Forge chairman eyes hefty payday

JUNIOR mining explorer Forge Resources has announced a mineral sands acquisition that will move its non-executive chairman, Nicholas Curtis, closer to securing a lucrative parcel of shares in the company.

By InvestSMART · 14 Sep 2011

By InvestSMART ·
14 Sep 2011

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In a deal sourced by the mining entrepreneur, Forge has signed an option agreement to acquire the Eucla West mineral sands project in the remote Eucla Basin of Western Australia in a deal potentially worth more than $10 million.

Mr Curtis, who is also the managing director of rare earths miner Lynas Corporation, was granted 24 million performance shares in Forge a year ago to help attract high-quality resource projects to the company. At current prices the shares would be worth more than $13 million.

The performance shares expire in six months, and will only convert to ordinary shares if a project he brings in leads to a $15 million capital raising, at no less than 35? a share.

His first proposed deal involved a controversial related-party transaction to sell the Lynas-owned Crown polymetallic deposit in WA to Forge.

The deal was abandoned in April after conflict-of-interest concerns were raised by several Lynas shareholders and strong concern from institutional shareholders who felt the deal was a distraction from the company's pressing demands at its Malaysian operations.

Forge yesterday also announced a placement of 5 million shares to prominent resources investor Conglin Yue for $2.5 million, or 50? a share. Subject to shareholder approval, this will grant Mr Yue about a 19 per cent stake in the company, with 21.6 million Forge shares currently on issue.

Proving up a Joint Ore Reserves Committee compliant resource can be a long process, but mineral sands projects can be done within six months due to the relative proximity of the resource to the surface.

"The problem with Eucla Basin in general is it's extremely remote and it has to be a decent size to be viable," one analyst said.

David Hall, a director of Diatreme, which owns the Cyclone deposit in the Eucla Basin, agreed the proving up could be done in six months but warned the mineralogy of the basin was relatively untested. The ASX-listed Arturus Capital previously held an option to buy the Eucla West project, but it expired last month.

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Frequently Asked Questions about this Article…

What is Forge Resources' Eucla West acquisition and how big is the deal?

Forge Resources has signed an option agreement to acquire the Eucla West mineral sands project in the remote Eucla Basin of Western Australia. The deal is potentially worth more than $10 million, according to the announcement in the article.

Who is Nicholas Curtis and what are the performance shares he holds in Forge?

Nicholas Curtis is Forge's non-executive chairman and also the managing director of Lynas Corporation. He was granted 24 million performance shares in Forge about a year ago to help attract quality resource projects. At current Forge share prices referenced in the article, those performance shares would be worth more than $13 million.

What are the conversion conditions and expiry date for Nicholas Curtis's performance shares?

The performance shares expire in six months and will convert to ordinary Forge shares only if a project Curtis brings in leads to a capital raising of $15 million or more, at no less than 35 cents per share, as stated in the article.

Why was the earlier proposed related-party deal between Forge and Lynas abandoned?

The earlier proposal involved selling the Lynas-owned Crown polymetallic deposit in WA to Forge. It was abandoned in April after Lynas shareholders and institutional investors raised conflict-of-interest concerns and felt the deal distracted from Lynas's pressing issues at its Malaysian operations.

What was the recent Forge share placement to Conglin Yue and how does it affect ownership?

Forge announced a placement of 5 million shares to resources investor Conglin Yue at 50 cents a share for $2.5 million. Subject to shareholder approval, this placement would give Mr Yue about a 19% stake in Forge, based on 21.6 million Forge shares currently on issue.

How quickly can mineral sands projects like Eucla West be drilled and proven to JORC standards?

The article notes that proving up a JORC-compliant mineral resource can be lengthy for many deposits, but mineral sands projects can often be tested and reported within about six months because the resources are relatively close to the surface.

What are the main risks or challenges for a mineral sands project in the Eucla Basin?

Analysts quoted in the article point out that the Eucla Basin is extremely remote, which raises logistical and viability challenges. They also warn that the basin's mineralogy is relatively untested, meaning more exploration and technical work may be needed to confirm value.

Who else has had an interest in Eucla West and what happened to that option?

ASX-listed Arturus Capital previously held an option to buy the Eucla West project, but that option expired last month, according to the article.