Atna inks deal to gain stake in cobalt project

Junior Atna Resources (ATN-T) has signed a letter-of-intent with Colorado-based U.S. Cobalt (USC-V) to acquire a half-interest in the Madison cobalt-nickel-copper project, 100 miles south of St. Louis, Mo.

Situated on 2.8 sq. miles of private property in the historic Missouri lead belt, the project contains a drill-indicated resource of 5.6 million tons grading 0.27% cobalt, 0.43% nickel and 0.5% copper, based on a 0.05% cobalt cutoff grade. This estimate, equivalent to 30 million contained lbs. cobalt, 48 million lbs. nickel and 56 million lbs. copper, was prepared by the property-owner in 1982, based on exploration drilling conducted in the late 1970s and early 1980s. During this time, metallurgical tests were conducted and a process flowsheet was developed.

Mineralization occurs in flat-lying Mississippi Valley-type deposits found at a depth of between 250 and 450 ft. from surface.

U.S. Cobalt, formerly known as Consolidated Mango Resources, holds a 2-year lease on the property, with the option to buy it outright by March 31, 2002, for either US$1.5 million or US$1 million plus a 25% royalty of any sales price increase above US$22.40 per lb. cobalt.

Earlier this year, as part of a due diligence program, U.S. Cobalt drilled three holes that stepped out 50 ft. from the nearest existing holes. The results, which are highlighted in the table below, confirmed the existing drill hole data while showing good grade and stratigraphic continuity.

In May, U.S. Cobalt completed an internal scoping study that examined the economic viability of a 600-ton-per-day underground operation at Madison utilizing conventional room-and-pillar bulk-mining methods via a decline. The study was based on an indicated and inferred diluted resource of 2.6 million tons grading 0.54% cobalt, 0.82% nickel and 0.92% copper. The study envisioned a flotation mill that would produce a cobalt-nickel concentrate for treatment on-site, and copper concentrate and lead concentrate for shipment to custom smelters. The cobalt-nickel concentrate would be treated through an autoclave, with the metal recovered by solvent extraction-electrowinning. Yearly production was forecast at 2 million lbs. cobalt, 3.1 million lbs. nickel and 3.5 million lbs. copper at an estimated cash operating cost of US$5.58 per lb. cobalt net of byproduct credits. Total capital costs, including a 20% contingency, were estimated at US$34.2 million.

The in-house study used prices of US$16.50 per lb. cobalt, US$4.45 per lb. nickel and US80 per lb. copper to predict a net present value discounted at 10% of US$112 million, with a projected after-tax internal rate of return of 55%.

Subject to a 20-day due diligence period, Atna can earn an initial 45% interest in the Madison project by spending approximately US$3.2 million on exploration and development over the next 18 months and by investing $250,000 in a private placement financing of U.S. Cobalt. Each unit, priced at 80, will consist of one share and one warrant exercisable at 90 for a 2-year period.

Atna can buy an additional 5% for a $500,000 cash payment and a second private placement, of $500,000 made up of one share and one purchase warrant.

A management committee, consisting of two members from each company, will direct the work program, which is intended to advance the project to feasibility and include some 16,000 ft. of drilling, geological and mine modelling, metallurgical tests, cost estimation, marketing studies and baseline environmental data collection.

The Madison acquisition marks the first deal completed by Atna since David Watkins was appointed president and chief executive officer and John Purkis was named vice-president of mining and development. The appointments were an attempt to reshape and reposition the junior explorer into a mid-cap mining company.

“We are excited to participate in an advanced project that is focused on strategic metals, and we plan on moving toward a production decision in a very short time,” Watkins stated in a press release.

At the end of the first quarter, Atna had almost $12 million in cash, with 20.4 million shares outstanding or 24 million fully diluted.

The results from confirmation drilling by U.S. Cobalt are summarized in the accompanying table.