Stillwater Mining (NYSE:SWC), the only platinum and palladium producer in the United States, is set to acquire Canadian mining junior Marathon PGM (TSX:MAR) in a cash and shares deal that values the company at C$118 million, or C$3.55 per share, compared to Friday`s closing price of C$1.95 per share.
Stillwater is after Marathon`s PGM assets only, and as part of the transaction, the junior mining company will spin out its gold assets plus around C$6 million in cash into Marathon Gold, that will be headed up by the current CEO and Chairman of Marathon PGM.
Marathon`s flagship asset is the Marathon Project in northwest Ontario, which covers the largest undeveloped resource of platinum group metals in Canada, but has also defined an open pit resource of platinum group metals, copper and nickel at Bird River, in Southeast Manitoba.
The Marathon PGM-Cu project contains a proven and probable reserve of 3.4 million ounces of platinum group metals and gold, 4.23 million ounces of silver and 497 million pounds of copper. A second nearby project known as Geordie Lake PGM-Cu deposit adds to the district wide total for a measured and indicated resource from both projects, of 5 million ounces of platinum group metals with gold, 10 million ounces of silver, and 1 billion pounds of copper.
In January of 2010, MAR released an optimized definitive feasibility study for Marathon. The study set out the parameters for a mine and process plant costing C$351 million, rated at 22,000 tonnes per day and a projected operational mine life of 11.5 years.
This study excluded resources outside the main pit shell which would extend mine life and the exploration potential at Geordie Lake where the resource is still open. Projected annualized production is 234,000 ounces of platinum group metals with gold, 37 million pounds / 16,700 tonnes of copper and 182,000 ounces of silver.
Cash operating costs were estimated at C$13.39 per tonne, but when copper credits were applied, cash costs dropped to minus US$14.40 per tonne.
Stillwater is offering C$1.775 in cash per share plus 0.112 common shares of its stock for each Marathon PGM share. Stillwater has also agreed to purchase C$3 million of Marathon PGM shares in a private placement with the price to be determined based on the five-day volume weighted average trading price, less a 15% discount.
Marathon PGM will also distribute shares of its subsidiary, Marathon Gold to shareholders before the exchange with Stillwater. Total consideration payable by Stillwater for the transaction is valued at approximately US$118 million or Cd$3.55 per Marathon PGM share, which does not take into account the value of the Marathon Gold shares.
From Stillwater`s point of view, the transaction gives it access to additional near term production. The company expects its total platinum and palladium production to rise by 40% within three years, and sees the acquisition as immediately accretive on a net asset value (NYSE:NAV) per share basis and once in production, the Marathon project will boost the group`s cashflow.
“The Marathon PGM/Copper Project reserves are situated on one of Canada's largest PGM-Cu resources, which Stillwater believes hold significant potential for further growth in reserves and future production,” Stillwater added.
Disclosure: no positions