Spin-Outs in Mining Sector: The Emergence of Independent Growth-Oriented Ventures

FN Media Group Presents USA News Group News Commentary

VANCOUVER, B.C., March 17, 2023 /PRNewswire/ -- USA News Group - Spin-out opportunities in the mining sector can generate mixed reactions from the market when they arise, depending on how they're handled. And this year is no different as multiple opportunities are arising, with much of the headlines going towards talk of Teck Resources Limited (NYSE:TECK) (TSX:TECK-A) exploring splitting off its steelmaking coal operations into a spin-out company worth an estimated $11 billion, in order to focus on copper and other "future-friendly" metals. Now other miners large and small are exploring their spin-out playbooks, including Usha Resources Ltd. (TSXV:USHA) (OTCQB:USHAF), Vale S.A. (NYSE:VALE), and Hecla Mining (NYSE:HL) with Atac Resources Ltd. (TSXV:ATC) (OTCQB:ATADF).

On the heels of identifying evaporite crystallization and more than tripling its land position at its Jackpot Lake Lithium Brine Property in Nevada, Usha Resources (TSXV:USHA) (OTCQB:USHAF) is bringing market attention back to its own spin-out opportunity which is set to be known as Formation Metals Inc. or FMI.

Shareholders of Usha Resources are set to receive shares of Formation Metals on a 1:5 pro rata basis. In simpler terms, for each 10,000 common shares of USHA owned by the share distribution date of on or around April 3, 2023, they get also own 2,000 common shares of FMI.

Essentially, it's like a 20% dividend of another interesting mining opportunity, as FMI will then hold USHA's interest in the Nicobat Nickel Project, and will focus on the advancement of this project, while USHA continues to press onwards in the lithium space, especially the Jackpot Lithium Brine Project, where they're working toward defining a 43-101 resource.

Soon-to-be FMI's Nicobat is a nickel-copper-cobalt project in the Rainy River District in northwest Ontario, Canada—a region known to already have active mine development with excellent road and rail access, power, and water.

Back in December, the spin-out was overwhelmingly approved by USHA's shareholders, garnering support from 99.76% of the votes cast. By January, USHA obtained its final court order approval of the spin-out, which officially started the transaction in motion. However, with the April Share Distribution Record Date set for early April, the opportunity to partake in the spin-out opportunity is still in play for the next little while.

In the case of Vale S.A. (NYSE:VALE), CEO Eduardo Bartolomeo told the FT Mining Summit back in October that his company was exploring separating off its copper and nickel unit from its primary iron ore business. Without specifying a date, Barolomeo implied that this would all go down in 2023, with the idea being to eventually grow the base metals unit as big as Vale is already today, which as of March 2, 2023 was valued at $80 billion.

Already it's been reported that General Motors is competing for a stake in Vale SA's base metals unit following its $650 million investment into the Thacker Pass Lithium project in Nevada. Up for grabs is 10% of its base metals business estimated to be worth nearly $2.5 billion, which Vale already now has a shortlist of potential suitors in place to evaluate before they pull the trigger.

"This thing can get even bigger than Vale," said Bartolomeo to FT.com. "Not tomorrow, not even next year — when you look long-term."

Most of Vale's nickel and copper assets were acquired via a 2006 $17-billion acquisition of Inco.

Another major spin-out underway is that of Teck Resources Limited (NYSE:TECK) (TSX:TECK-A, TECK-A), which is set to split into two world-class, independent companies: Teck Metals and Elk Valley Resources.

Teck Metals will be growth-oriented, with premier, low-cost base metals production, a top-tier copper development portfolio and a disciplined capital returns policy, while Elk Valley Resources will be a high-margin Canadian steelmaking coal producer, focused on long-term cash generation and providing cash returns to shareholders, with significant equity value accretion potential.

"This transformative transaction creates two strong, sustainable, world-class mining companies committed to responsibly providing essential resources the world needs," said Jonathan Price, CEO of Teck. "Both Teck Metals and [Elk Valley Resources] have high-quality operating assets and strong financial foundations, with talented and dedicated employees, committed to ensuring safe and responsible operations. The transaction simplifies the portfolio of each company, allowing for strategic and financial focus and the ability to pursue tailored capital allocation strategies. It provides investors with choice in response to the evolving investment landscape, and establishes a pathway to full financial separation of the two companies over time." 

Teck Metals will retain a substantial interest in steelmaking coal cash flows through a transition period in the form of an 87.5% interest in a gross revenue royalty (the "Royalty") and preferred shares of EVR (collectively, the "Transition Capital Structure"). Under the Transition Capital Structure, Teck Metals will receive quarterly payments consisting of Royalty payments and preferred share redemption amounts that will in aggregate equal 90% of EVR free cash flow. 

Closing out February, Atac Resources Ltd. (TSXV:ATC) (OTC:ATADF) announced an LOI signed with Hecla Mining (NYSE:HL) that would have Hecla acquire all issued and outstanding shares of ATAC. However, attached to the announcement, ATAC shareholders will also receive shares in a new exploration company (so far just labeled "Spinco") which will hold all of ATAC's rights and interests with respect to its Idaho Creek, Catch, Rosy and PIL projects (the "Spinco Assets") as well as ATAC's cash balance following completion.

The Proposed Transaction represents consideration to ATAC shareholders of C$31 million in Hecla shares and a value of approximately C$8 million in Spinco shares based on Hecla's C$2 million placement.

"The spin-out of a new copper-focused exploration company provides additional value to shareholders," stated ATAC president and CEO, Graham Downs. "With the foundation of our existing copper assets, Spinco will be well positioned to aggressively explore for copper – a key critical metal – throughout BC and Yukon."

It's notable that so far, the LOI does not create a binding agreement with Hecla for the Proposed Transaction, and there is no assurance that ATAC and Hecla will reach agreement on the terms of the Definitive Agreement as set out in the LOI or at all. 

But should it go through, the Hecla shares contemplated to be received provide ATAC shareholders with a premium of 66% based on ATAC's 20-day volume-weighted average price of C$0.0845 as of February 17, 2023, or a 109% premium when including the value of Spinco.

For more information please visit:  https://energymetalnews.com/2023/02/28/charging-along-the-highway-towards-domestic-lithium-dominance/ 

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USA News Group
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