May 28, 2009 Tripartite Merger Imminent Between Rusina Mining, Toledo Mining and European Nickel
By Charles Wyatt
You learn more about a company when it decides that it can no longer afford £3,000/year to subscribe to Minesite than at any other time. Either it is on its beam ends as far as money is concerned and can no longer afford to keep a promotional programme in being, or it is indulging in a bit of self pity and thinks investors will take no notice of it ever again, or it is contemplating a deal in a short time frame which will take the decision out of its hands. In the case of AIM and ASX listed Rusina Mining, it looks like the latter, as in the last quarterly report the company still had A$4.4 million in the till and managing director Rob Gregory is certainly not a man for self pity. The next thing to be done is to ring the company and see what information on the deal can be extracted. The way Rob ducks and dives on the other end of the telephone in the Philippines is a sure indication that a deal is on the way as he is usually very straightforward.
Not that hard to surmise what this deal could be. In 2007 AIM listed European Nickel formed a joint venture with Rusina Mining on the Acoje deposit by investing £1 million in Rusina shares and options. It also agreed to earn up to a 40 per cent interest in the nickel laterite portion of Acoje by spending US$10 million on a heap leach trial and feasibility. This meant that Rusina was diluted to 40 per cent as its local Philippine partner DMCI Holdings hung onto the balance. The Acoje deposit on the island of Luzon had a JORC resource estimate of 48 million tonnes at grades of 1.13% nickel and 0.06% cobalt and this is just in the limonite section. The saprolite section, which has yet to be drilled out, could have the same again. The new funds from European Nickel were intended to do exactly that.
Since then European Nickel and Rusina have worked well together as it made so much sense to bring the former’s expertise in heap leaching of nickel laterites to bear at Acoje. It was just sad that Rusina had to announce a positive pre-feasibility study on the project just when the junior mining sector had thrown itself over a cliff. The nickel price is starting to show a bit more life now thanks to Chinese buying and threats of strikes at Sudbury and Voisey’s Bay where labour negotiations are in progress. Anyway Rusina’s study showed that 24,500 tonnes of contained nickel and 930 tonnes of contained cobalt could be produced annually from Acoje using European Nickel’s heap leach technology. This technology was first developed in Australia in tandem with BHP Billiton and has since been proved at the Caldag project in Turkey. Mining would be at a rate of 3 million tones a year and cash costs are reckoned to be around US$3.10/lb compared with the present nickel price US$5.50/lb. The total development cost was estimated to be US$498 million which is quite a heavy burden for a company capitalised at a little over £8 million.
By the time this study was published European Nickel had made another move in the Philippines by acquiring a 19.3 per cent interest in AIM listed Toledo Mining and an 18.7 per cent interest in Berong Nickel Corporation. Together these two holdings gave European Nickel a 29.5 per cent holding in Berong which owns the Berong, Moorsom and Long Point nickel laterite deposits. Toledo not only has a 56.1 per cent stake in BNC, but also a 52 per cent interest in the Ipalan deposit and a 58 per cent stake in the Ulugan nickel laterite deposit. All a bit complicated, but the fact is that this deal, in addition to the joint venture with Rusina means that European Nickel has its foot on a very big slug of nickel laterites in the Philippines which should prove amenable to its proprietary heap leaching. Toledo’s four deposits alone are estimated at 375 million tonnes at 1.3% nickel to give at least 4.9 million tonnes of the metal with the potential for plenty more.
Simon Purkiss, Rob Gregory and Chris Kyriakou of Toledo showed nerves of steel as they watched the price of nickel tumble last year, but at least the last two had some cash flow from the direct selling of ore for much of the period. This eventually dried up for Toledo, but shipments have now restarted from Berong with a shipment just going out of 47,757 wet metric tonnes of nickel laterite grading 1.50%, for 477 tonnes of contained nickel, and 30% iron. The company has another 300,000 wet metric tonnes ready to be shipped to BHP and other potential customers, but would like to see nickel prices over US$8.00/tonne for the project to be really economic. In the meantime Rusina has asked China Tianchan Engineering Corporation to upgrade its pre-feasibility study to highlight the opportunity of Chinese costs to improve the economic return at Acoje further. In return for this work it will be rewarded with the contract to complete a definitive feasibility study for Chinese construction and financing.
At this stage it becomes ever clearer why a triple merger between European Nickel, Rusina and Toledo makes so much sense. First, the same Chinese are involved with both Rusina and European Nickel. A financing framework agreement has been signed with China Tianchen Engineering, Jiangxi Rare Earth and Rare Metals Tungsten for development of the Caldag deposit in Turkey, and China Tianchen Engineering will be the main contractor. It would therefore simplify matters for the Chinese to be dealing with just one company. As far as Rusina and Toledo are concerned a single enlarged group would have much more financial muscle and liquidity so its rating should improve. From an outsider’s point of view the new company would have multiple attractions. It has major resources of nickel laterites in Turkey, the Balkans and the Philippines, all of which appears to be amenable to its heap leach technology, as well as near term nickel production of 20,400 tonnes/year.
The first announcement of this consolidation could be made very shortly though the lawyers, as usual, are said to be making a bit of a meal of it. All three companies should benefit and it is worth noting that their combined market capitalisations are still short of £50 million, with European Nickel significantly the largest, which is not expensive for something with such a swag of goodies. The betting is now whether the news will come before Royal Ascot next month or before the Ashes Test in July. The money at Minesite is on the first.
