The new copper force on the bourse: Cygnus Metals merges with Doré

Cygnus Metals plans to merge with Doré Copper Mining Corp to develop the two companies’ copper and lithium assets
CY5 will raise up to $11m to fund resource growth at the Chibougamau project
Chibougamau features a high-grade copper and gold resource of 10.8Mt at 3.5% copper equivalent

Lithium’s down in the doldrums but that hasn’t stopped major M&A deals from taking place among the broader critical minerals space with commodities such as copper expected to reach an all-time high of $10,265 per tonne in Q4.

That’s thanks to more favourable macroeconomic sentiment off the back of China’s stimulus package announced in September, and US Federal Reserve rate cuts.

The latest deal on the bourse sees Cygnus Metals (ASX:CY5), a $30.38m market cap junior explorer, merge with TSXV-listed Doré Copper Mining Corp to form a Canadian-focused copper and lithium company with two core assets in the same mining district, Quebec.

Doré owns the Chibougamau copper-gold asset where a 10.8Mt at 3.5% copper equivalent resource would easily be one of the highest copper grades on the ASX if the transaction receives conditional approval by December 2024.

Already unanimously approved by the board of directors, the Chibougamau project includes a 900,000tpa processing facility – the only milling infrastructure within a 250km radius – and a 2022 completed preliminary economic assessment (PEA) demonstrating attractive metrics with post-tax NPV of C$193m and 22.1% IRR.

Cut from the same cloth

Just as copper is often cut from the same cloth as gold, so is CY5, with affiliations to major goldies in the Richardson Group – a loose affiliation of like-minded explorers involving Steve Parsons and others – including Bellevue Gold (ASX:BGL) and Ramelius Resources (ASX:RMS), as well as Firefly Metals (ASX:FFM) and Andean Silver (ASX:ASL).

The broad strategy is to find an unloved asset with exploration upside, finance the geologist’s best exploration ideas and then move to scoping studies and eventual development.

That strategy worked at BGL, and repeat performances are underway now at FFM and ASL with some betting CY5 will be the next out of the Richardson group to create serious value.

Speaking with Stockhead, CY5 executive chairman David Southam said that while the base case of the 2022 PEA is fantastic – reflecting metal prices of US$3.75/lb copper and US$1,820/oz gold – the upside potential is a game changer.

“To be able to find a project that has a high-grade resource, with a completed PEA and all the necessary infrastructure is unique,” he said.

“The Chibougamau area has historically produced nearly 1Mt of copper and over 3.5Moz of gold, so it is a well-endowed region that has had fractured ownership, but we are now bringing a lot of that ownership together.

“We believe we can put our expertise into growing the resource and we actually think that there’s a discovery to be made here as well.”

High-grade intersections outside the current resource and on near-surface targets includes 5.9m at 26.4% copper equivalent from 115.8m, 4.5m at 18.8% copper equivalent from 155.8 and 8.4m at 9.9% copper equivalent from 138.6m.

“Those are stunning grades and reflects the prize that is available,” Southam said.

“We intend to test all those targets by incorporating a similar strategy and playbook to that of both Firefly and Andean Silver.”

CY5 has plans to systematically explore the camp using modern exploration and geophysical techniques to grow the resource through both brownfield and greenfield exploration.

Copper deal at a perfect time

The deal comes at a time when the world desperately needs more copper from tier one locations.

It is the most conductive metal after silver with about 29 kilograms of the red metal found in the average car and more than ~181 kilograms found in the typical home, but new deposits are getting harder to extract as ore grades fall, meaning more rock needs to be mined to secure the same amount of metal.

Southam said although Cygnus has known about Doré’s copper asset for a little while, discussions only kicked off around three months ago after discovering both groups had certain strengths that would fill gaps in their respective businesses.

“You’d have to be blind Freddy not to realise that life as a lithium explorer hasn’t been a lot of fun over the last 18 months,” he said.

“We’re very mindful that shareholders don’t employ us to sit here, do nothing and to go along with the market conditions without looking at how to drive shareholder value.

“Doré wanted to be involved with a group that had access to capital markets and didn’t have the expertise in exploration and resource development, which is what we’ve got in spades,” he said.

“What they had, which we wanted, was that local management representation, the CEO of Doré is responsible building one of the largest copper mines in Panama, so they are really good project builders and we can now match that with our skill set.”

Finer transaction details

Upon completion of the transaction, Cygnus shareholders will own 55% of the Merged Group and former Doré shareholders will own 45%.

Cygnus intends to raise up to A$11m (before costs) at A$0.072 per share via a two-tranche placement to fund resource growth and advance the pathway to production at Chibougamau while also advancing the lithium exploration pipeline in James Bay.

Doré’s major shareholders, Equinox Partners Investment Management, LLC and Ocean Partners Holdings, as well as directors and members of senior management of Doré, have entered into voting support agreements to vote their Doré shares in favour of the transaction at the meeting of shareholders.

The transaction is targeted to close in late December 2024.