore to feed its mill?’ to which the answer turned out to be, ‘no too far at all’.
Sandfire needed to look no further than 40 kilometres east over its back fence to the Thaduna/Green Dragon copper project, which is an ideal fit for the DeGrussa operations.
Ventnor has been busy at Thaduna/Green Dragon, completing over 50,000 metres of drilling since April 2011.
This has resulted in a JORC-compliant indicated and inferred Resource of 7.9 million tonnes grading 1.8% copper and 3.7 grams per tonne silver for 142,000 tonnes of contained copper and 945,000 ounces of contained silver.
The resource comprises oxide, secondary sulphide and deeper sulphide mineralisation.
“It is not a package of exploration tenements – this is a resource,” Ventnor Resources managing director Bruce Maluish told The Resources Roadhouse.
“We haven’t missed with a hole here since October 2011 – no hole has returned less than 1% copper – it is a substantial and predictable system.”
Ventnor completed a scoping study in February 2013 which outlined a potential production profile of 15,000 tonnes per annum of copper over an anticipated mine life of 10 years.
The joint venture is confident an opportunity exists, subject to further evaluation and technical studies, to process both the sulphide and oxide material contained within the resource. Testwork has demonstrated the sulphide material is potentially amenable for processing through the existing DeGrussa concentrator and the oxide material will be considered for processing as part of, or in conjunction with, the DeGrussa oxide copper project.
“The project has a definite walk up resource, which is already economic, and any drilling to be done on it in the future can only add to it”, Maluish said.
“There is shallow material in these pits that you can float or leach, either way you get a very similar result – better than 85% recovery.”
Ventnor Resources has executed a joint venture deal with Sandfire that is basically designed to fast-track the Thaduna/Green Dragon copper project into production.
Importantly for Ventnor, the deal also removes the need for the company to raise additional funding for mine development.
The JV comprises a farm-in, and a funding and toll treatment agreement utilising Sandfire’s modern production facilities at its DeGrussa copper project.
“Sandfire will toll treat our ore at the DeGrussa plant at C1 costs, so there is no capital component in the operating costs,” Maluish said.
“The advantage for our shareholders will be that we don’t have to fund Thaduna/Green Dragon any more as the joint venture will pay for mining and treatment.”
It is probably fair to say the announcement of the JV deal really didn’t take too many industry observers by surprise as obvious synergies have made such a deal between the two companies a pretty good bet.
First there is the potential it provides for the possibility of developing the project by employing Sandfire’s existing plant and infrastructure.
This simply means there will be no need for Ventnor to replicate similar infrastructure, thereby substantially reducing its overall capital expenditure and greatly reducing the time it would have taken to achieve production and cash flow by a considerable margin.
It will also remove any need for Ventnor to raise finance, either in the form of equity or debt.
At the same time the risk of project feasibility and development will be mitigated through a farm out and funding solution, with a toll milling arrangement at a low operating cost thrown in for good measure.
Once the project is in production Ventnor will be required to repay its share of the development costs above the Sandfire commitment, which will be taken from the generated free cash flow.
“Ultimately, Ventnor anticipates receiving what it hopes will be a significant quarterly return from the joint venture”, Maluish said.
“This has the potential – once it is in production – to deliver A$3 million to A$5 million dollars a year into Ventnor. I don’t want to put the cart before the horse just yet, but when it does start coming in, obviously our options at that point will be wider than they are currently. This transaction is a good result all around for Ventnor and its shareholders as it minimises on-going equity dilution for current shareholders.”
The deal also involves some major cost saving advantages, the most significant of which being the reduction to the previous project capital cost estimate of A$70 million included in the scoping study the company completed in February 2013 to only the establishment costs for the project.
The processing costs at Sandfire’s DeGrussa plant will be much lower because of its higher throughput rate compared to that considered in the Ventnor scoping study.
Sandfire is to provide all JV funding through to production from contributions and interest-free loans while Ventnor will not incur any additional financing costs to develop the project. Sandfire will initially acquire a 35 per cent interest in the project by way of a direct, upfront payment to Ventnor of A$3 million.
Sandfire can then acquire the next 16 per cent (taking its total to 51 per cent) after payment of a second A$3 million tranche.
A third A$3 million tranche payment will account for the final 29 per cent, after which Sandfire will hold 80 per cent of the project.
The funds from the second and third tranches are to be spent exclusively on advancing the project to production.
Should the project not achieve production within five years, Ventnor retains an option to acquire Sandfire’s interest by paying an option price equal to the total amount it has expended to that stage.
Unquestionably, the past year has been a difficult funding environment for the junior exploration sector in terms of being able to raise money.
Ventnor went into a self-imposed trading halt in March 2013 and since then the company has been involved in discussions to secure the future development of the Thaduna/Green Dragon copper project with its eye firmly on delivering maximum future value and minimising dilution for shareholders.
The company is confident the agreement with Sandfire has ticked all the necessary boxes for it to achieve its goals.
“We couldn’t be any happier with the outcome we, as a Board, have achieved”, Maluish said.
“We held a lot of discussions with a range of parties, which has resulted in what can only be described as a landmark agreement with Sandfire, which not only represents a unique solution for the company to secure the development of the Thaduna/Green Dragon project, it enables us to do so in concert with the biggest partner in the region.
“We anticipate the deal with Sandfire will maximise the value of the project while also allowing us to shift our focus to the other prospects in our portfolio we have probably neglected due to the belief and confidence we have had in the potential of Thaduna/Green Dragon.”
