In a letter to shareholders yesterday, Bruce Counts, President and CEO of Indicator Minerals (TSX: IME), updated investors on the announcement earlier in the month that the company has entered into an agreement to acquire Bluestone Resources, a private company with a 100% interest in the Mohave Copper-Moly-Silver Project in north west Arizona. Particularly, Counts reiterated his belief that the property has the potential to add exceptional value to the company, and explained further the rationale underpinning the company’s first transaction outside of gemstones.
In the letter, Counts explains his belief that the deal is “a straight forward share transaction with reasonable terms for both parties that facilitates Indicator acquiring an asset that has the potential to add significant value in a short time frame”. He also notes that importantly, Mohave has already been advanced to the drilling stage, and suggests Indicators exploration programs will be designed to prove identified targets rather than test for new ones.
Furthermore, the exploration season at Mohave is complementary to that of Indicator’s northern diamond projects, which Counts believes will ensure results driven news-flow throughout the year.
Counts suggests the company is in the “enviable position” of having Bluestone's primary technical consultant agree to provide continuity to the project and guidance to Indicator's technical team. As gemstone exploration has historically been the focus of Indicator’s technical team, this is likely to be a significant benefit going forward, although Counts does note that the team “is proficient at executing exploration programs regardless of commodity”. Additionally, Counts believes the company has acumen across a wide variety of commodities on their Board of Directors, as well as access to commodity specific resources and expertise as part of the Discovery Group.
It is worth noting, and indeed Counts himself covers this in the letter, that there is cross over in management between Indicator and Bluestone. As president of both Indicator and Bluestone, Counts expressed his views that he fully supports the proposed transaction and believes it will bring value to the shareholders of both companies.
He also makes mention however, that the original idea was brought to Indicator's Board by an independent Indicator Director who is only a minor Bluestone shareholder, and so was familiar with the project. Independent committees have been formed by both companies to ensure that the agreement is fair and the process transparent.
Summarising, Counts expressed his view that ultimately, the acquisition adds value and momentum to Indicator's story. He suggest the company is gaining access to a compelling project in a mining friendly North American jurisdiction, which he believes has the potential to deliver exceptional value in the near term. He suggests the move will ensure results-driven news flow throughout the year, and also noted that this diversification in commodities will attract new investors, increase liquidity and act as an additional basis for valuation, adding “The coming months promise to be exciting ones for Indicator as we receive the results from our drilling at Nanuq North and solidify plans for the advancement of Mohave”.
The terms of the agreement announced August 16, anticipate the transaction will be structured as a ‘three cornered’ amalgamation between Bluestone and a newly incorporated subsidiary of Indicator Minerals. Indicator will issue 0.62854 common shares in its capital in exchange for each outstanding share of Bluestone (for an aggregate of approximately 5 million common shares, or around 4.7% of outstanding shares following the transaction), and in addition, Indicator is entering into a loan agreement with Bluestone in which it will advance up to US$200,000 to Bluestone, in order to make payments on Bluestone’s properties necessary to keep them in good standing and to cover transaction expenses.
At the time, Counts said of the deal “This is an exciting opportunity for Indicator to create shareholder value by adding a significant asset to our portfolio”, adding “We view the deal with Bluestone as further evidence of our commitment to seize opportunity when presented with the right projects regardless of commodity. We can acquire a 100% interest in a compelling, advanced stage project where the data suggests the property may host a large-scale economic copper porphyry deposit. This strategic acquisition is complimentary to Indicator's continued advancement of our northern diamond projects in particular Nanuq North where we have results pending. It diversifies our portfolio and ensures that Indicator will have news flow throughout the year from these key projects as they are advanced by drilling”.
The property itself consists of 245 mineral claims spanning 1953 hectares, located in north western Arizona, around 180 kilometres northwest of Phoenix and 88 kilometres south of the city of Kingman. The target is a large-scale porphyry deposit rich in copper, molybdenum and silver. The project is similar in many respects to the Bagdad Porphyry deposit (As of May 2006, Bagdad's reserves were stated as 619 million tonnes at 0.35% copper and 0.022% molybdenum), which is located 32 kilometres to the south east of Mohave, within the same regional deformation zone.
In September 2007, Bluestone signed an agreement with Southwestern Exploration Group for the option to earn 100% interest in the Mohave Property. Shortly thereafter, Bluestone proceeded to enlarge the claim block and conduct a Phase 1 Exploration program, which consisted of structural and ASTER image interpretation, geological mapping and geochemical rock sampling, and a reconnaissance soil sampling program. The plan for the second phase exploration program is already in place and ready to commence, is expected to cost C$500,000 and will involve the construction of an integrated 3D model of data, additional infill induced polarization survey, 4000 metres of drilling of copper oxide (40 holes of 100 metres) and 900 metres of deep drilling (3 holes of 300 metres).
For those unfamiliar with the company, Indicator Minerals is a Canadian exploration company, with market capitalisation of C$12.5 million, focused primarily on the discovery and development of economic gemstone deposits.
In addition to their recent Bluestone acquisition, the company has a total of five projects, four of which are diamond exploration programs based over 2.2 million acres of Nunavut Territory in North Canada, with an additional emerald project in Columbia. The company’s primary asset is the Nanuq North diamond project, based approximately 300 kilometres north east of the Baker Lake community in the Kivalliq region of Nunavut Territory, Canada.