Sun Metals Corp. [SUNM-TSXV] has agreed to acquire, through a wholly-owned subsidiary, all of the issued and outstanding shares of Lorraine Copper Corp. [LLC-TSXV, LRCPF-OTCQB] by way of a plan of arrangement. Sun Metals is currently earning a 100% interest in Lorraine’s wholly-owned Stardust polymetallic project in north-central British Columbia.
The benefits of the transaction are expected to include the elimination of a significant discount in the trading price of Lorraine shares relative to the market value of Sun Metals’ interest in Stardust.
Under the arrangement shareholders of Lorraine will receive 0.54 of a Sun Metals common share for each Lorraine share held.
The arrangement values Lorraine at approximately $0.24 per share, representing a premium of approximately 40%, based on the closing price of the shares on February 1, 2019.
Investors reacted by sending Lorraine shares up 14.71% or $0.025 to 19.5 cents on volume of 1.96 million shares. The shares trade in a 52-week range of 22 cents and $0.07.
Sun Metals shares were off 6.82% or $0.03 to 41 cents on volume of 941,142. They trade in a 52-week range of 46 cents and 13 cents.
Lorraine Metals is currently advancing two copper-gold projects and one copper-molybdenum project in B.C.
The company said over $40 million has been spent so far on the Lorraine, Stardust and Okeover Projects.
Back in June 2017, it was announced that a numbered company (now Sun Metals) would be optioning the Stardust Project. Sun Metals is a member of the Oxygen Capital Group.
It was envisaged that Stardust would become the flagship project of a new Oxygen Capital public company called Sun Metals with Lorraine becoming a 30% owner of that public company after earn-in.
Stardust is a high-grade, polymetallic carbonate replacement deposit with a rich history. The Canyon Creek copper-gold skarn zone at Stardust is estimated to contain a NI 43-101-compliant indicated resource of 985,000 tonnes, grading 1.34% copper, 0.62% zinc, 1.59 g/t gold, 36.8 g/t silver for a 2.92% copper equivalent.
On top of that is an inferred resource of 1.98 million tonnes, grading 1.24% copper, 0.14% zinc, 1.72 g/t gold, 30.5 g/t silver and a 2.65% copper equivalent.
The option agreement required Sun Metals to issue 500,000 shares and pay $75,000 to Lorraine by December 31, 2018 to earn a 100% interest in the project. In addition, Sun Metals needed to spend $1.72 million at Stardust prior to September 30, 2019.
Under the option deal, Lorraine Copper was to retain a 2% net smelter return royalty (NSR) on precious metals and a 1% NSR on base metals. Sun had the option to reacquire 50% of each royalty via a payment of $1.5 million per royalty.
The benefits of the proposed arrangement to shareholders of Sun Metals would include the elimination of the overhang that would be created in the Sun Metals shares by Lorraine’s significant ownership block had the terms of the earn-in been completed.
Teck Resources Ltd. [TECK.B-TSX; TECK-NYSE] recently spent $3.5 million to acquire a 13.8% stake in Sun Metals.
Teck said it has acquired the interest by picking up 12.5 million common shares of Sun Metals at 28 cents per share. The shares were acquired privately on December 20, 2018, under a donation arrangement. Prior to the completion of the acquisition, Teck did not hold any shares in Sun Metals.