Many junior mining investors were miffed when they learned of a deal merging Eclipse Gold (TSX-V:EGLD) with Northern Vertex Mining (TSX-V:NEE). At first blush I must admit it was puzzling to learn that a recently IPOed junior explorer (Eclipse) was merging with a junior producer (Northern Vertex). Yes, both companies’ projects reside in the Walker Lane Trend, however, they are separated by several hundred miles.
I had to dig deeper in order to fully understand why this merger makes sense, and how it creates synergies that aren’t easily recognizable on the surface.
Last week, I spoke with Eclipse management including the Chairman of what will be the combined company, Doug Hurst.
First of all, let’s get some of the uncomfortable questions out of the way. Eclipse carried out a phase 2 drill program at its Hercules Project in Nevada’s Walker Lane Trend (approximately 30 minutes from Reno) that comprised 18 RC holes for a total of roughly 7,000 meters of drilling. Many Eclipse shareholders were betting on exploration success in this drill program, and they have been patiently awaiting drill results.
Why announce a merger when one company is awaiting assays from a substantial drill program? After all, Eclipse spent millions of dollars preparing for, and then executing this drill program.
I asked Doug Hurst this question in words of one syllable; is Eclipse sitting on a bad drill results and trying to sweep them under the rug?
Hurst assured me that Eclipse is not sitting on results and the lab that Eclipse is using is facing an extensive backlog just like every other lab in North America.
So why do this deal now?
Eclipse CEO Mike Allen has been watching Northern Vertex for years and the Eclipse board felt that the time was right to make this deal happen – in other words, it’s been months in the making and finally the time was right with both parties ready to move forward.
What does a combined Eclipse/Northern Vertex look like?
The merger creates a combined company with nearly C$30 million in cash backstopped by operating cash flow from the Moss Mine (~50,000 ounces per year of gold production), where last quarter saw $10.7 million in operating cash flow. With a strong balance sheet and great cash position, the new Northern Vertex will accelerate exploration on two great projects in the Walker Lane Trend of Arizona/Nevada. In addition, the combined company has a retooled board and management team that is deal oriented and will leverage greater capital markets presence to execute on a western US roll up strategy to build out the production profile
The bigger vision is to create a mid-tier gold producer focused on the western US.
The following slide from Eclipse/Northern Vertex sums it up well:
Exploration at Moss has been largely restricted to the private patented mining claims where the current mining operation resides. Recently granted permits from the US Bureau of Land Management (BLM) have opened up the entire 40 square kilometer property package with 538 drill sites ready and permitted. The Eclipse side of this transaction brings one of the foremost geological experts in low sulphidation epithermal systems, Dr. Warwick Board, to a hugely prospective property package at Moss.
In addition, the combined companies’ financial strength and capital markets expertise is poised to create a formidable, and growing producer/explorer.
Let’s review the key components of the management at the new Northern Vertex.
A strong company is led by strong leadership with a diverse background and a complementary set of core competencies. The new Northern Vertex has top notch management with extensive track records of success. With over 50 years of combined experience, this management team has a proven track record of mine development, discovery, M&A and capital markets execution.
The combined company will feature a new integrated Board of Directors and management team. On the Board of Directors is Douglas Hurst acting as Chairman. Hurst comes from the Eclipse team as director and co-founder. Hurst is a superstar in the mining industry, with a history of co-founding and selling companies for millions/billions of dollars, including Newmarket Gold (sold to Kirkland Lake for $1Bn) and International Royalty (sold to Royal Gold for $700M). Hurst is currently Director at Calibre Mining and Newcore Gold.
The management team will include President and CEO Kenneth Berry, who has over 25 years of senior-level experience in mining and capital markets. Berry co-founded Northern Vertex, raising over f $100 million to advance the 100% owned Moss Mine. He is also the current Chairman at Kootenay Silver.
Mike Allen continues on with the combined company as EVP Corporate Development. Given his recent success in finding hidden assets within the western US through both Northern Empire and Eclipse it will be exciting to see what other gems he can find with this new larger platform
Additionally, Dr. Warwick Board will be Vice President of Exploration. Known in the industry as someone that sees things other people cannot, Board has over 22 years of global mineral exploration experience, including serving as the former Vice President, Geology and Chief Geologist of Pretium Resources.
Northern Vertex President, CEO and Director Mr. Kenneth Berry stated, “The result of this transaction will be a combined company with a greatly strengthened balance sheet, and an enhanced team with extensive experience growing multi-asset gold companies. This represents a significant step toward our unwavering vision of building a top of the class mid-tier gold producer. We plan to use this new platform to accelerate organic growth opportunities by targeting significant resource expansion at the Moss Mine and execute an aggressive roll-up strategy focused on the Western United States.”
The flagship project is the Moss Project, which produced 13,083 ounces of gold last quarter at a cash cost of US$954 per ounce. Moss is an open pit, heap leach operation in the Walker Lane Trend, located in Northwest Arizona. The Walker Lane Trend is a much less talked about area of Nevada, however, it is no less prolific with an endowment of at least 80,000,000 ounces of gold and 700,000,000 ounces of silver. In the last few years precious metals producers such as Anglo American (LSE:AAL), Coeur Mining (NYSE:CDE), Kinross (NYSE:KGC), and even Newmont (NYSE:NEM) have all moved into the Walker Lane Trend.
The Moss Project has uncomplicated geology, outcropped veins at surface for over 5 kilometers. The Moss project has gold-silver stock-work, brecciated, low sulphidation, epithermal vein system with relatively consistent grade and a low strip ratio. Overall, this project has strong resource growth potential and numerous exploration targets permitted for drilling.
Furthermore, accelerated exploration is expected to lead to an immediate unlocking of value by defining resources that can be immediately converted into reserves. Now connected to grid power, energy costs are expected to decrease from US$0.31 per Kilowatt hour to US$0.08 per Kilowatt hour. This will increase crush size and move to a ‘single’ mining contractor for blasting and mining.
Also located on the Walker Lane Trend is their secondary project Hercules. Hercules is a low-sulphidation epithermal gold-silver deposit that has seen extensive historic drilling at the north end of the property. The district-scale land package of approximately 100 square kilometers has over 350 historic drill holes and 12 drilled over 3,271 meters by Eclipse in 2020 Phase I. And in phase II, in 28 holes and 7,330 meters drilled by Eclipse in 2020, pending assays.
While Eclipse shareholders may still be puzzled and even upset at the announcement which saw Eclipse shares fall as low as $.51 before finding support. The fact is that this merger makes a lot of sense for both companies, and positions shareholders who are able to take a long term view for much larger gains down the road.
Eclipse management have come out in force accumulating shares in the $.50s after the deal was announced:
Moreover, Eclipse management are subscribing for roughly 8% of the C$20 millon financing. Chairman Doug Hurst who took down C$350,000 of the last $.75 Eclipse financing, is in for another C$600,000 of the current financing.
This is a strong junior mining management that is putting their money where their mouth is. I am happy to put my money alongside this all-star team.
Disclosure: Author owns shares of EGLD.V at the time of publishing and may choose to buy or sell at any time without notice.
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