Sibanye-Stillwater’s exploration projects in Argentina and Canada add an interesting new dimension to the company’s future development, writes Leon Louw.
When South African mining giant Sibanye Gold (Sibanye-Stillwater) acquired American PGM producer Stillwater Mining Company (Stillwater) in May 2017, they landed up with two greenfields exploration projects — one a PGM project called Marathon, located in Ontario, Canada, and the other a copper/gold exploration project called Altar, in Argentina.
At the time of the acquisition, Sibanye-Stillwater didn’t ascribe much value to these projects, as the company is not a greenfield developer, and its strategy has always been to acquire cash-producing assets rather than to advance exploration projects. But having Marathon and Altar in the Sibanye-Stillwater stable adds value and diversity to one of the major mining success stories over the past few years. Despite criticism and concern about its high levels of debt, Sibanye-Stillwater remains dynamic by contemplating how to crystalise or create value from its portfolio of assets.
The projects, however, give the company a foothold in other mining jurisdictions. It is early days yet, and although Marathon doesn’t look as exciting so far, Argentina might be a springboard for venturing into the rest of South America one day. By continuing to seek ways to maximise long-term value from these projects, Sibanye-Stillwater has shown that it thinks long term.
Even if these projects prove to be marginal, and even if Sibanye-Stillwater is partnering to explore these projects, as in the case with the Altar Project, it is encouraging to know that exploration is put on the map again by major companies. In fact, the Altar Project, which the company announced in June 2018, will now form part of a partnership with Regulus Resources (Regulus). It might hold some surprises and could even add more value than Sibanye-Stillwater expects.
Stillwater acquired Altar in October 2011 when it bought Argentine-focused exploration company Peregrine Metals, whose flagship asset was Altar. Altar is primarily a copper-gold porphyry deposit with potential for discrete peripheral gold system targets. In 2016, the company had drilled 4 931m on eight holes plus one-hole extension. The 2016 drilling resulted in the discovery of a new copper-gold porphyry stock south-east of the Quebrada de la Mina (QDM) gold mineral resource. Altar had 2 614 million tonnes of mineral resource at 0.31% copper and 0.07g/t gold (17.9 billion lbs of copper and 6.3Moz of gold) as at 31 December 2017.
Part of the package
“When Sibanye acquired Stillwater in the middle of last year, Altar was part of the package. Sibanye-Stillwater didn’t go looking for greenfield projects; that is not our strategy,” Richard Stewart, executive vice-president of business development at Sibanye-Stillwater, tells Mining Mirror.
“When we got these two projects, we had to ask ourselves how we would actually realise value from their acquisition,” Stewart adds. Sibanye-Stillwater had three options: they could sell the project to a third party; develop and finance the project themselves; or they could partner with an exploration-focused company. “The chances of realising the full value upfront by selling the project was slim, and we did think there was real potential, therefore we decided to rather look for a partner who could develop the asset,” Stewart adds.
Enter Regulus, a Canadian company focusing on developing exploration projects in South America. Regulus had a proposal that would take Altar up the value curve, and Sibanye-Stillwater listened. Regulus has a specialist team that consists mostly of geologists and has been successful in advancing several early greenfield developments.
Regulus is setting up a new company called Aldebaran Resources, in which all six of the company’s Argentine assets will be held. Regulus intends listing Aldebaran on the Toronto Stock Exchange, so it will be a public entity. The majority shareholder in Aldebaran has committed USD30-million for the further development of the Altar Project. As part of the transaction consideration, Sibanye-Stillwater will receive 19.9% equity holding in Aldebaran. Aldebaran will also pay Sibanye-Stillwater USD15-million in cash for the option to earn into Altar.
From the funding received from the major shareholder, Aldebaran will have an initial USD30-million to spend on exploration and development. “Once they have spent USD30-million at Altar, they would earn 60% of the equity of our project, so effectively it becomes a JV between Sibanye-Stillwater and Aldebaran,” explains Stewart.
After spending these funds, Aldebaran then has the option to spend another USD25-million, earn a further 20%, and increase their shareholding to 80% (so they could spend up to USD55-million in total for 80% of the company). There are, of course, time limits in which they need to complete their exploration. The first USD30-million, or 60%, must be spent within five years and the USD25-million after that within three years if they want to get to 80% — that is the basic construct of the agreement.
Benefits of the transaction
“The benefits for Sibanye-Stillwater is that we get a holding of 19.9% in Aldebaran, which not only gives us exposure to Altar but also to other exploration projects in the Aldebaran portfolio while retaining an initial 40% direct interest in Altar while it is taken further up the value curve. In addition, Aldebaran pays us USD15-million upfront, effectively for that option to earn in. If they don’t use the first USD30-million in five years, they walk away, and we own 100% of the project again. So, they have to spend a minimum of USD30-million to get their equity portion,” Stewart explains.
If Aldebaran does spend the full USD55-million within eight years, they hold 80% in Altar and Sibanye-Stillwater effectively holds 20% directly in the JV, and a further 16% indirectly through its shareholding in Aldebaran (assuming the company retains its 20% shareholding in Aldebaran).
“Once that is done, there are a lot of trade-offs. If the exploration proves successful, we have an option to sell the project to a third party, in which case both parties cash out. Alternatively, if the JV or Sibanye-Stillwater wants to develop Altar, we would have an option to, at that point, take the project forward from a development phase. In other words, in five to eight years, Sibanye-Stillwater will have an option to assess its strategy and determine the optimal way forward regarding the development of the copper project in Argentina,” says Stewart.
When the deal was done earlier this year, Sibanye-Stillwater CEO, Neal Froneman, said: “This transaction is consistent with our strategy of maintaining our focus and investment on our core mining operations. We believe Aldebaran possesses the vision, skills, and experience to unlock the considerable upside potential of the Altar Project in which we will continue to hold a meaningful interest. Consistent with our vision, we believe this partnership with Aldebaran will deliver value for all stakeholders as the Altar Project is progressed up the value curve.”
According to John Black, CEO and a director of Regulus, the proposed transaction creates a new, well-financed company. “The deal will allow us to realise value on Regulus’s Argentine assets and participate in another major copper/gold project. The Altar Project already has a very large 43-101 copper-gold resource and we see the potential to materially enhance the value of the project through further discovery and delineation of higher-grade zones. The agreement with Sibanye-Stillwater is designed to provide immediate benefits to shareholders of both companies, as well as exposure to significant future upside potential from an attractive portfolio of exploration projects,” says Black.
Exploration can add value
Another big benefit of the deal for Sibanye-Stillwater, is that over the next five or eight years, the company does not have to commit any further funding, or commit any exploration expenditure, while they get USD15-million upfront. The company does not have any operational or management responsibilities, which is handled by Aldebaran, but at the same time, Sibanye-Stillwater retains a lot of exposure to the project and will have the option to develop or sell the project in eight years.
Stewart says the Altar Project is high up in the Andes mountains, so there is quite a limited exploration season. “You can only really do exploration over a period of about five to six months, typically from October/November to March/April,” says Stewart.
According to Stewart, the operational risks in Argentina is similar to any other South American or African country where there is an element of political risk. “However, our experience in Argentina to date has been excellent and the South American region is well established in terms of mining, and especially copper mining,” says Stewart. Copper mines are a big revenue earner in countries like Chile and Peru.
“Argentina is a slightly higher-risk country than your typical first-world mining countries like the US, Australia, or Canada, but certainly not a higher risk than the African continent or even the rest of the South American continent. It is probably one of the better countries if you are looking at these jurisdictions,” says Stewart.
Marathon on the radar
Stewart says the Marathon Project is next on Sibanye-Stillwater’s radar. “We are in the process to determine how we will realise value from this project. Marathon is at an earlier stage and lower value than the project in Argentina. In Argentina you are also committed to spend exploration funds; an owner cannot just sit back and keep the project on hold,” says Stewart. “However, at Marathon we are now going through a similar process as we did in Argentina. There has been keen interest in the project in the past. We could possibly look at a similar type of transaction here,” adds Stewart.
Marathon is on the eastern margin of the Coldwell Complex, a Proterozoic layered intrusion. Since the Sibanye-Stillwater deal, USD1.8-million was spent to advance the project. During 2017, about 6 000m of diamond drilling tested three target areas in search of feeder structures and to test low sulphidation PGM mineralisation. Although high-grade feeders were not intercepted during 2017, the results provide valuable information for exploration vectoring.
Trails and surface trenches were also extended and sampled during 2017 at the Boyer Lake area within the prospective intrusive lithologies of the Coldwell Complex. In addition, minimum environmental baseline data was collected in 2017. Marathon has 151.7 million tonnes at 0.22% copper and PGM 2E+Au grade of 0.89g/t (730 million lb copper and 4.3Moz 2PGE+Au) declared resources as at 31 December 2017.