Prophecy Platinum and Ursa Major to merge

Vancouver — Looking to add near-term production potential, Prophecy Platinum (NKL-V) has entered a binding letter of agreement to merge with Ursa Major Minerals (UMJ-T) in an all-share deal.

The agreement has Prophecy issuing one share for every 25 Ursa shares, representing 15¢ per Ursa share or a 130% premium based on both companies’ closing price on March 1. The deal means Prophecy will issue about 3.2 million shares to Ursa shareholders.  

The deal gives Prophecy access to the production-ready Shakespeare platinum-group-metals-nickel-copper mine sitting 70 km west of Sudbury, which Ursa was forced to close in early February after it couldn’t find anywhere to process the ore.

For Ursa shareholders, the deal provides greater liquidity, a significant premium to its recent share price, and gives shareholders exposure to the sizable Wellgreen polymetallic deposit in the Yukon.

Ursa’s share price nearly doubled from 6.5¢ to 12.5¢ on the day the deal was announced with 8.1 million shares traded, while Prophecy’s share price dropped 31¢ to $3.39 on 445,000 shares traded.

Prophecy plans to issue a new feasibility study on the Shakespeare mine when the deal goes through, and is hoping the project will raise its profile and broaden investment appeal. But Wellgreen will continue to be the company’s flagship project, and certainly its biggest.

Wellgreen hosts 14 million indicated tonnes grading 2.25 grams combined platinum, palladium and gold per tonne, 0.69% nickel, and 0.62% copper, as well as 289 million inferred tonnes averaging 1.18 grams combined platinum, palladium and gold, 0.38% nickel, and 0.35% copper. The indicated resource translates to 220 million lbs. nickel, 200 million lbs. copper, 16 million lbs. cobalt, and 1.04 million oz. combined precious metals, while the inferred resource totals 2.4 billion lbs. nickel, 2.2 billion lbs. copper, 191.3 million lbs. cobalt, and 11 million oz. combined precious metals.

The resource estimate on the project, released in July 2011, sent Prophecy’s share price soaring. The company’s share price went from around 60¢ to a high of $5.63 in a matter of days, peaking a month later at $5.95 before retreating to about half that price with the September downturn.

In contrast the Shakespeare mine, based on a 2008 feasibility study, hosts probable reserves of 11.8 million tonnes grading 0.87 gram combined platinum, palladium, and gold, 0.33% nickel, and 0.35% copper. Ursa, through contract mining, produced 167,000 tonnes of ore from the mine in the year ending January 31 2011, with gross revenues of $15 million and operating profit of $2.4 million.

Based on a 2008 feasibility study on Shakespeare, a 4,500-tonne-per-day operation could sustain a 7-year mine, while the study set a net present value, using a 6% discount, of $91.6 million and an after-tax internal rate of return of 22.6%. Those figures were based on US$9.37 per lb. nickel, about a dollar higher than it trades today, while copper was roughly in line with some estimates today at US$2.11 per lb. Precious metal figures are significantly outdated however, at US$563 per oz. gold, US$995 per oz. platinum, and US$342 per oz. palladium.

The merger is only the latest in numerous business combinations and spin-outs engineered by John Lee, chairman of Prophecy Platinum, in the last three years. In late 2009 what was then Prophecy Resource optioned into the Lynn Lake nickel-PGM project, funding the initial payment with a $350,000 financing at 5¢ to John Lee and others, who soon after became chairman of the company.

In January 2010, using the leverage of its recently acquired Lynn Lake option and two other minor base metal projects, the company managed to secure a third of Red Hill Energy in a merger that created Prophecy Coal (PCY-T). Red Hill held the advanced-stage Ulaan Ovoo coal project and the earlier-stage but more sizable Chandgana Tal and Khavtai coal projects in Mongolia that would become Prophecy’s focus, while its initial assets were largely forgotten.

In June 2010, while working to put Ulaan Ovoo into production as quickly as possible, Prophecy signed a merger agreement with another cash-strapped explorer, Northern Platinum. The deal gave Prophecy access to the Wellgreen project, the subject of extensive historic work and hosting multiple non-compliant resources, but subject to limited recent exploration. The deal for a previously failed Yukon mine only sent Prophecy shares downwards though, as the company’s focus was on putting a Mongolian coal mine into production.

In early 2011, with Ulaan Ovoo officially open but still not producing much coal, the company spun out its non-coal assets into Pacific Coast Nickel in a reverse takeover, with Prophecy ending up with 90% of the company’s shares following a massive share issue and rollback, and changing the name to Prophecy Platinum. Because of the spin-out, Prophecy Coal still owns 22.5 million of Prophecy Platinum’s 55.3 million shares outstanding.

Prophecy Platinum looks like it will now go through another merger, as it works to upgrade resources and explore the 17.5 km of strike on its Wellgreen property. Prophecy Coal, meanwhile, continues to try and secure profitable off-take deals for Ulaan Ovoo and build a power plant that will be fed by its extensive Chandgana Tal and Khavtai Tal coal fields.

The latest deal between Prophecy Platinum and Ursa Major will be put to a vote by Ursa shareholders in late May, with the deal pending on several conditions.