Copper Fox And Lions Gate Consider Merger

VANCOUVER — Copper Fox Metals (CUU-V, CPFXF-O)and Lions Gate Metals (LGM-V) have signed a letter of intent to merge that would see Copper Fox shareholders receive 0.094 of a Lions Gate share for each of their Copper Fox shares.

Copper Fox shareholders would also get half a warrant for each share, with each full warrant redeemable for one Lions Gate share at $2 over five years.

The end result will essentially be a merger of equals.

As Copper Fox has 112.5 million shares outstanding and Lions Gate Metals, 10 million, the merger would see shareholders of each company holding about half of the new Lions Gate’s 20 million or so shares outstanding.

The main impetus for the merger appears to be a combination of Copper Fox’s financial woes — it is $3 million in the hole and looking to develop its US$3-billion Schaft Creek copper-polymetallic project 120 km southwest of Dease Lake, B. C. — and Lions Gate Metals’ appetite to grow a portfolio of copper properties with an eye to securing strategic partners in Asia.

Copper Fox announced in early February that it had a $3-million working capital deficiency due to cost overruns at Schaft Creek in 2008. It had tried to raise that amount in a private placement in November by issuing 25 million shares at 12¢ apiece but ultimately withdrew the offering in December.

Lions Gate, however, has just over $2 million in the bank and, most importantly, is looking to grow its property portfolio, which currently includes two copper properties and one molybdenum property in B. C. Its best-known property is the Poplar project 150 km southwest of Smithers, B. C., which has a historic resource of 116 million tonnes grading 0.32% copper, 0.1 gram gold per tonne and 0.0095% molybdenum.

If the merger goes ahead, Copper Fox’s Schaft Creek would become by far the combined company’s largest and most advanced asset.

Last year, Copper Fox pegged Schaft Creek at 1.4 billion measured and indicated tonnes grading 0.25% copper, 0.019% moly, 0.18 gram gold, and 1.55 grams silver per tonne and completed a prefeasibility study outlining a US$3-billion project.

The prefeasibility study proposed a 22-year mine with a 100,000- tonne-per-day capacity and, although it returned positive economics (15.3% internal rate of return and US$1.6-billion net present value), those came using commodity prices that have since drastically changed, particularly in the case of copper and moly.

The prefeasibility considered US$3.12 per lb. copper, US$33 per lb. moly, US$692.85 per oz. gold and US$13.09 per oz. silver.

The significant decline of copper and moly prices, however, have made it especially difficult for Copper Fox to find financing.

Lions Gates is hoping part of the answer to the financing riddle will be found in China.

Blair McIntyre, Lions Gate Metals’ head of investor relations, says the company’s strategy is to build a portfolio of properties to attract Asian partners and as part of that strategy, the company recently opened an office in Beijing.

He says Lions Gate, which has a monthly burn rate of about $50,000, can survive with existing cash reserves for several years, although he does not know how much Copper Fox’s monthly costs would add to that figure.

If the merger goes ahead, McIntyre says the plan will be to develop Poplar and Schaft Creek concurrently.

“And of course, we are going to have to raise cash at some point — or find an Asian partner,” he says.