Copper Fox and Lions Gate Metals consider merger

Vancouver – Copper Fox Metals (CUU-V) and Lions Gate Metals (LGM-V) have signed a letter of intent to merge that would see Lions Gate Metals offer Copper Fox shareholders 0.094 a Lions Gate Metals share for each of their Copper Fox shares.

Copper Fox shareholders would also get half of a warrant for each Lions Gate Metals share with each full warrant redeemable for one Lions Gate Metals share at $2.00 over five years.

The result will essentially end up being a merger of equals.

As Copper Fox has 112.5 million shares outstanding and Lions Gate Metals, 10 million, the proposed merger would see shareholders of each company holding about half of Lions Gate Metals 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 at the same time is looking to develop its US$3 billion Schaft Creek copper-polymetallic project 120-km southwest of Dease Lake, BC – 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 over runs 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¢ a piece but ultimately withdraw the offering in December.

Lions Gate Metals, 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 BC . Its best known property is the Poplar project 150-km southwest of Smithers, BC, which has a historic resource of 116 million tonnes grading 0.32% copper, 0.1 gram gold per tonne and 0.0095% moly.

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 which 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 silver.

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

Lions Gates Metals is hoping part of the answer to the riddle of financing 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 strategic Asian partners and as part of that strategy Lions Gate Metals recently opened an office in Beijing.

He says that Lions Gate Metals, 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.

He says that if the merger goes ahead the plan will be to develop both its Poplar project 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.