The text message from Simon Purkiss, managing director of European Nickel, was short and to the point: "well we finally did it". He was referring to the fact that Minesite carried a story way back in May 2009 which claimed that a merger between Rusina and European Nickel was imminent.
Journos have a strange antenna which tells them they are onto a story and it usually activates when those at the other end of a telephone line seem to be acting out of character. In this case Rob Gregory, the managing director of Rusina and usually the most forthcoming of men, ducked and dived around when asked if a deal was underway. Not a specific deal, just a deal - it could have been with Toledo Mining or Berong Nickel, or European Nickel. There would have been logic behind any of these moves, but it was Simon Purkiss, who, by saying least, gave out the most information. So much so that back in May the story published on Minesite involved a tri-partite merger between Rusina, European Nickel and Toledo.
The sensitive reaction from Rusina’s Perth office to the story and the fact that Reg Eccles, chairman of Toledo, went out of his way to mock it, were further points in the story’s favour. Now it has come alive again, and European Nickel is offering four of its own shares for every five shares in Rusina. The premium based on the volume weighted average share price for Rusina on the ASX over the last ten days is only 15.5 per cent, but Rusina has not been too active on promotion for some time so that is fair enough and its shareholders will end up with 27.3 per cent of the merged company . Rusina is a slightly strange hybrid as most of the trade seems to take place in Australia, but when it wants money it is the AIM listing in London that comes to the fore. Be that as it may, European Nickel is going to establish an Australian listing of its shares using ASX-listed CHESS Depositary Interests, so Rusina’s shareholders can trade the new shares on the ASX.
Just as a reminder, European Nickel has developed a simple, low cost heap leach process for the extraction of nickel from nickel laterites. These laterites are the most abundant source of nickel in the earth’s crust, but extraction of the metal has previously proved complicated and expensive. The company has nickel assets spread across Turkey, the Philippines and Albania. The Caldag project in Turkey is the flagship. Here, the former delays over the forestry permit have now been resolved, and the company is now waiting for the Chinese partners on this project to stump up their money. Jiangxi Rare Earth and Rare Metals Tungsten Company (JXTC) is due to pay US$20 million for a 20 per cent stake in Caldag, while its partner China Tianchen Engineering Corporation (TCC) is committed to helping find the US$350 million capex requirement. Here we come to a toxic mix of Chinese eggs, chickens and bureaucracy. The US$20 million is now nearing the top of the pile in JXTC’s in-tray, but until it is in place work will not start on the fundraising from Chinese banks.
In the meantime European Nickel has just raised US$19.4 million from a placing, which sends a signal to the Chinese that they do not necessarily hold the whip hand. It is good tactics, as it also enabled the company to issue shares to Endeavour Capital in lieu of interest on the loan that Endeavour made to the company to carry it until the Chinese paid. So European Nickel is now in good financial health and is raring to go at Caldag.
But if, for any reason, the Chinese do not come up with the money and Caldag is further delayed while a new plan is set in place, the company can now switch its attentions to the Acoje nickel laterite project, currently in joint venture with Rusina, and now about to be brought completely into the fold. Acoje has a JORC resource of 495,000 tonnes of contained nickel. A trial heap leach operation is underway there and a definitive feasibility study will be completed next year. It should be said at this stage, however, that the Chinese are most unlikely to fail to deliver, as they are senior companies and would lose too much face after keeping European Nickel waiting all this time.
Either way, the Rusina-European Nickel transaction makes sense. As Simon Purkiss points out, this deal is a natural progression for both companies. "Together, we are going to grow into a mid-tier nickel producer, and it is time to simplify the corporate structure as well as bolster the management team ahead of critical development and financing decisions." European Nickel already has a modest shareholding of 2.9 per cent in Rusina and a 20 per cent direct stake in the Acoje project. Between them, however, they will have total control, and, as Rob Gregory is going to be managing director of the enlarged company, a smooth transition should be easy to effect. Simon Purkiss will become executive deputy chairman.
The enlarged balance sheet of the combined company will also make it easier to access development capital, and the ASX listing will add further to liquidity in the shares. It is quite something to be developing two projects in quick succession, and investors now have to take on board that the enlarged company has a JORC resource base of 1.35 million tonnes of contained nickel, and expects to be producing at a rate of 50,000 tonnes per year within five years. ‘Synergy’ is one of those words beloved of bankers that actually means very little, but here at least there will certainly be scope for cost savings between the two companies. The best deals, said a Rothschild, are those where both parties reckon they have done well. This merger looks like such a one, so maybe Toledo will be next, as European Nickel has a 19.3 per cent holding there still. -By Charles Wyatt
http://www.minesite.com/nc/minews/singlenews/article/the-merger-between-european-nickel-and-rusina-represents-the-first-stage-in-the-emergence-of-a-new-a/1141.html
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