The deal will create a new iron company to be named Champion Iron Limited that will trade both in Australia and Toronto, giving it access to a broader investor base.
Under the terms of the transaction, Champion shareholders will get 11 ordinary Mamba shares in exchange for every 15 shares of Champion, valuing Champion at 39 Canadian cents per share. Champion closed on Thursday at 27.5 cents, rising 22% in Friday morning deals to 33.5 cents.
Once the deal is closed -- expected in April of next year -- Champion shareholders will own about 50.5% of Mamba's pro forma issued share capital, the parties said.
Champion said the merger will provide a strengthened balance sheet, with enough funds for the completion of the bankable feasibility study at its Fire Lake North project in Quebec, as well as key mining execs like the addition of mining entrepreneur Michael O'Keeffe as executive chairman. O'Keeffe, Mamba's current chairman, sold his previous coal venture to Rio Tinto for $4 billion.
The deal will also bring substantial exploration upside in the form of the Snelgrove Lake project in the Labrador Trough region in Canada, a potential multi-billion tonne magnetite property.
As a precondition to the merger, Mamba must raise at least A$10 million through an equity financing, to be completed immediately following the closing date of the deal, at a price of at least A$0.50 per share. The pro forma company will have a cash balance of about C$25 million in the bank, the miners said.
"This merger represents an excellent opportunity for Champion shareholders to realize immediate and substantial value by exchanging their Champion shares for Mamba shares and yet retain the opportunity to participate in the development of the Consolidated Fire Lake North project," said Champion president and CEO Thomas Larsen in a statement Friday.
"Mr. O'Keeffe and his team at Mamba have an outstanding track record in developing and financing bulk commodity infrastructure projects, and I am excited at the opportunity to work with Mr. O'Keeffe to deliver the significant value and potential that we confirmed in the Consolidated Fire Lake North Project."
O'Keeffe will transition to executive chairman of the combined company, while Larsen will become the CEO.
O'Keeffe said the immediate focus at Fire Lake will be to upgrade the prefeasibility study done earlier this year to a bankable feasibility report, which is expected in the next year.
"At the same time we will be positioning the merged group to be able to access or develop the infrastructure required to fund and put this project into production, and there is a real opportunity here to join the ranks of Canada's existing iron ore producers," added O'Keeffe.
The new board will comprise of eight directors, including five nominees from Champion and three from Mamba. The deal requires regulatory and shareholder approvals, with about 7% of stockholders from each company already agreeing to vote in favour of the merger.