Xtract Resources chief Jan Nelson says Chépica mine acquisition is likely
By Jamie Ashcroft October 23 2013, 9:16am
The Chépica copper-gold mine in Chile is precisely the sort of project that newly re-launched Xtract Resources (LON:XTR) was looking for, according to chief executive Jan Nelson.
Nelson, the former Pan African Resources boss, joined the shell of a failed oil business back in May, and last week revealed what is expected to be the new company‘s first major acquisition.
It paid a US$250,000 fee to secure an exclusive four month due diligence period to assess the mine and, based on early findings, a subsequent share-based deal is considered likely.
With meaningful near-term cash flows coming from an ongoing ramp-up, Chépica is an asset that Nelson and his team can start building the new companyaround.
“The basic thing, for Xtract, is that we wanted to target assets that were in production, an asset with cash flow,” he told Proactive Investors.
“In all likelihood we will structure a deal where we will issue shares for a 100% stake in the mine and we’ll have to raise some money (between £1mln and £3mln) to capitalise the mine properly.
“The mine is in production now, we will have cash flow, so we won’t have to come back to investors again to raise capital.
“That really is the rationale for the acquisition.
“This is the project that I think will generate very good cash flows in six months' time for Xtract. It will provide the base of our operations, allowing us to pursue other projects.”
Nelson added that, as well as carrying out due diligence on Chépica, Xtract is weighing up other projects to add to its cash flows in the near term.
The cash may, among other things, be put to work on the neighbouring Mejillones phosphate project.
Mejillones was the project that initially drew Xtract to this part of Chile, before the team became aware of the Chépica opportunity.
Xtract can secure its interest in Mejillones via the Chépica transaction, or alternatively though a prior arrangement with the vendor.
It is a much larger and longer term venture compared with Chépica; by Nelson’s reckoning it is potentially a 200mln tonne or US$2-3bn project.
As such, he explains, it will be necessary for the newly refocused firm to bring in a development partner and take more of a backseat.
“We have been talking to a number of parties that are interested in co-developing the project for us.
“We will run for some free carry, and then can decide at some stage whether we’ll participate [in the development] or not. So, as we see results coming out we’ll be able to opt whether to co-fund [the project], retain some equity free carry or agree a royalty.”
Clearly the potential here is huge, though as Xtract currently stands – with a micro-cap valuation of just £5.5mln and no substantial assets – there is not the financial wherewithal to see such a project through.
This is why, strategically, Chépica is such a significant company building deal.
