Aston Bay strikes exploration deal with BHP

BHP Billiton’s (NYSE: BHP) Canadian subsidiary has signed a letter of intent to fund exploration on Aston Bay Holdings’ (TSXV: BAY) Storm copper property, in Somerset Island, Nunavut. 

Aston’s CEO Benjamin Cox says the partnership shows the positive potential of the Storm project on the 2,595 sq. km property, which also hosts the Seal zinc-silver project.

Under the preliminary deal, BHP could earn 75% in the property by spending at least $40 million on exploration within nine years. This includes a minimum $2.5 million within two years of signing a definitive deal. Once the agreement is signed, Aston will receive $325,000 and will not need to spend money on exploration for four years. The companies anticipate finalizing the deal next quarter.

The partnership will benefit the Vancouver-based junior explorer, which has done a lot with its limited funds on the large property in the current market downturn.

“It’s unbelievably hard to run a junior mining company, and I don’t mean that in a positive or negative way,” admits Cox, a former mining analyst and founder of research and consulting firm Oreninc.

Aston signed an option on the Storm property in late 2011 with Commander Resources (TSXV: CMD; US-OTC: CMDRF). The parties revised the agreement several times, extending the timeframe for Aston’s initial 51% earn-in. Last December, however, Aston reported an agreement to buy 100% of the Storm copper property.

Once that transaction closes, Commander will receive 11 million Aston shares, bringing its total stake in Aston to 14.5 million shares, or 29%. This interest excludes another 5.5 million Aston shares that Commander will receive when $6 million is spent on the Storm property (including previous investments of $3.5 million), or alternatively, if Aston Bay raises $4 million.

The Storm project is a sediment-hosted copper deposit that Teck Cominco identified in 1996, while exploring the nearby Seal project.

From 1997 to 2001, Teck drilled nearly 10,000 metres on Storm and defined four copper zones: 2200N, 2750N, 3500N and 4100N.

The best results came from the 2750N zone, including 110 metres grading 2.5% copper from surface and 56 metres grading 3.1% copper from 12.2 metres deep.

Most of the historic drilling averaged 100 metres deep, leaving room for exploration potential at depth.

In 2011, Commander — which picked up the Storm property in 2008 — flew a versatile time domain electromagnetic survey over the property that identified a handful of anomalous targets, including the 4 by 1.5 km Blizzard anomaly, 220 metres below surface.

Aston investigated the anomaly in a joint-exploration program in December 2014 with Antofagasta, and found elevated levels of copper in the rocks and soils that lie above the target.

However, six weeks after Antofagasta signed a deal to earn up to 70% of Storm, it walked away, citing budget cuts and a weakening copper market.

Since then, the spot copper price has fallen from the US$2.50 per lb. range to US$1.96 per lb. in mid-January 2016, before rebounding recently to US$2.06 per lb.

While the copper price has not improved, it is “still well above [US$1.26] December 2008 recessionary lows, and remains slightly above ‘average world break-even costs, including depreciation,’” Scotiabank’s analyst Patricia Mohr writes.

The low price environment is also a good buying opportunity for majors looking to secure interests in potential sources of high-grade metals.

Despite the short-lived deal with Antofagasta, Aston continued working on Storm, with Cox noting he’s “incredibly lucky” to have another major interested in the property, roughly a year later.

On Feb. 1, Thomas Ullrich — formerly Antofagasta’s chief geologist for North America since 2011 — joined Aston as chief operating officer and executive vice-president of exploration, replacing Bruce Counts.

“Storm has promising exploration potential for the discovery of a high-grade, large-tonnage copper target in North America,” Ullrich said in a release.

On the BHP news, announced on Jan. 28, Aston shares jumped 58%, or 19¢, to 30¢. The stock traded at 20.5¢ at press time.