8th Jun 2006 13:39
Aricom PLC08 June 2006 Aricom plc ("Aricom" or the "Company") Proposed acquisition of remaining 50 per cent. interest in Kimkanskoye and Sutarskoye iron ore assets 8 June 2006 Aricom, the AIM listed mining company with assets in Russia's Far East, todayannounces the proposed acquisition, against strong competition, of the remaining50 per cent. interest in LLC Rubicon ("Rubicon"), the Russian company whichholds the licences to exploit the Kimkanskoye and Sutarskoye iron ore deposits("Kimkanskoye" and "Sutarskoye"). • This transaction, which is conditional on the completion of due diligence and certain formalities, secures 100 per cent. control of Rubicon, following Aricom's acquisition of an option ("the Option") to acquire an initial 50 per cent. stake in Rubicon from Philotus Holdings Ltd., which was approved by shareholders on 18 April 2006. • The Company has agreed to pay Malavasia Enterprises Inc. ("Malavasia" or the "Vendors") an initial consideration of US$175 million, of which US$25 million will be payable in cash and US$150 million will be satisfied through the issue of 100 million new ordinary shares in the Company at a deemed value of 80 pence per share. Malavasia is a company owned by a pool of investors advised by Fleming Family and Partners (Russia) Ltd. • In addition, a deferred consideration of up to US$97.5 million may also be payable to the Vendors following the completion of a valuation by an independent expert. This amount would be satisfied through the issue of up to 65 million additional new ordinary shares in the Company at a deemed value of 80 pence per Aricom share. • The independent expert's valuation is intended to be commissioned shortly and Aricom currently intends to exercise the Option after its completion. The results of the independent valuation will be used both to determine the deferred consideration under the acquisition announced today and the basis for the price payable under the Option. The Kimkanskoye and Sutarskoye iron ore deposits have estimated reserves of 550million tonnes at C1 or better under the Russian classification system and aresituated just 4kms and 10kms from the Trans-Siberian Railway. The acquisition ofthese assets transforms the anticipated magnitude of Aricom's mining operations,providing the Company with the opportunity to become a significant supplier ofiron ore to the Chinese market. Sir Malcolm Field, Chairman of Aricom commented: "We are pleased at the prospect of gaining full control of these high valueassets and it is significant that there was strong competition for them. Ibelieve that by acquiring 100 per cent. control we can accelerate the growth ofour production capacity in Russia's Far East, a region where we haveconsiderable business expertise and strong regional relationships. I welcome Malavasia as new shareholders in Aricom and am delighted that theyhave agreed to accept a large proportion of the consideration in Aricom sharesat 80 pence. The strength of the competition shows that the Russian Far East is becoming moreinternationally recognised as a supply base and a commercial gateway to China'sbooming economy and, through the Pacific ports, to the rest of Asia. I am confident that this transaction will enhance our shareholders' investmentsas we continue to maximise our position in the region." Enquiries: Tom Swithenbank Aricom plc 020 7201 8939Tim Grey The Millbrook Partnership 020 7520 9455 Introduction Aricom has agreed to acquire from Malavasia, subject to completion of duediligence and certain formalities, the remaining 50 per cent. interest inRubicon, the Russian company which holds the licences to exploit the Kimkanskoyeand Sutarskoye iron ore deposits. The purchase of an option to acquire theinitial 50 per cent. interest in Rubicon from Philotus Holdings Ltd. (the"Option") was approved by shareholders on 18 April 2006. Following Aricom's acquisition of the Option, the Vendors, whose 50 per centinterest was originally held through Evrokom-M, received expressions of interestfrom a number of parties and appointed Fleming Family and Partners (Russia)Limited as their exclusive adviser to initiate a process to sell their stake tointerested parties. Aricom has emerged from this process as the chosen purchaser and has agreed topay the Vendors an initial consideration of US$175 million, of which US$25million will be payable in cash and US$150 million will be satisfied through theissue of 100 million new ordinary shares in the Company (the "ConsiderationShares") at a deemed value of 80 pence per share. In addition, a deferredconsideration of up to US$97.5 million may also be payable to the Vendorsfollowing the completion of an independent expert's valuation report. Thisamount would be satisfied through the issue of up to 65 million new ordinaryshares in the Company at a deemed value of 80 pence per share. Aricom believes that the acquisition of this remaining 50 per cent. interestaccelerates its transformation and significantly strengthens its presence in theFar East of Russia. The assets will deliver a boost to Aricom's resource base and provide greaterpotential returns to shareholders as a result of the deposits' close proximityto established transport infrastructure and the high-growth markets of China andother parts of Asia. Aricom is now positioned to exercise full control over these valuable assets,thereby delivering significant benefits to the operations of its business aswell as its shareholders. This acquisition is consistent with Aricom's statedstrategy to deliver further growth opportunities in Russia's Far East, where thedirectors have developed considerable business experience and strong regionalrelationships, and which is, to date, a little-recognised commercial gateway toChina and, through the Pacific ports, to the rest of Asia. Background The Kimkanskoye and Sutarskoye iron ore deposits The Kimkanskoye and Sutarskoye iron ore deposits, which were first identified inthe 1950s and 1960s, are located in the Obluchenski district of the EvreyskayaAvtonomnaya Oblast ("EAO") of Russia. The EAO is situated on the eastern borderof the Amur Region and on the north-eastern border of China and benefits fromeasy access to the Chinese market, which has demonstrated high growth in recentyears. The Kimkanskoye and Sutarskoye iron ore assets transform the anticipatedmagnitude of Aricom's mining operations, with these large magnetite depositsproviding Aricom with the opportunity to become a significant supplier of ironore to the Chinese market. The Kimkanskoye and Sutarskoye assets' location, very close to theTrans-Siberian railway, should avoid the need for substantial capitalexpenditure on transport infrastructure that is often associated with projectsof this nature. It should also provide Aricom with competitive advantages bothin terms of development costs and in the costs of delivering product to itscustomers. Acquisition of the Option In April 2006, Aricom's shareholders approved the acquisition of the Option,which granted Aricom the exclusive right to acquire Expokom (Cyprus) Ltd("Expokom"), which itself holds a 50 per cent. interest in Rubicon and iscontrolled by Mr. Peter Hambro and Dr. Pavel Maslovsky and their respectiveassociates through Philotus Holdings Ltd.. The Option, which has a term of three years, is exercisable following thecompletion of an initial feasibility study and independent valuation. The pricepayable for the acquisition of Expokom is 50 per cent. of the value placed onRubicon (principally of the underlying Kimkanskoye and Sutarskoye deposits) onthe basis of discounted, ungeared cash flows using a discount rate of 30 percent., less the option premium of US$9 million. Mr. Peter Hambro and Dr. PavelMaslovsky have the right and have confirmed their intention to reinvest the US$9million in new ordinary shares in the Company at 28 pence per share. Theexercise price of the Option is subject to a cap of US$61 million, which wouldbe satisfied by Aricom through the issue to Mr. Hambro and Dr. Maslovsky of upto 123.8 million new Aricom shares at 28 pence per share. As set out below, an independent expert's valuation report is shortly to becommissioned from an internationally recognised mining consultancy for thepurposes of the acquisition of the Vendor's interest in Rubicon. The sameunderlying information will be utilised for the purposes of establishing a valuefor the exercise of the Option, although the discount rates to be applied aredifferent in each case. The results of this report are expected during 2006.Aricom currently intends to exercise the Option following completion of thevaluation report. Funding In March 2006, Aricom announced that it had raised US$152 million, net ofexpenses, through the placing of 200 million new ordinary shares in the Companyat an issue price of 45 pence per share (the "Placing"). The Placing and allarrangements in connection therewith received shareholder approval on 18 April2006. As set out in the March announcement, Aricom intends to use the proceeds of thePlacing to finance the development of the Company's existing Kuranakh ilmenitedeposit as well as undertake feasibility studies for Kimkanskoye and Sutarskoyeas well as its Bolshoi Seym ilmenite and magnetite deposit, in which Aricomholds a 49 per cent. interest. Aricom further indicated that approximately US$88 million of the proceeds wouldbe made available for additional investment and development capital, whereAricom intends to use its expertise and position in Russia's Far East to seekfurther growth opportunities in metals and minerals in the region. Shareholder approval of acquisition of Option and Placing An Extraordinary General Meeting of the Company convened on 18 April 2006,approved Aricom entering into the Option Agreement and the Placing. Acquisition of Malavasia's interest in Kimkanskoye and Sutarskoye Following Aricom's acquisition of the Option, the owner of the other 50 per centinterest in Rubicon, Malavasia Enterprises Inc., initiated a process to sell itsstake to interested parties. Aricom has emerged from this process as the chosen purchaser and has todayentered into an agreement to acquire this 50 per cent. interest. Investment rationale The Board continues to believe that the Far East of Russia represents anexciting opportunity for its shareholders. The acquisition of Malavasia'sinterest in Kimkanskoye and Sutarskoye ensures that Aricom has certainty ofoperational control and an increased equity interest in an asset with thepotential to create significant value for shareholders as a result of itsproximity to the high-growth Chinese and Asian markets as well as the commercialadvantage of its links with existing transport infrastructure to these markets. The acquisition of the remaining 50 per cent. interest in the Kimkanskoye andSutarskoye deposits is consistent with Aricom's stated strategy to deliverfurther growth opportunities in Russia's Far East. Summary of terms The initial consideration payable to the Vendors for the acquisition is US$175million, to be satisfied by a cash consideration of US$25 million and US$150million to be satisfied by the issue of 100 million new ordinary shares in theCompany at a deemed share price of 80 pence per share. In addition, a deferredconsideration may also become payable in the future upon the completion of anindependent expert's valuation report. This report is to be produced by aninternationally recognised mining consultancy. The deferred consideration payable for the acquisition of Malavasia's 50 percent. interest will be determined as 50 per cent. of the value placed on Rubiconby such independent expert's valuation (principally on the underlyingKimkanskoye and Sutarskoye deposits) on the basis of discounted ungeared cashflows using a discount rate of 30 percent for the initial 8 years and a terminalvalue determined at year 9 discounted at 30% to present value, less the initialconsideration of US$175 million. This deferred consideration is subject to a cap of US$97.5 million and would besatisfied through the issue of up to 65 million new ordinary shares in theCompany, again at a deemed value of 80 pence per share. Lock-ups Of the 100 million new ordinary shares placed with Malavasia, 80 million sharesare subject to a lock-up with Malavasia agreeing not to sell any such shares fora period of 12 months following this announcement. The other 20 million of the100 million new ordinary shares placed with Malavasia may be sold with theconsent of Canaccord Adams and JPMorgan Cazenove, which is not to beunreasonably withheld. As a result of this acquisition, Malavasia will initially hold 100 millionAricom shares, representing approximately 22.0 per cent. of the Company's issuedordinary share capital. Assuming the maximum deferred consideration is payableas a result of the independent valuation and that the maximum 123.8 millionshares are payable to Philotus Holdings Ltd. on exercise of the Option, theVendors will hold 165 million Aricom shares, representing approximately 25.7 percent. of the Company's enlarged issued ordinary share capital. Under thesecircumstances, Mr. Peter Hambro and Dr. Pavel Maslovsky would, followingreinvestment of the US$9 million Option premium, hold 187.5 million shares,representing 29.2 per cent. of the Company's issued ordinary share capital. Admission Aricom intends to make an application for the 100 million new shares to e issuedto the Vendors to be admitted to trading on AIM and it is expected thatadmission will occur in July. These new shares would, when issued, rank paripassu with the ordinary shares currently in issue including the rights to alldividends and other distributions declared or made or paid after the date oftheir issue. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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