Magna Mining Inc (TSX-V:NICU) revealed that it has struck a non-binding memorandum of understanding (MoU) with Mitsui & Company Ltd regarding the possibility of Mitsui acquiring an interest in Magna's Shakespeare nickel project in Ontario.
Separately, Magna Mining also released the results of the 2022 feasibility study for the Shakespeare project, with both bits of news leading analysts at Research Capital to raise their target price for Magna Mining shares.
In a statement on the MoU, Magna said it and Mitsui will discuss the possibility of Mitsui acquiring a 10%-to-12.5% interest in the Shakespeare for $8 million to $10 million in cash on terms to be further negotiated between the parties.
The Toronto-based exploration and development company said that the parties will most likely form a joint venture (JV) agreement, to jointly pursue the development of the Shakespeare Mine, with Magna being the project operator.
In a statement, Magna Mining CEO Jason Jessup said: "This MoU is the beginning of what we hope will be a long-term partnership between Magna Mining and Mitsui, the objective of which is to create the next nickel producer in the world-class nickel mining region of Sudbury, Ontario.”
READ: Magna Mining announces positive assay results from 2021 drilling program at Shakespeare mine
“The signing of an MoU with a global trading and investment company of Mitsui's stature underlines the strategic importance of our Shakespeare Mine and the growth potential of our company. We anticipate that coupling our operational and geological expertise with Mitsui's balance sheet strength is a perfect combination in furtherance of advancing the Shakespeare Mine into production and developing a significant nickel producing company," Jessup added.
Magna said the MoU is limited to 2,590 hectares of the more than 18,000-hectare Shakespeare project. The MoU property covers the location of the existing Shakespeare deposit, the proposed location of the Shakespeare open pit mine, mill, tailings storage facility and immediately adjacent claims, said the company. The remainder of the Shakespeare project and regional exploration targets, such as the P-4 Discovery, will remain 100% owned by Magna.
Each company "will retain the offtake right for the amount of products, including nickel, copper and other byproducts from the Shakespeare Mine, pro-rata to their ownership percentage in the JV," it added. In addition to the 10-to-12.5% interest to be acquired in the transaction, Magna and Mitsui said they will evaluate the potential for Mitsui to acquire an additional 12.5%-to-15% stake in the JV prior to the start of construction, on terms and valuation mutually agreed upon by the two parties.
The companies anticipate entering into a definitive purchase and joint venture agreement setting out in more detail the proposed terms of the transaction.
2022 feasibility study for the Shakespeare nickel project
In a separate statement, Magna Mining also released the results of the 2022 feasibility study for the Shakespeare nickel project, which is considered a base case and does not include any of the results from the 2021 Shakespeare drilling campaign.
The base case results demonstrate a Pre-Tax NPV6% of C$221 million and an IRR of 27.2%, and a 3.4-year payback, with a Post-Tax NPV6% of $C140 million, IRR of 21.5%. There is a 3.5 year post-tax payback period based on metal prices of US$ 8.50/lb. nickel, US$ 3.95/lb. copper, US$ 24/lb. cobalt, US$ 950/oz platinum, US$ 1,750/oz palladium and US$ 1,600 gold and an exchange rate of 0.77 US$:C$.
Other highlights of the 2022 feasibility study Include:
- Initial capital requirements of C$232.9 million, including all mine pre-production costs, co-disposal area preparation and sustaining capital of C$9.2 million (including closure)
- Operating costs of C$41.18/t ore include carbon offset purchases
- Cash cost of US$(-0.76)/lb. nickel and AISC of US$(-0.61)/lb. nickel net of copper, cobalt and PGM by-product credits
- Recovered in concentrate nickel of 65.7 million pounds, copper of 86.7 million pounds, cobalt of 3.0 million pounds and PGM's of 177,000 ounces
- Average strip ratio of 4.98:1 with 11.9 million tonnes of reserves
Magna Mining CEO Jason Jessup commented: "This feasibility study demonstrates why we think the Shakespeare Nickel Project has the potential to be the next nickel producing project in Canada, and it confirms our belief that Shakespeare is an attractive stand-alone operation at current nickel and copper prices. The results of the study show positive economics, a modest upfront capital cost and strong leverage to the price of nickel and copper. Building the project as outlined in the feasibility would also give us a cornerstone asset with which to pursue Magna's vision of developing a hub and spoke production model in the world-class Sudbury nickel mining camp.
"Aside from organic growth at our Shakespeare Project, we are evaluating acquisition opportunities that have synergies with Shakespeare. We are quite proud that the Study also includes detailed carbon accounting and incorporates the purchase of carbon offset credits to become a carbon-neutral nickel mining operation. We believe that Shakespeare is the only feasibility stage nickel project in North America that can make this claim."
Paul Fowler, Magna Mining SVP added: "We are delighted to be able to complete this feasibility study within a year of our 2021 public listing, and it demonstrates the potential for Shakespeare to be Canada's next producing nickel mine. Our recent successful drill campaigns at the Shakespeare Mine and the adjacent P-4 exploration target also provide encouraging evidence that we will be able to fulfill our goal of further growing the resources at Shakespeare, potentially extending the life of mine and making new discoveries on our property package."
Research Capital hikes target price
In a note to clients following the two announcements, analysts at Research Capital maintained a 'Buy' rating on Magna Mining and increased their target price for the shares to $1.30, up from $1.10, previously, based on a valuation of 0.5 times their NAV estimate, up from 0.4 times.
Commenting on the 2022 feasibility study: "The reserve was developed from the previous resource of 21.5 Mt (million tonnes) which included 16 Mt allocated to open-pit resources and 5.4 Mt for underground. It appears that the reserve does not take into account the successful recent drilling at the Gap Zone which we believe will help join the east and west open pits and allow for mining more material that currently falls outside of the reserve pit.
"Additionally, we believe there is exploration upside that is not captured in the feasibility study. Therefore, we are maintaining our assumption of 24.2 Mt of mineable material with grades in line with the reserve grade. Therefore, our modeled mine life is 15 years compared to approximately 7 in the feasibility study. In our view, this is not an overly aggressive assumption given the upside we see at Shakespeare. As a result of the changes we have made to our model, our NPV8% for the project is now $197 million, compared to $211.5 million, previously."
Referring to the MOU with Mitsui to form a joint venture on the Shakespeare project, the Research Capital analysts noted: "The MOU describes an investment of $8 million to $10 million to acquire a 10% to 12.5% stake in the project. This translates to a valuation range of $64 million to $100 million for the project which is 2.2x to 3.5x the current market capitalization of the company."
"We believe a joint venture with a well-established company like Mitsui would lend significant credibility to the Shakespeare project and Magna," they concluded.
In Toronto trading approaching midday on Monday, Magna Mining shares were 5% higher at C$0.42.
-- Adds 2022 Feasibility study news; Research Capital target hike, comment; share price--
Contact the author Uttara Choudhury at uttara@proactiveinvestors.com
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