TORONTO (miningweekly.com) – It is more likely that HudBay Minerals, the 70% owner of the Reed Lake project in Manitoba, would make an offer to buy VMS Ventures’ 30% stake in the asset, than bid for the entire company, chairperson and CEO of the junior, Rick Mark, said last week.
HudBay is carrying out a prefeasibility study at the copper deposit, the results of which should be out by the end of April, with first production pencilled in for late 2013.
Mark said the two companies had a good relationship.
“The market, I think, is waiting to see if HudBay wants to purchase our 30% of Reed. Typically, it’s just a pain to have a junior partner when they’re used to running their own show,” he commented in an interview at the Prospectors and Developers Association of Canada (PDAC) 2012 convention, held in Toronto.
A HudBay spokesperson declined to comment on the matter, saying only the company was "happy with the joint venture for now".
TSX-listed HudBay, the dominant mining company in the Flin Flon greenstone belt, owns around 15% of VMS’ shares, which trade on the Venture exchange.
The company has been working aggressively to bring new deposits in the area into production, in order to feed its Flin Flon mill, as existing orebodies get depleted. HudBay is also building the $700-million Lalor mine located about 50 km north-east of Reed.
A preliminary economic assessment pegged Reed’s construction costs at around $71-million, though the prefeasibility study will provide a more accurate figure.
Under the 2010 joint venture agreement, HudBay will fund the project’s development, with VMS paying for its share through future cash flows. The companies also have other exploration joint ventures in Manitoba.
VMS COO Neil Richardson said cash flows would be significant at current metals prices.
Using a $3.50/lb copper price would give VMS around $85-million in cash flows over Reed’s five- to six-year life-of-mine, after capital costs were paid back, he commented. Copper was trading at $3.81/lb on Tuesday.
Richardson told Mining Weekly Online that the general sentiment at the PDAC was “quite upbeat, but the markets are just hammering everyone”.
The gathering of exploration companies and investors – with attendance at over 30 000 this year – had many “cautiously optimistic” juniors punting their projects in hopes of catching investor attention.
One analyst described the optimistic air filling the hallways of the Metro Toronto Convention Centre as “superficial”, given the precarious state of the world economy.
But fear provides opportunities for companies such as VMS.
“For a company like VMS, with cash in hand, it’s a good opportunity to pick up projects that you can get at a reduced rate,” commented Richardson.
Mark said “risk” money – and exploration companies are some of the riskiest investments – was always the first to dry up.
“The challenge for the smaller companies is that the institutional investors are not reaching down at all, and the retail investors are still afraid,” he said.
VMS had nearly $10-million in the bank as at January.
The company owns 45% of North American Nickel, the owner of nickel sulphide prospects in Greenland, where exploration drilling is set to start in July.
Inco and Falconbridge did previous work at the properties in the 1990s, but low metals prices left them largely unexplored.
North American Nickel is hoping to prove there is a large nickel camp there.
“If the new targets we’ve identified are nickel sulphide bodies, and we can provide evidence that this 75 km belt is a nickel camp, everything will change for both companies,” said Mark.