Starfield acquires Nevoro

Starfield Resources (SRU-T), an explorer which is advancing the Ferguson Lake base metal and PGM (platinum group metals) project in Nunavut, is taking over another explorer, Nevoro (NVR-T), which owns the Stillwater base metal and PGM project in Montana.

The friendly all-share transaction, which sees each Nevoro share exchanged for an 0.87 of a Starfield share, is subject to a vote by Nevoro shareholders and a court approval. The managements and boards of both companies, and a special committee of the Nevoro board, are in favour of the takeover, and Nevoro’s board recommends that shareholders vote in favour. If the vote is in favour and the court approves, the takeover will probably proceed in August.

The deal values Nevoro shares at 15¢ apiece based on their closing price on June 22, a 64% premium on the 20-day volume-weighted average trading price. Nevoro has 152 million shares outstanding, and Starfield 333 million shares. On closing, Starfield will have 477 million shares, of which 70% will be owned by Starfield’s current holders, and 30% by Nevoro’s holders. According to the latest financial statements, the combined company will have a cash position of $8.7 million with no long-term debt.

Nevoro’s Stillwater project in south-central Montana is near Nye, 130 km southwest of Billings. A part of the project is immediately to the south of Stillwater Mining’s (SWC-N) producing Stillwater PGM mine property, while another part is 7 km southeast of Stillwater Mining’s producing East Boulder PGM mine.

Historic resources on the Stillwater project include 20.9 million tonnes grading 0.62% nickel and 0.45% copper in the past-producing Mouat mine area; 12.7 million tonnes of 23% Cr2O3 in the past-producing Mountain View mine; 8.2 million tonnes of 20% Cr2O3 in the past-producing Benbow East mine; 5.4 million tonnes of 22% Cr2O3 in the Nye Basin area; and 19 million tonnes of 22% Cr2O3 in the past-producing Benbow mine.

Based on 33,000 metres of drilling in 150 holes by Anaconda in the 1970’s, historic resources in the past-producing Mouat and Benbow mines, plus resources at Nye Basin, were estimated at 93 to121 million tonnes grading 0.6% nickel, 0.5% copper and 0.06% cobalt.

Mountain View and Benbow mines produced chrome during the Second World War and the Korean War, but since then, the availability of plentiful chrome from South Africa has kept these mines closed.

Nevoro believes that the chromite resource at Stillwater, with historic estimates of 45 million tonnes grading 22% Cr2O3, for 22 million lbs. Cr2O3, is the largest known in North America, although the 2008 discovery of chromite at the Ring of Fire near McFauld’s Lake, Ont., also looks sizable. (No resource estimates have yet been filed for the McFauld’s Lake chromite discovery, which is controlled by a number of companies in three projects.)

The main PGM targets include Crescent Creek, with a 3.7 km strike length, and Mouat, with a 2.5 km strike length. There is no historic PGM resource estimate for the project.

Until recently the Stillwater project covered 16.5 sq. km, but in mid-June Nevoro enlarged the project by buying Beartooth Platinum’s (BTP-V) land holdings in the area. Together with Beartooth’s project, Nevoro now controls about 73 sq. km.

Starfield is not interested in Nevoro’s second flagship project, Moonlight, near Susanville in northern California, so Nevoro is planning to dispose of the project.

Nevoro also owns 50% of the Golden Loon polymetallic exploration project in B.C., and eight early-stage gold exploration projects in Nevada, of which a 75% stake has been optioned to another company.

Starfield owns the Ferguson Lake project in Nunavut. Indicated resources there stand at 15.3 million tonnes grading 0.71% nickel, 1.04% copper, 0.08% cobalt, 0.28 gram platinum per tonne and 1.64 gram palladium. Inferred resources are 28.9 million tonnes grading 0.67% nickel and 1.01% copper.

Last year Starfield filed a scoping study which only took into account lower inferred resources from two zones out of a total of four. These inferred resources amounted to 19.4 million tonnes grading 0.68% nickel, 1.13% copper, 0.08% cobalt, 0.28 gram platinum per tonne and 1.75 gram palladium.

The scoping study calculated that the resource would produce 34.2 million tonnes of feed grading 0.6% nickel, 0.95% copper, and 0.07% cobalt. It projected mine life of 17 years, with average annual production of 27.5 million lbs. nickel, 43.6 million lbs. copper, 2.9 million lbs. cobalt and 1.6 million tonnes sulphuric acid.

Based on prices of US$8 per lb. nickel, US$2 per lb. copper, US$25 per lb. cobalt and US$80 per tonne sulphuric acid, and a pre-production capital expenditure of $1.35 billion, the pre-tax internal rate of return (IRR) was projected at 13.4%, and the pre-tax net present value (NPV) at a 10% discount rate was projected at $321 million. The simple payback period of pre-production capital was projected at 6.4 years.

Ferguson Lake is landlocked. Starfield envisages a 285 km slurry pipeline and an electric power line either to Rankin Inlet to the east, or to Arviat to the southeast. Both communities are on Hudson’s Bay.

The mine would crush the rock and prepare a slurry which would be pumped in the pipeline. The slurry would be processed in a mill and a plant located at Rankin Inlet or Arviat. The plant would also produce electric power for the mine at Ferguson Lake.

Among the synergies that the companies point to is the possible application of a novel hydrometallurgical process using solvent extraction. The process was developed by Starfield, and the companies hope that it can be used at Stillwater.

After the discovery of a micro-diamond at Ferguson Lake, Starfield is looking for a joint-venture partner to explore for diamonds.

On the news, Starfield shares gained 2¢ to 17.5¢, and Nevoro shares added 1¢ to 12.5¢. Over the past 12 months Starfield shares have been trading in a 7¢-$1.25 range, and Nevoro shares in a 2.5-37¢ range.