PE fund invests in IMX’s Ntaka Hill nickel project

Private equity deals have been fewer this year than many in the mining sector had hoped, given the declining fortunes of hundreds of cash-strapped mining companies. So when a deal is made, it tends to get noticed.

IMX Resources (TSX: IXR; ASX: IXR) announced on Dec. 16 that it has landed an investment from Fig Tree Resources Fund II, a Mauritius-based private equity fund targeting mining projects in sub-Saharan Africa.

Fig Tree will acquire a 70.7% stake in the Ntaka Hill nickel project in southeastern Tanzania for US$5.9 million in cash and the funding of a feasibility study of the project within five years.

Ntaka Hill is situated within a broader, 7,000 sq. km area covered by the Nachingwea joint-venture between IMX Resources (85%) and China’s MMG Ltd. (15%). Under the deal, the Ntaka tenements will be excised from the rest of the Nachingwea joint-venture ground.

The Nachingwea joint-venture will keep a 29.4% stake in Ntaka Hill that will rise to 50% if Fig Tree does not finish a feasibility study on the asset within the required time limit.  

IMX notes in prepared remarks that Fig Tree has expertise in nickel sulphide deposits similar to Ntaka Hill, and that the investment shows that the private equity firm says Ntaka could be developed as a relatively low-capex, low-tonnage, higher-grade nickel sulphide open-pit operation.

Ntaka Hill is “one of only a handful of advanced nickel sulphide assets in the region,” IMX CEO Phil Hoskins stated in a press release, adding that “against the backdrop of a strengthening nickel market,” there had been interest in the project “from several parties.”

Under the agreement, Fig Tree will assume full operational control of the nickel project and has the right to appoint the manager of the new Ntaka Hill joint-venture.

MMG, a base metals company founded in 2009 whose major shareholder is state-owned China Minmetals, initially invested in IMX Resource’s Nachingwea project in September 2013. But after meeting its stage-one expenditure commitment of US$10 million in August 2014, MMG elected not to proceed to the second stage of the joint venture.

IMX expects the project will produce a high-grade nickel plus copper bulk concentrate, with low levels of magnesium oxide using conventional flotation.

Ntaka Hill can be accessed via a 250 km road network from the port city of Mtwara, which has an import/export capacity of 400,000 tonnes per year. Electricity in the larger towns of Masasi and Nachingwea, 45 km away, is supplied by a transmission line from Mtwara, where it is generated from a natural gas fired power station.

A 2012 preliminary economic assessment outlined a 15-year production mine life of 10,000 to 15,000 tonnes nickel per year at C1 cash costs of US$4.75 per lb. payable nickel.

IMX’s private equity deal with Fig Tree follows two larger private equity transactions in October, when Aaron Regent’s Magris Resources picked up the Niobec mine from Iamgold (TSX: IMG; NYSE: IAG) for $500 million and Waterton Global Resource Management acquired Chaparral Gold Corp. for $73 million.

But overall the deal flow has been slow.

In a Dec. 15 research note called “The mining predator’s ball — Marriage made in heaven (or hell)” — Hallgarten & Co. analyst Christopher Ecclestone notes that while there is “no shortage of potential predators or prey in the mining space,” there have been surprisingly few deals done, either by major mining companies or private equity houses.

“For a sector that has so many participants, the sole goal of which is to be taken over, there is remarkably little going on, and what is happening seems to be capitulation to economic reality rather than any sort of bidding war like the ‘good ole days,’” he writes.

“The glacial pace of Mick Davis’ acquisition plans for his [X2] post-Xstrata reincarnation has many frustrated who hoped he would be an indiscriminate shopper in the mining bazaar,” Ecclestone continues. “We [and many others] had great hopes that X2 wading into the market would be a catalyst for change and movement. The slow pace has led some to wonder whether Davis has lost his mojo. In searching for the perfect deal to pull back the curtain on, the entity seems to have come down with chronic performance anxiety.”

As for Regent’s recent Niobec transaction, Ecclestone seems to be a fan. Magris “is not necessarily mistaken in making its first move upon a specialty metal mine rather than the old Bay Street object of desire, a precious metals mine,” he says. “Precious metals M&A is the least interesting space, as quite often it pairs up one troubled company with another troubled entity.”