Crowflight’s fresh start at Bucko Lake

With a new management team, a few hundred million more shares outstanding, a new head-office city, and a different mining strategy all instituted in recent months, Crowflight Minerals (CML-T) looks to be the same company in name only, and even that should soon change.

The troubled company has been working to establish full and smooth production at its Bucko Lake underground nickel mine in northern Manitoba ever since it shipped the first concentrate in early 2009. But mining difficulties and a lack of funds forced the company to shut the mine twice, the first time only five months after declaring commercial production.  

With a major company shake-up, however, Crowflight hopes it can get production and the company on track in 2011. The company started mining again in April, with plans to mine 220,000 tonnes to produce 5 million lbs. of nickel this year. 

“We are glad to see the restart of Bucko Lake mine operation after six-month’s suspension,” said Kevin Zhu, interim CEO and director of Crowflight, in a prepared statement.

Zhu is part of Crowflight’s new management team after the company’s largest shareholder and bankroller King Place Enterprises shook things up last December.

Out went Stan Bharti as chairman, along with his Forbes & Manhattan company as a management partner. Also gone was Mark Trevisiol, the third CEO to leave in two years, and several directors.

In came Wenfeng Liu as chairman, whose family controls the private Chinese metal producer Hebei Wenfeng Industrial Group, which in turn owns King Place. Derek Liu, unrelated to Wenfeng, stepped in as CFO and corporate secretary and helped move the head office from Toronto to Vancouver.

The change in management was a requirement of a $10-million private placement with King Place, which before the placement held 42.5% or 247 million shares in Crowflight. The financing followed an earlier $3-million financing with King Place in September 2010.

The management move cost Crowflight almost $3 million in change of control termination fees that were built into the previous executives’ contracts. Bharti received $692,500 while Trevisiol got $500,000, both on top of their regular salaries. Crowflight has removed the clause in the current executives’ contracts.

Since taking control, the new management has gone on a share issuing spree to clear up old debts and raise money to advance the Bucko Lake mine.

To raise $30 million, the company issued 600 million units at 5¢ each. The units hold one share plus a half warrant, with full warrants exercisable at 10¢. The company also paid a 10% finder’s fee to arm’s length parties in the raise.

To settle $11.3 million in convertible debentures due to King Place, the company issued it 259 million shares at a conversion price of 4.4¢. The move followed a similar issue of 58.4 million shares to King Place to convert $2.6 million of debt.

Following the flood of shares, Crowflight now has 1.5 billion shares outstanding, or 1.9 billion fully diluted. With its shares recently trading at 9¢, the company has a market capitalization of about $127.6 million.

With money in the bank and the restructuring complete, however, the company can now concentrate on producing more nickel from Bucko Lake.

Crowflight plans to spend $6 million on buying new equipment as it switches away from contract mining to a more owner-operated model, plus $9 million on mine development. The company has also budgeted $3 million for exploration in 2011, including on its other properties in Manitoba’s Thompson nickel belt.

The raised money also allowed Crowflight to settle a $7.1-million lawsuit launched by creditor and former mine contractor Dumas Contracting in January. 

If all goes to plan, the company should generate $20 million in cash flow from the 5 million lbs. it expects to produce, assuming US$12 per lb. nickel. Last year, the company was able to produce and sell only 2.1 million lbs. nickel, and reported a net loss of $34.2 million.

While the mine has yet to make profits for its owners, the financials in a 2007 feasibility study seem robust. Using an US$8 per lb. nickel price (which was roughly one-third the nickel price at the time), the study put the internal rate of return at 90.7% and the pre-tax net present value, using an 8% discount, at $202 million. 

In March 2009, a reserve update added 22% in contained nickel, with the mine then hosting 3.7 million reserve tonnes grading 1.45% nickel for 118.2 million lbs. of contained nickel, using a 1.25% cutoff. The deposit is hosted by a Proterozoic ultramafic body of komatiitic affinity, while mineralization at Bucko consists of disseminated to net-textured nickel sulphides.

Measured and indicated resources add 2.8 million tonnes grading 1.53% nickel at a 1% cutoff, and inferred resources add 5.5 million tonnes of 1.34% nickel, also with a 1% cutoff.

The mine was attractive enough for Jinchuan Group to bid $150 million for Crowflight in April 2010 and Pala Investment Holdings to offer $102 million last January, though both deals fell through. Pala’s failed bid eventually led it to selling its roughly 23% stake in Crowflight to King Place, setting the path for the company’s current situation.  

To complete its restructuring and new start, the company is planning a 1-for-30 or 1-for-40 share rollback, only months after the company issued close to a billion shares.

Company chairman Liu wrote in  an information circular for the rollback that his family’s company, Hebei Wenfeng, bought some 250 million shares at 20¢ and up, so he is “sensitive to the disappointing current share price” and that “a share consolidation will help bring a more respectable level of share trading and potential for further financing.”

Concluding, Liu wrote that “we are expressing the fresh start that our team represents by proposing to change the company name to the Canada Nickel Mining Corp.,” with both the name change and rollback to be put to shareholders at a May meeting.