29th Apr 2015 10:48
LONDON (Alliance News) - Ormonde Mining PLC Wednesday said it can't recommend the takeover proposal from Canada-based Almonty Industries Ltd on the back of concerns about publicly available information about the Almonty and because the offer undervalues Ormonde.
In addition, Ormonde said it has finalised project financing arrangements for the development of its flagship Barruecopardo tungsten project in Salamanca, Spain, through the signing of binding agreements.
In March, Almonty approached Ormonde with a indicative, non-binding takeover proposal which was criticised by Ormonde for not including any material detail on how the necessary financing for its Barruecopardo project would be secured. The offer was for 4.25 pence per Ormonde share to be settled in new Almonty shares with an option for Ormonde to receive up to 50% of the value of the deal in cash.
On April 23, Ormonde received a second offer from Almonty after Ormonde responded to the original offer. The second offer was an all-cash proposal of 4.00 pence per Ormonde share with a share alternative also proposed. As part of the second offer, Almonty "indicated" it would use a 24-month bridging facility to pay the cash consideration, but Ormonde said there was "no evidence" that a facility was in place, or close to being in place.
"Since the receipt of the March proposal, your board has sought to obtain clarity on those specific key issues which it, together with its advisers, considered necessary to enable it to determine the credibility of any take-over proposal from Almonty and of its ability to subsequently fund the Barruecopardo mine development, an issue not addressed in either of Almonty's two proposals," said Ormonde.
Ormonde said it also engaged with two international mine consultancy groups, CSA Global Pty Ltd of Perth, Australia and Micon International Ltd of Toronto, Canada, in an attempt to examine and prepare a report on the publicly available information on Almonty to try to find some answers.
"Following its own examination of the publicly available information on Almonty, and of the reports received from the independent consultants, the board has a number of concerns in respect of the reported reserves, projected mine life, negative net cashflows from operations, and existing debt profile of Almonty and its operations," said Ormonde in a statement.
Ormonde said Almonty's inclusion of the tailings from the Los Santos mine in its mineral reserve estimate had "no technical or economic justification", claiming they should be removed and result in the Los Santos mine life falling to two years compared to Almonty's current eight-year claim. Ormonde also noted that Almonty's Wolfram Camp mine only has a mine life of just over a year.
As a result, Ormonde does not believe Almonty has the required funds to takeover the company under takeover rules as well as servicing Almonty's debt of CAD26.9 million that it had at the end of December.
Ormonde added that another tungsten developer, Woulfe Mining Corp, recently terminated a proposed merger with Almonty, to which it had previously agreed.
"In the absence of additional specific assurances from Almonty and following our consideration of the public documentation, the reports referred to above and other available information, the board would not be in a position to recommend any proposal which included a component of Almonty's shares and further, due to the board's concerns indicated above, it is not confident that Almonty is capable of executing its proposal to acquire the company for cash, even were it to make a proposal at a level which was capable of recommendation," said Ormonde.
"The board of Ormonde does not believe that it is in the best interests of the company to deviate from its decision to pursue and, with shareholder consent, complete the Oaktree project financing," it added.
"Notwithstanding this, the board believes that delivering project financing for the development of a mine at Barruecopardo in the short to medium term currently represents the best opportunity to maximise the value of Ormonde's interest in Barruecopardo," added Ormonde.
In a separate statement on Wednesday, Ormonde confirmed it has gone through with the Oaktree project financing which is subject to shareholder approval at the company's annual general meeting on May 19.
Under the proposals with OCM Luxembourg Tungsten Holdings SARL, whose funds are managed by Oaktree Capital Management LP, Oaktree would provide Ormonde with a total of USD99.7 million which is sufficient to cover the entire development of the project alongside funds to conduct an early evaluation of a potential underground mining expansion of the project, it said.
The total financing is split "favourably" between USD44.2 million in equity financing and project debt of USD55.5 million. For the provision of the equity component, Oaktree would be entitled to a 65% interest in the project with an additional 5% stake paid in interest.
That will mean the joint venture company that would be set up if the deal goes through, Barruecopardo Joint Venture BV, would be owned 70% by Oaktree with the remaining 30% held by Ormonde.
Ormonde added that the funds would also allow Oaktree and Ormonde to consider paying a dividend during the term of the facility alongside its other plans for potential underground expansion.
Ormonde also will receive a USD1.0 million annual management fee for services which would be provided to the project under a management services agreement. The company said this would be enough to cover its current working capital requirements.
Ormonde also will pay off a USD1.5 million loan facility it currently has with Oaktree under a loan agreement signed in February.
The company added that the Oaktree facility has a "significant" cost overrun facility and "flexible" repayment terms with excess funds to develop the business and not just the project, mitigating the possibility of further dilution to shareholders, it said in a statement.
Oaktree would undertake its investment in Barruecopardo JV through the European Principal Group, which is Oaktree's European private equity division, headquartered in London. European Principal Group has a long-standing presence in the European market and has a successful history of partnering with companies and strong management teams to create long-term value in a number of industries, according to Ormonde.
"We would recommend that shareholders vote in favour of the transaction at the upcoming extraordinary general meeting, enabling Ormonde to progress as part of a well-capitalised, industry significant, and long-life European tungsten mining operation," said Managing Director Kerr Anderson.
Ormonde shares rose by 1.7% on Wednesday morning to 3.00 pence per share.
By Joshua Warner; [email protected]; @JoshAlliance
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