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Alloycorp Mining Inc. (TSX-V: AVT), a junior miner that has been working on the reboot of a molybdenum mine in Kitsault, is going dark.
The company announced July 4 that its major shareholders, Resource Capital Fund IV L.P. and Resource Capital Fund VI L.P., plan to take the company private – a plan that will require approval of shareholders at a special meeting on August 8.
The plan is sure to be approved, however, as Resource Capital owns 90% of Alloycorp’s shares.
Other Alloycorp shareholders would be paid $0.05 per share once the takeover is executed. But given a 1-10 rollback that took place in April, that actually translates into half a cent per share.
Alloycorp’s shares were trading at $0.01 per share when the company executed a 1-10 rollback in April, putting them at $0.10 per share.
The company’s shares were down 25%, from $0.08 to $0.06 per share, following the announcement July 4.
The company has an accumulated deficit of $241 million, according to the company’s most recent interim financial statements. To date, the company has spent about $150 million bringing the project near the construction phase.
“The cost of operating a public company has become prohibitive given the current state of the equity markets as well as the depressed state of the molybdenum industry as a whole,” Caron said in a press release.
Marion Caron, Allycorp’s chairman, cited the high cost of listing on the TSX Venture exchange as one of the reasons for the decision to go private – a problem highlighted by Business in Vancouver in a series of stories on the Venture exchange.
“The cost of operating a public company has become prohibitive given the current state of the equity markets as well as the depressed state of the molybdenum industry as a whole,” Caron said in a press release.
“The RCF transaction relieves the company’s significant debt burden, provides cash to shareholders and enhances flexibility for future development of the company.”
The Avanti Kitsault mine – Alloycorp’s sole development project – is fully permitted and the company has an agreement with the Nisga’a Lisims government.
But last year, the company decided not to pursue financing and construction of the mine, now estimated at $1.2 billion.
The company said in its July 4 press release that it will “continue to keep the Kitsault project in good standing with respect to its existing permits, maintain relationships with local communities and other partners and ensure all existing contractual agreements are met.”
The price of molybdenum, used to strengthen steel, has been fluctuating. Prices are currently below US$8 per pound.
Alloycorp CEO Graham du Preez told Business in Vancouver that the company would need sustained prices of about US$10 per pound to make the mine viable.
“The timeframe towards financing and developing the project is very uncertain at this point in time until we have more definite indicators that the molybdenum market is improving,” du Preez said.
Should conditions improve to the point that the project could start moving ahead again, du Preez said it is a possibility that it might be done as a private venture.
“But it’s also a possibility that they would just sell it to somebody else,” he said.
The Kitsault mine is located in the heart of the Nisga’a territory and operated between 1968 and 1972 and 1981 and 1982. Avanti Mining bought the idled mine in 2008, and later changed its name to Alloycorp.
