alt

For Sirius Resources Managing Director Mark Bennett, 2013 was the start of it all.

The monumental jump in the company’s share price on the discovery of the Nova nickel prospect catapulted the company into the next stratosphere.

Backed by industry stalwart Mark Creasy, the company has gone from strength to strength, despite a flattening global outlook for the mining industry and particularly dire straits in Australia where Sirius holds the majority of its acreage.

Late last year Sirius was approached by Perth-based Independence Group (IGO), which presented a very salubrious takeover offer for the company that would see the two resources firms merge to ride out industry turmoil.

The $1.8 billion offer was music to the ears of the Sirius board and its shareholders who, in the span of four years, had seen the company go from small- time exploration company to a business with a market cap of a couple of billion dollars after the new deal was closed.

For Mr Bennett, Nova at Fraser Range was the discovery that put his company on the map.

Four years ago Mr Bennett could not find a hotel room in Kalgoorlie for the Diggers and Dealers Mining Forum or secure a ticket to the sold-out event.

Now the Englishman is in high demand.

“Novaisaworld-classnickel-coppermineandthere are no others like it in the world,” Mr Bennett told National Mining Chronicle.

“It is forecast to be the lowest cost (nickel project) in Australia, so this is a top-quality asset that Independence Group is getting that underpins its future.”

Speaking on the potential deal with IGO, Mr Bennett said investors and shareholders alike were excited by the prospect of the merged entity.

“For Sirius shareholders this is a good deal because of the way it is structured,” he said.

“It gives the shareholders a variety of things, because you get some takeovers where it’s all cash and you endupwithabitofcashinyourpocket butthat’sit; whereas this deal combines a number of things.”

Under the terms of the proposed scheme of arrangement, IGO is offering 0.66 of its shares and 52 cents in cash for every Sirius share.

If the deal is also closed within the timeframe, Sirius shareholders will have the option of participating in IGO’s dividend repayment.

S2 lures potential investors

As well as exposure to the company’s success, shareholders will receive shares in a new, separately listed vehicle, which will hold some of Sirius’ assets.

The gold-focused spin-off S2 is attracting a lot of attention from investors around the world and was a determining factor in IGO receiving the support of Mr Creasy.

“Sirius shareholders still get exposure to Nova through the IGO shares and if they perform well in he future and the nickel price performs well in the future, there is the upside of that still there,” Mr Bennett said.

“If the deal is closed in the specified timeframe, Sirius shareholders will also have the option of participating in IGO’s dividend repayment, which means they potentially get a dividend stream in October this year, as opposed to in two or M three years when Nova is in production.

“I was surprised at the level of interest in S2. A lot of people were asking what we were going to do with those assets because they weren’t really meaningful “People assumed we were going to spin them out one way or another, but in this case, it gets spun out in a way that will have much more of an impact financially for shareholders than it would if we had success in Sirius.

“There were a lot of positive comments made by shareholders regarding the S2 demerger. That suggests S2 is going to be a pretty popular and well-owned stock once it lists.”

S2 will hold Nova’s highly prospective Polar Bear assets in the Norseman
region of Western Australia, an area that has commonly been called the “corridor

 “People were extremely keen to see what was going to happen with that, givenK our track record at Sirius. of riches”.

Set in 200 square kilometres of under-explored territory, surrouMnded by dozens of gold mines, Polar Bear has a high chance of success. 

“We’ve done some initial drilling and got some advanced prospects and the best one of those is Balloo, which has got some big gold drill hits that we’re planning to do further work on,” Mr Bennett said. “One day we’re hoping there will be a gold mine there.”

Mr Bennett said any success at Polar Bear would be greater in a new demerged company.

The S2 portfolio will also hold Sirius’ gold and base metal assets in Scandinavia.

Creasy’s support buoys deal

Representing 35 per cent of the company’s stock, Mr Creasy’s vote was crucial in getting the IGO deal through. But Mr Bennett said Mr Creasy was more than supportive of the deal.

“IGO first approached Mark before Christmas and I think the various components of the deal appealed to him,” he said.

“The share component means he can stay leveraged to the future success of Nova, which he wants. The cash component gives him a pretty healthy chunk of cash to play with in the meantime.

“He also likes dividends so the opportunity to get a dividend stream sooner rather than later appealed to him as well. Mark also likes gold and Polar Bear and, as a Sirius shareholder, he’ll be a shareholder of S2 as well.”

Mr Creasy is set to emerge from an acquisition deal with an 18.6 per cent share of the company and a stake worth just under $600 million.

Investor concerns

Two weeks after the deal was announced, Mr Bennett alongside Independence Group Managing Director Peter Bradford, went on a round-the-world junket canvassing investors.

Over two weeks the men met with 80 fund managers.

Of those 80 managers, 79 thought the acquisition was a good idea. The manager who disagreed echoes concern IGO shareholders have for the deal.

Many people have suggested IGO has overvalued Nova and therefore paid an inflated price for the stock.

“They see that IGO has paid a very full price for Sirius, which is great for Sirius shareholders and, certainly in the short term, it’s viewed as a better deal for Sirius rather than IGO,” Mr Bennett said.

“But simultaneously there is a long-term proposition and strategically it can be seen as an opportunity for IGO to grow.

“It’s a bit odd that the share price of IGO has come off a bit since the announcement and when you look
at that you think people don’t like it, but everyone I speak to thinks it’s not only a good deal for Sirius, but a good deal for IGO.”

Before the deal, IGO shares were trading in the range of $5 and $6 per share. After the deal was announced IGO shares dropped to $4.77 per share. Since then they have traded as low as $4.54 per share, but have since picked up (correct at time of print).

Filling gap in development pipeline

Commentary surrounding the deal has now moved to speculation another deal will be put on the table.

As part of the agreement with IGO, Sirius was not allowed to shop the deal around to look for a better offer. .

Mr Bennett said any opposing offer would have to be demonstrably larger for the company to even consider it, but he was unaware of any moves by other companies to make an offer.

“There’s no way to tell if we’ll get a superior offer,” he said.

“As directors of Sirius, we are obliged to call it how we see it in the interest of the Sirius shareholders.”

Mr Creasy previously said any other bidders would need to substantially sweeten the deal if they were to have a chance of rivalling Sirius.

He said the attraction of the merger was that the shareholders were not selling 100 per cent, but were being absorbed into IGO.

This gives Sirius shareholders great exposure to IGO’s commodity smorgasbord, which includes gold, nickel, copper, zinc and silver.

Mr Bradford said any misgivings about the deal were ignoring the potential of Sirius’ assets for IGO shareholders.

“Independence has three great cash-producing assets and is investing in a portfolio of earlier stage conceptual exploration projects that may deliver highly accretive growth in the long term,” he told National Mining Chronicle.

“Sirius fills a gap in our development pipeline, delivering a high-margin, long minelife, tier one project that is currently in development and will be producing cashflow in 2017.”

Nova on track to cash in

The deal, and Sirius’ rise to prominence, rests on the jewel in the company’s crown – the Nova- Bollinger prospect.

The duo of deposits sits in the prolific Fraser Range in WA. Sirius announced the discovery of the nickel- copper-cobalt deposit in 2012 as part of the Fraser Range Joint Venture.

Sirius held 70 per cent of the JV, while Mr Creasy held 30 per cent. After the discovery, Sirius bought out Mr Creasy’s 30 per cent.

The Nova deposit is a magmatic nickel sulphide deposit never before seen in Australia.

Just to the east of the deposit, lies the Bollinger discovery, which was announced in February 2013.

With copper and cobalt present to provide significant byproduct credits, the cost of nickel production will be significantly lower than anywhere else in the country.

Mr Bennett said this meant even at the current price of nickel, Nova would be a definite money maker.

“Put it this way – it is forecast to be the lowest cost producer in Australia and the fourth lowest cost in the world,” he said.

“Even now, when a lot of companies would be struggling and losing money, Nova would be making plenty.

“Given where we sit with our costs, probably three- quarters of the nickel mines in the world would have to be losing money before we were.”

Three months into the construction of the project, Sirius is on time and under budget.