Acquisition and Placing

21st Mar 2006 07:25

Aricom PLC21 March 2006 THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR PUBLICATION,RELEASE OR DISTRIBUTION IN OR INTO AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR THE UNITED STATES Aricom PLC ("Aricom" or the "Company") Acquisition and proposed acquisition of mineral extraction rights Placing of new shares to raise approximately US$150 million by Canaccord Adams Limited and JPMorgan Cazenove Limited Proposed waiver of Rule 9 of the City Code on Takeovers and Mergers Aricom, the AIM listed mining company, today announces a conditional placing(the "Placing") of new ordinary shares (the "Placing Shares") to raiseapproximately US$150 million (approximately £85 million) to provide funding forthe acquisition and development of mining assets in Russia's Far East. Background to and reasons for the Placing +--+----------------------------------------------------------------------+|* |In January 2006, Aricom announced the proposed acquisition of an || |option (the "Option") to acquire a 50 per cent interest in the || |Kimkanskoye and Sutarskoye iron ore deposits ("Kimkanskoye" and || |"Sutarskoye") in the Evreyskaya Avtonomnaya Oblast ("EAO"). |+--+--+-------------------------------------------------------------------+| |* |The Kimkanskoye and Sutarskoye iron ore assets signify a || | |transformational change in the anticipated magnitude of Aricom's || | |mining operations. These large magnetite deposits should provide || | |Aricom with the opportunity to become a significant supplier of || | |iron ore to the Chinese market. |+--+--+-------------------------------------------------------------------+| |* |Their location, very close to the Trans-Siberian railway, should || | |avoid the need for substantial capital expenditure on transport || | |infrastructure that is often associated with projects of this || | |nature. It should also provide Aricom with competitive advantages || | |both in terms of development costs and in the costs of delivering || | |product to its customers. |+--+--+-------------------------------------------------------------------+|* |In January 2006, Aricom announced the proposed acquisition of a 49 per|| |cent interest in the Bolshoi Seym ilmenite and magnetite deposit || |("Bolshoi Seym") in the Amur Region and that it had signed non-binding|| |heads of terms in relation to a proposed joint venture to develop this|| |asset. |+--+--+-------------------------------------------------------------------+| |* |Since then, Aricom has acquired the 49% interest in Bolshoi Seym. || | |The project is expected to be developed through a proposed joint || | |venture with Timia Trading (a company related to Interros, one of || | |Russia's largest private investment groups) which is intended to || | |own the remaining 51 per cent. |+--+--+-------------------------------------------------------------------+| |* |The addition of the interest in Bolshoi Seym substantially || | |increases Aricom's attributable resources of ilmenite and iron ore.|+--+--+-------------------------------------------------------------------+| |* |The deposit's proximity to Aricom's existing Kuranakh deposit and || | |the proposed processing facilities at Olekma should yield || | |considerable benefits. As with Kuranakh, the deposit has the || | |advantage of proximity to established transport infrastructure. |+--+--+-------------------------------------------------------------------+|* |Aricom continues to make substantial progress in advancing the || |development of its Kuranakh mine and expects production to commence in|| |the fourth quarter of 2007. |+--+----------------------------------------------------------------------+|* |Russia's Far East is a resource-rich region which enjoys a || |strategically important location bordering China, where continuing || |strong demand for imported raw materials is expected. A number of || |Aricom's Directors have significant business experience and strong || |regional relationships in Russia's Far East and the Company is || |building up considerable expertise in developing mining assets in the || |region. Aricom intends to apply this expertise and its position to || |seek further growth opportunities in metals and minerals in the || |region. |+--+----------------------------------------------------------------------+ The Placing and arrangements relating to Kimkanskoye and Sutarskoye will besubject to approval of the waiver by the Panel on Takeovers and Mergers of Rule9 of the City Code on Takeover and Mergers (the "Waiver") and to shareholderapproval which is proposed to be sought at an Extraordinary General Meeting ofthe Company ("EGM") on 18 April 2006. Further details of the Waiver and thePlacing will be provided in the circular (the "Circular") anticipated to be sentto shareholders in Aricom ("Shareholders") on or around 22 March 2006 Canaccord Adams Limited ("Canaccord") and JPMorgan Cazenove Limited ("JPMorganCazenove") are acting as Joint Bookrunners (the "Joint Bookrunners") for thePlacing. Commenting on the announced arrangements, including the acquisitions and theassociated Placing, Sir Malcolm Field, Chairman said: "The proposed arrangements mark an exciting and transformational phase in thedevelopment of Aricom as the Company strengthens and extends its interests inthe Far East of Russia. The assets we have acquired and those we plan to acquirewill deliver a considerable boost to our resource base. All these depositsbenefit from close proximity to an established transport infrastructure, whichwe are confident will allow the company a competitive advantage in its chosenmarkets. Until now, Russia's resource-rich Far East has been little recognised as acommercial gateway to the high-growth markets of China and other parts of Asia.The development of these assets should allow us to become an important supplierof ilmenite concentrate and iron ore to these markets. We are also convincedabout the broader opportunity to widen our interests in the region and play anincreasing role in meeting demands for natural resources in the Asian region." Enquiries: Aricom plc Tel: +44 (0) 20 7201 8939 Tom Swithenbank, Chief Executive Canaccord Adams Ltd Tel: +44 (0) 20 7518 7330 Mike JonesRobert Finlay JPMorgan Cazenove Tel: +44 (0) 20 7588 2828 Ian HannamPatrick MageeRobert Stafler Millbrook Partnership Tel: +44 (0) 207 520 9455 Tim Grey The proposed Placing is not underwritten and will take place at a price whichwill be established through a bookbuilding process. It is expected that thebookbuilding process will be completed on 21 March 2006. The Placing will takeplace in accordance with the terms and conditions set out in the Appendix tothis announcement. Application will be made to London Stock Exchange plc ("the Exchange") for thePlacing Shares to be admitted to trading on the AIM Market operated by theExchange ("Admission"). Admission of the Placing Shares is expected to takeplace on or around 19 April 2006. The Placing Shares will be credited as fullypaid and will rank equally in all respects with the existing ordinary shares of0.1 pence each in the share capital of Aricom, including the right to receiveall dividends and other distributions declared, made or paid after their date ofissue. This announcement does not constitute an invitation to underwrite, subscribe foror otherwise acquire or dispose of any ordinary shares in the capital of theCompany ("Aricom Shares"). Past performance is no guide to future performanceand any investment decision to buy Placing Shares must be made solely on thebasis of Publicly Available Information (as defined in the Appendix to thisAnnouncement). Persons needing advice should consult an independent financialadviser who specialises in advising in connection with shares and othersecurities. This announcement is not for publication or distribution, directly orindirectly, in or into the United States. This announcement is for informationonly and does not constitute an offer or invitation to acquire or dispose ofAricom Shares in the United States. The Aricom Shares have not been and will notbe registered under the U.S. Securities Act of 1933, as amended, (the"Securities Act") and may not be offered or sold in the United States exceptpursuant to an exemption from, or in a transaction not subject to, theregistration requirements of the Securities Act. There will be no public offerof Aricom Shares in the United States, the United Kingdom or elsewhere. The distribution of this announcement and the offering or sale of the PlacingShares in certain jurisdictions may be restricted by law. Further details inrelation to the securities laws in certain jurisdictions are set out in thisdocument and are under the heading "General" in the Appendix to thisannouncement. No action has been taken by the Company, Canaccord or JPMorganCazenove that would permit an offering of such ordinary shares or possession ordistribution of this announcement or any other offering or publicity materialrelating to such ordinary shares in any jurisdiction where action for thatpurpose is required. Persons into whose possession this announcement comes arerequired by the Company, Canaccord and JPMorgan Cazenove to inform themselvesabout and to observe any such restrictions. No representation or warranty, express or implied, is or will be made as to, orin relation to, and no responsibility or liability is or will be accepted byCanaccord or JPMorgan Cazenove or by any of their affiliates or agents as to orin relation to, the accuracy or completeness of this announcement, or any otherwritten or oral information made available to or publicly available to anyinterested party or its advisers and any liability therefore is hereby expresslydisclaimed. Canaccord, which is authorised and regulated by the FSA, is acting for Aricom inconnection with the Placing and no one else and will not be responsible toanyone other than Aricom for providing the protections afforded to clients ofCanaccord nor for providing advice in relation to the Placing. JPMorgan Cazenove, which is authorised and regulated by the FSA, is acting forAricom in connection with the Placing and no one else and will not beresponsible to anyone other than Aricom for providing the protections affordedto clients of JPMorgan Cazenove nor for providing advice in relation to thePlacing. Background Information The geological information about Kimkanskoye, Sutarskoye and Bolshoi Seym inthis document has (save where otherwise stated) been drawn from the informationpublished by the Federal Subsoil Resources Management Agency of the Ministry ofNatural Resources of the Russian Federation in connection with the respectivelicences and licence agreements for these deposits. No independent investigationof the above information has been separately undertaken by, or on behalf of,Aricom. 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 EAO ofRussia. The EAO borders the Amur Region to the West and China to the South andEast and benefits from easy access to the Chinese market, which has demonstratedhigh growth in recent years. The deposits are adjacent to one another and at a distance of 4km and 10km,respectively, from Izvestkovaya station on the Trans-Siberian Railway. The Directors believe that the established transport infrastructure and veryclose proximity to the Trans-Siberian railway will provide significantlogistical advantages, which enhances the commercial attractiveness of thesites. The Option to acquire the interest in the Kimkanskoye and Sutarskoye iron oredeposits Aricom intends, subject to shareholder approval and conditional upon the Placingbeing completed, to enter into an agreement (the "Option Agreement") to acquirethe Option from Philotus Holdings Limited (the "Vendor"), a Cyprus incorporatedcompany beneficially owned by Mr. Peter Hambro and Dr. Pavel Maslovsky, which isthe owner of Expokom, for a cash payment of US$9,000,000 (the "Option Premium").The Option Premium may be applied by the Vendor in subscribing for new Aricomshares at 28p per share. The level of the Option Premium roughly equates to theexpenditure incurred by Mr. Peter Hambro and/or other holders of shares inAricom in which he is interested (together with the Vendor, "Hambro Associates")and Dr. Pavel Maslovsky and/or other holders of shares in Aricom in which he isinterested (together with the Vendor, "Maslovsky Associates") in acquiring the50 per cent. interest in LLC Rubicon ("Rubicon") owned by Expokom ("RubiconInterest"). The Option will give Aricom the right to acquire through theacquisition of the entire issued share capital of Expokom (Cyprus) Limited("Expokom") a 50 per cent. interest in Rubicon, the Russian company which holdsthe licences to exploit the Kimkanskoye and Sutarskoye iron ore deposits. The Option, which has a term of three years, would be exercisable following thecompletion of an initial feasibility study and independent valuation by anexpert acceptable to the Company and the Vendor or, in the absence of suchagreement, appointed by the President of the Institute of Materials, Mineralsand Mining. The price payable for the acquisition of Expokom on exercise of theOption (the "Exercise Price") would be 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 which will have been paid. The Exercise Price issubject to a cap of US$61,000,000. The Option Premium is not repayable if theOption is not exercised. If the Option is exercised, the Exercise Price will besettled by Aricom through the issue to the Vendor of new Aricom shares at 28pper share. The other 50 per cent. of Rubicon is owned by LLC Evrokom-M, a company owned byRussian financial investors. Rubicon's general director is also the generaldirector of Chemelt, a wholly-owned subsidiary of Aricom. Related party transaction and re-investment of the Option Premium The Vendor is a company beneficially owned by Mr. Peter Hambro and Dr. PavelMaslovsky. The Rubicon Interest, which the Vendor owns through Expokom, wasacquired on behalf of Mr. Hambro and Dr. Maslovsky independently of the Companyand ahead of an auction on 25 October 2005 at which Rubicon successfully bid forthe Kimkanskoye and Sutarskoye licences. If the Option is acquired by the Company, the Vendor has the opportunity toapply the cash sum to be received in respect of the Option Premium to subscribefor an issue of new shares in Aricom at a price of 28p per share. This price is5.5p higher than Aricom's closing share price of 22.5p on 13 January 2006, thelast trading day prior to announcement of these proposals. The Company intends to allow the Option Premium to be invested on this basiswithin 30 days following Admission (extendable in certain circumstances) and theresolutions to be put to the EGM ("Resolutions"), if passed, will provide theauthority to enable this to take place. If the Vendor does not proceed with thissubscription, the amount of the Placing proceeds available for other investmentwill, as a result, be reduced. As Mr. Peter Hambro and Dr. Pavel Maslovsky are Directors and (with theirrespective associates) major shareholders of Aricom, approval for entry into theOption Agreement and implementation of the transaction requires the approval ofShareholders other than the Hambro Associates and the Maslovsky Associates,which is to be sought at the EGM by way of Resolution 1 (as defined below)proposed to be put to that meeting, further details of which are set out below. If at the time of exercise of the Option, the acquisition of Expokom isclassified as a reverse takeover under the AIM Rules, it will be necessary forthe Company to comply with the rules applicable to such transactions which couldrequire the Company to obtain further Shareholder approval at that time. Reserves and Resources Kimkanskoye The Kimkanskoye licence covers an area of 22.4km(2) and extends to a depth of400 metres. The ore body is estimated to be 18km in length. The deposit isdivided into 7 distinct ore zones, of which the most important is the Tsentralnizone. The ore is in stratified deposits with a length of 500-3,800 metres andthickness of up to 60 metres at a gradient of 65-90degrees. The ore is mainlymagnetite and haematite-magnetite with an average iron content of 35.7 per cent.in those parts explored. In 1957, the State Geological Committee of the USSRconfirmed Kimkanskoye reserves and resources, according to the Russianclassification system, at 189.4m tonnes (A+B+C1) and 32.3m tonnes (C2), of which111.1m tonnes (A+B+C1) and 11.1m tonnes (C2) are situated in the Tsentralni orezone. The Tsentralni and Zapadni zones have been explored in detail. The Maiski andSovkhozni zones have been initially explored. Geological exploration on theremaining zones has been, to date, very limited. The reserves and resourcesregistered at 1 January 1957 gave the following estimates: Category Reserves and Resources Fe Thousand tonnes per cent. TotalA2 17,783 35.92B 69,384 35.50C1 102,229 35.55C2 32,302 35.22 ---- ---- Total 221,698 35.52 ---- ---- Category Reserves and Resources Fe Thousand tonnes per cent. Tsentralni zoneA2 13,726 36.18B 43,040 35.75C1 54,313 35.90C2 11,081 35.83 ---- ---- 122,160 35.87 ---- ----Zapadni zoneA2 4,057 35.04B 26,344 35.08C1 28,843 35.25C2 13,795 35.01 ---- ---- 73,039 35.13 ---- ----Maiski zoneA2 - -B - -C1 19,073 35.03C2 5,782 35.03 ---- ---- 24,855 35.03 ---- ----Sovkhozni zoneC2 1,644 33.56 ---- ---- The licence requires that production be commenced no later than 30 December 2009with a minimum annual extraction rate of 5 million tonnes of ore to be reachedby 30 December 2010. The Kimkanskoye licence runs to 30 December 2025 and may be extended, with theconsent of the licensing authority, until the deposit is fully depleted. Sutarskoye The Sutarskoye licence covers an area of 27km(2) and extends to a depth of 500metres. The ore body runs for 14km in a north-easterly direction with a width of2.0-2.5km. The deposit consists of three ore zones with ore bodies running in asubmeridianal direction with lengths of 800-3,600 metres and widths varying from20-75 metres to 220-240 metres. The predominant mineral content is magnetite andsilicate-magnetite with an average general iron content of 33 per cent. Reservesand resources according to the Russian classification system are estimated at369.3 million tonnes (C1), which were registered by the State GeologicalCommittee in 1974. A summary of the geological information provided with the licence includes thefollowing information: The main zone, Yuzhni, lies on either side of the river Sutara and isapproximately 6km in length. The overburden is minimal here - from 2 to 20metres and only on the northern flank (on the bank of a depression) reaches 190metres. The main reserves are concentrated in this zone. The hydrogeological conditions have been assessed as difficult by specialistorganisations. The river Sutara is linked with the water table. The rivernormally runs at 20-80 metres/second. The maximum inflow of ground water intothe pit has been assessed as 150-400 metres/hour and up to 13,000 metres/hourafter a downpour. The exploitation of the deposit will only be possible ifspecialist works are carried out to keep the pit dry and to drain the pit,organise the drainage of surface water and precipitation and divert the riverSutara and the isolation of its tributaries. The beneficiation of the ore has been assessed using 13 separate laboratorysamples. Concentrates of 63 per cent. to 65 per cent. iron were produced. The licence requirement is for production to commence by 30 December 2013 with aminimum annual extraction rate of 5 million tonnes of ore to be reached by 30December 2014. The Sutarskoye licence runs to 30 December 2025 and may be extended, with theconsent of the licensing authority, until the deposit is fully depleted. Development Plans Provided that the necessary approvals have been obtained, following theacquisition of the Option, Rubicon will commission an initial feasibility studyon the development of the Kimkanskoye and Sutarskoye assets, which will form thebasis of the valuation of Expokom to be commissioned by Aricom from anindependent third party. This process is expected to be completed before the endof 2007. The Kimkanskoye licence does not require any further exploration under thelicence terms. Completion of the definitive feasibility and design phases areexpected to take approximately two years and the physical development of theKimkanskoye asset is expected to take a further two years. The Company currentlyanticipates that, if the Option is exercised, the Kimkanskoye asset could comeinto production in 2010, with a target production of approximately six milliontonnes per year of magnetite concentrate. Further, exploration of the Sutarskoye licence is expected to take approximatelytwo years and the Sutarskoye asset could come into production at the end of 2013in accordance with the provisions of the licence. Over the course of the feasibility phase, Aricom will be investigating thetechnical and economic feasibility of the construction of a pelletising plant toupgrade the concentrate to premium pellet products. Aricom will arrange, andfund Expokom's share of, the feasibility study and other expenses. Aricom willbe entitled to seek reimbursement of these costs from Expokom in certaincircumstances if the Option is not exercised, except in certain limitedcircumstances where only half of the costs would be recoverable. It is currently anticipated that a single processing plant will be built toprocess the ore from both licence areas. Bolshoi Seym Situated 40km from the site of Aricom's planned ilmenite and titanomagnetitebeneficiation plant at Olekma, the Bolshoi Seym ilmenite and magnetite depositrepresents a significant and natural extension to Aricom's developing operationsat Kuranakh. The deposit is estimated to contain resources of 58 million tonnesof TiO2 and 125 million tonnes of general iron content at P1 or higher,according to independent estimates by Dalgeologiya, the Russian State geologicalinstitute. The addition of the TiO2 resource at Bolshoi Seym represents analmost five-fold increase on those already identified at Kuranakh, which areestimated at 12 million tonnes at P2 or higher. The Company's attributable shareof these resources is 49 per cent. and 74 per cent. respectively. As previously announced, the Group has entered into non-binding Heads ofAgreement in relation to the proposed establishment of a new holding company forLLC Ural Mining ("Ural Mining"), the company which won the auction for and hasbeen issued with the licence to exploit the Bolshoi Seym deposit, with TimiaTrading Limited (a company incorporated in the British Virgin Islands)("Timia"), a company related to CJSC Holding Company Interros, a large Russianprivate investment group which is a major shareholder in OJSC Norilsk Nickel andOJSC Polyus. Since the initial announcement was made, Aricom has acquired a 49%interest in Ural Mining, the company that owns the licence to develop theBolshoi Seym deposit. Furthermore, in the Heads of Agreement it is proposed that a new holdingcompany, which would be owned as to 49 per cent. by Aricom and 51 per cent. byTimia, would acquire 100 per cent. of Ural Mining. It is agreed in the Heads ofAgreement that Aricom will appoint the General Director of Ural Mining.Implementation of these arrangements is dependent on definitive documentationbeing entered into. It is intended that the proposed joint venture arrangementsbetween Timia and Aricom will include certain deadlock provisions which could betriggered (inter alia) by Mr. Peter Hambro and/or Dr. Pavel Maslovsky ceasing tobe involved in Aricom and the resultant position not being addressed to Timia'ssatisfaction. Deadlock resolution could include a shareholder tabling a price atwhich it will buy out the other, but at which it could also be bought out(subject to a 5 per cent. control premium for Timia's stake). Aricom's expenses relating to the acquisition at cost of the 49 per cent.interest in Bolshoi Seym and the initial funding for Ural Mining amount toUS$2.9 million. In order to enable the Company's existing cash and loanfacilities to be applied principally in the development of Kuranakh, funding forthis acquisition was provided by a loan from PetroPavlovsk (Cyprus) Ltd., acompany owned by certain of the Hambro Associates and certain of the MaslovskyAssociates. Mr. Peter Hambro and Dr. Pavel Maslovsky are Deputy Chairmen of, andmajor shareholders in, Aricom. Interest is payable on the loan at a rate of 5per cent. per annum. A further $0.9 million is available under the loanagreement to fund 49 per cent. of a planned increase in Ural Mining's sharecapital to cover the cost of the licence, bringing the total cost to $3.8million. It is intended that this loan, which is not secured, will be repaid outof the proceeds of the Placing. If the Placing is not completed, the loan tofund the Bolshoi Seym acquisition costs will remain outstanding and Aricom willbe obliged to repay this by no later than 31 October 2007. Resources The Bolshoi Seym deposit is located 27km from the nearest station on the BaikalAmur Magistral ("BAM") railway and 40km from Olekma, where Aricom is buildingthe beneficiation plant to serve the Kuranakh mine, and therefore represents anatural extension to Aricom's activities in the area. The licence which is issued for exploration and extraction covers an area of26km(2) and extends to a depth of 1,000 metres. The term of the licence is 25years from 1 December 2005 to 1 December 2030 and may be extended with theconsent of the licensing authorities until the deposit is fully depleted. Bolshoi Seym was previously explored through surface trenching at 120 metreintervals and drilling to a depth of 400 metres on a 150 x 300 metre grid. Thedeposit is considered to be in group II of complexity according to theclassification of the State Geological Committee of the Russian Federation,where group IV is the most complex. The deposit is thought to be a continuous ore body forming a horseshoe at thesurface, with eastern and western banks. The eastern bank is a sharply dippinglenticular ore body. The average thickness of the body is 220 metres, narrowingin a northwestern direction from 300 to 150 metres. Trenching along the strikehas determined the length of the ore body to be 1,000 metres, whilst geophysicaldata suggests a total length of 1,450 metres. Drilling to 467 metres showedpractically no changes in the body's thickness. 67 per cent. of the easternbank's ore volume is made up of disseminated ores with a TiO2 content of 5-8 percent. Massive ores and pockets of disseminated ores with TiO2 content in excessof 8 per cent. represent 21 per cent. of the eastern bank's volume. Theremaining ores are of low TiO2 content (less than 5 per cent.). The western bank is 550 metres in length and data suggests a depth of 700metres, with an average thickness of the ore body of 16.1 metres. Thecomposition is mainly disseminated ores (65 per cent.), massive ores and pocketsof disseminated ores (15 per cent.) and low-content rocks (20 per cent.). Thedistribution of average TiO2 contents is equivalent to the eastern bank. A report dated July 1988 by Dalgeologiya, the Russian State geologicalinstitute, estimates the following reserves and resources for the Bolshoi Seymdeposit using a cut-off of 5.0 per cent. for TiO2. These figures do notconstitute official resource estimates. Bolshoi Seym Estimated Reserves & Resources - Dalgeologiya (1988) Category TiO2 Content tonnes Fe Content (millions) tonnes (millions) C2 22.81 48.55P1 36.02 76.68Total Reserves & Resources 58.82 125.23 Metallurgical tests have shown that it should be possible to produce commercialmagnetite (ferrovanadium) and ilmenite concentrates. Magnetite concentrate canbe produced through wet magnetic separation and test results have shown an ironcontent of 60.6-67.2 per cent. Ilmenite, which can be obtained through a processof concentration and separation, has been successfully concentrated in thesetests to 90-98 per cent. ilmenite with a TiO2 content of 44.2-49.9 per cent. Further geological exploration at the Bolshoi Seym deposit is required and isanticipated to take two years. On this basis, and with feasibility, design anddevelopment stages estimated to take a further four years, production at thedeposit could start in 2012. The licence requirement is to start production by 1December 2012 with a minimum annual extraction rate of 2 million tonnes of ore. Current Mine Development - Kuranakh Since the last fundraising in March 2005, the Company has made substantialprogress in advancing the development of its Kuranakh mine. The Company hascompleted the geological exploration on Zones 1 and 3 of the Saikta deposit, oneof the three deposits in the Kuranakh licence zone. The definitive feasibilitystudy is to be reviewed by SRK Consulting Limited ("SRK") as part of the projectfinancing process. The Kuranakh licence was granted in 2001 with a 25 year term. It is expected that the feasibility study will indicate an increase in theanticipated throughput from 2.2mtpa of ore to 2.4mtpa of ore and a commensurateincrease in the production of titanomagnetite concentrate from 660,000tpa to880,000tpa, with ilmenite concentrate production remaining at 240,000tpa. Theanticipated cash costs of production were estimated to be US$7 per tonne of oreat the time of the pre-feasibility study. Recently indicated ex-mine (Kuranakh)sales prices for ilmenite and titanomagnetite concentrates are US$62 per tonneand US$29 per tonne, respectively. Capital expenditure is currently estimated toamount to in the region of US$70 million. Sales, general and administrationcosts are currently estimated to be in the region of $1.8 million per annum. Infrastructure development has been progressing well since March 2005. The routefor the 33km road between the deposit and the railhead at Olekma has been cut tothe 17th kilometre mark and 11km have now been given a hard surface. Fourkilometres of the 4.5km railbed linking the BAM main rail line and the site ofthe beneficiation plant have been laid. The second layer of the railbed hasrecently been started. Workers' accommodation, a canteen, workshops and servicehangars are in place, which has allowed work to continue throughout the wintermonths. The site for the beneficiation plant is currently being cleared and thefoundations are being sunk for the electricity pylons that will ultimately carrythe electricity line to the pit operations. The electricity pylons are expectedto be delivered in March and the tender process for the construction of theoverhead electricity line is progressing well. An agreement has been reachedwith the local combined heat and power station in Olekma for the provision ofheat for the beneficiation plant which should lead to operational and capitalcost savings. In line with previous announcements, Aricom expects production at Kuranakh tocommence in the fourth quarter of 2007 subject to the receipt of the necessaryauxiliary permits. LLC Management Company Peter Hambro Mining LLC Management Company Peter Hambro Mining, a subsidiary of Peter Hambro Miningplc ("PHM"), of which Mr. Peter Hambro and Dr. Pavel Maslovsky are Directors,and in which certain of the Hambro Associates and certain of the MaslovskyAssociates are major shareholders, is an experienced mining services companyoperating in the Amur region ("MCPHM"), with a number of clients in addition tothe extensive work which it does for the PHM and/or all or any of itssubsidiaries ("PHM Group"). Sir Malcolm Field, Mr. Tom Swithenbank and Mr. PeterHowes, being those directors who are not connected with and independent from theHambro Associates and the Maslovsky Associates, (the "Independent Directors")consider that MCPHM's experience generally and locally, and the quality of itspersonnel, make it well placed to provide the services which the Group needs oncompetitive terms. MCPHM is currently providing Aricom with services in connection with thedevelopment of the Kuranakh deposit and it is proposed that Ural Mining willcontract with MCPHM for the provision of services in relation to the developmentof the Bolshoi Seym deposit. It is the intention of the Company, with theapproval of the Independent Directors, that the relationship between the Groupand MCPHM be strengthened. In view of the importance of this arrangement withMCPHM and the connection of Mr. Peter Hambro and Dr. Pavel Maslovsky with bothAricom and PHM it has been decided by the Independent Directors that the MasterServices Agreement should be submitted to Shareholders for approval as part ofResolution 1. The Master Services Agreement would govern the overall relationship betweenAricom and MCPHM and would cover the provision of a range of services by MCPHMto any member of the Group on what is intended to be an arm's-length basis.Aricom would be entitled but not obliged to use the services of MCPHM (includingits subsidiaries). Services to be provided pursuant to this agreement would besubject to approval by the Independent Directors. It is intended that theservices to be provided under this agreement will include: * taking over from Vnipiprom Technologiya ("VNIPI"), a Russian mining institute, the completion and issue of the feasibility study for Kuranakh;* the construction of the mining and beneficiation facilities at Kuranakh on the basis of an engineering and construction agreement to be entered into between the Company and MCPHM ("Kuranakh Construction Agreement"). The agreement will be concluded on a cost-plus basis for services rendered, with the margin to be agreed for the Company by the Independent Directors;* the provision of mining, appraisal, development and other services to the relevant licence holding companies in respect of the Kimkanskoye, Sutarskoye and Bolshoi Seym deposits (and potentially any other deposits in which the Group may acquire interests in the future); and* such other general management, technical, project management and other services as may be agreed. Services shall be provided on such cost-plus basis as is agreed, with the marginin each case to be agreed for the Company by the Independent Directors. It is proposed that the completion and issue of the feasibility study forKuranakh be taken over by MCPHM from VNIPI because a significant number of staffwho were working on the feasibility study have in fact recently left VNIPI andhave subsequently been employed by MCPHM. These staff would continue to beinvolved in the finalisation of the feasibility study to provide continuity. Decisions for the Board relating to the performance of services provided byMCPHM shall be taken by the Independent Directors. While it is proposed that MCPHM may provide a range of services in respect ofthe Kimkanskoye and Sutarskoye deposits, it will not be preparing the valuationto be used to determine the Exercise Price in respect of the Option, which willbe prepared by an independent expert to be appointed as outlined above. The Placing and Use of Proceeds The Company is seeking to raise approximately US$150 million (approximately £85million) (before expenses) by way of a Placing of new Shares at a placing priceper new Share to be determined (the "Placing Price"). Pursuant to the terms ofthe Placing agreement entered into between the Company and the Joint Bookrunners("Placing Agreement"), these Shares will be conditionally placed by the JointBookrunners with institutional and other investors. The Placing is conditionalon (inter alia) the passing of the Resolutions (in part to disapply thepre-emptive rights) and the Placing Shares being admitted to trading on AIM. Application will be made for the Placing Shares to be admitted to trading on AIM. Subject (inter alia) to the passing of the Resolutions it is expected that thePlacing Shares will be admitted to trading on AIM on 19 April 2006. The PlacingShares will, when issued, rank pari passu with the Ordinary Shares in issue atthe date of the Circular including the rights to all dividends and otherdistributions declared or made or paid after the date of their issue. It is intended that the proceeds of the Placing would be applied as follows ifthe Option is acquired and in due course exercised: US$m Kuranakh financing 30Repayment of Kuranakh development loans 13Working capital 10Placing costs 6Feasibility studies for Kimkanskoye and Sutarskoye 5Feasibility study for Bolshoi Seym 3Repayment of PetroPavlovsk (Cyprus) Limited loan 3Additional investment and development capital approximately 80 The amount available for additional investment and development capital willdepend on the final size of the Placing. Aricom intends to use its expertise andposition in Russia's Far East to seek further growth opportunities in metals andminerals in the region. Aricom believes it is well positioned to participate inthe development of the metals and minerals resources of Russia's Far East. Anumber of its Directors are well established in the region and understand thepolitical and economic operating environment. The proportion of the proceeds ascribed to "Additional investment anddevelopment opportunities" will be reduced by US$9 million if the Vendor decidesnot to apply the Option Premium in subscribing for new shares. The remainingfunds will be applied in investing in and/or developing additional growthopportunities in metals and mining resources in Russia's Far-East. It isintended that such opportunistic acquisitions would complement the Group'splanned organic growth. The Placing is to be conducted in accordance with the terms and conditions setout in the appendix to this Announcement (the "Appendix") and participation islimited to persons eligible (in accordance with the terms of the Appendix) to doso and who are invited to participate. Members of the public are not eligible totake part in the Placing. Under the Placing Agreement, the Company has undertaken not to issue anyadditional shares, save for the Placing Shares, Shares issued if the OptionPremium is applied in the subscription of new Shares and any Shares issued onexercise of the Option, during the period of 120 days from Admission without theprior written consent of the Joint Bookrunners who have agreed not unreasonablyto withhold or delay such consent. Mr. Peter Hambro and Dr. Pavel Maslovsky, and their connected persons, haveundertaken not to dispose of any of the Shares held by them and any Sharesacquired during the lock-in period (but excluding any Shares issued uponexercise of the Option) for a period of six months from Admission, except incertain limited circumstances or with the prior written consent of JPMorganCazenove, Canaccord and the Company. The agreements cease to have effect ifAdmission does not become effective on or before 15 May 2006. Project Finance for Kuranakh Bayerische Hypo-und Vereinsbank AG ("HVB") has been retained as Mandated LeadArranger in relation to the proposed obtaining in due course of up to US$30million of project finance debt, to supplement the proceeds of the Placing andto be utilised principally in relation to the development, construction andworking capital costs for Aricom's mining project at Kuranakh. SRK have been appointed as consultants to analyse the Kuranakh project on behalfof HVB. A draft term sheet has been received from HVB and will be revised following theCompany's review of the SRK report and completion of the due diligence exercise. A US$10 million secured loan has been arranged with the Russian bank, LLC KBExpobank, to allow the work to continue on the facilities at Kuranakh. It isintended that this loan be repaid out of the proceeds of the Placing. Approval of the Waiver to be granted by the Panel on Takeovers and Mergers underthe City Code on Takeovers and Mergers Rule 9 of the City Code stipulates, inter alia, that a person or group ofpersons acting in concert owning shares carrying (i) 30 per cent. or more butnot more than 50 per cent. or (ii) less than 30 per cent. of the voting rightsof a public company will incur a mandatory bid obligation and will be requiredto make a general offer to shareholders to acquire the balance of the equityshare capital of that company if in the case of (i) above, they acquire anyfurther shares carrying voting rights or, in the case of (ii) above, theyacquire further shares resulting in their voting rights being 30 per cent. ormore. The Panel regards the Hambro Associates and the Maslovsky Associates (includingthe Vendor) as a concert party. As shown in the table below, their aggregateholdings currently total 33.55 per cent. of Aricom's issued share capital. Boththe acquisition of the Option to acquire the Rubicon Interest and the exerciseof the Option are expected to result in issues to them of new Shares at 28p perShare. None of the Hambro Associates or the Maslovsky Associates will beparticipating in the Placing. The Vendor is beneficially owned equally by Mr.Peter Hambro and Dr. Pavel Maslovsky. For illustrative purposes, the following table shows their holdings assuming theVendor proceeds to apply the Option Premium in subscribing for new Shares at28p:(i) at the date of this announcement; (ii) following the Placing assuming thatthe Placing raises US$150 million at an illustrative Placing Price of 52.5p(being the mid-market closing price of Aricom shares on 20 March 2006), andinvestment of the Option Premium; and (iii) following exercise of the Optionassuming that (a) the Placing has been completed raising US$ 150 million at anillustrative Placing Price of 52.5p (being the mid-market closing price ofAricom shares on 20 March 2006), (b) the value attributable to Expokom, thecompany which holds the Rubicon Interest is at or above US$70 million, so thatthe Exercise Price is at the US$61 million cap, and (c) the exerciseconsideration is applied in subscription for or satisfied by the issue of newShares at 28p per Share, with no other Shares having been issued. For theavoidance of doubt, the Placing Price of 52.5p used in the tables below is usedfor illustrative purposes only. The actual Placing Price will be determined inaccordance with the terms and conditions set out in the Appendix to thisannouncement. Mr.Peter Hambro Mr.Peter Dr. Pavel and Dr. Pavel Hambro and Maslovsky and Maslovsky and associates associates associates Shares % Shares % Shares % Sharescurrently 12,135,461 8.97 33,268,730 24.58 45,404,191 33.55held After Placing if OptionPremium invested Total 21,266,955 6.73 42,400,223 13.42 63,667,178 20.15 Afterexercise ofOption Total 83,158,188 18.91 104,291,457 23.72 187,449,645 42.63 For illustrative purposes, the following table shows their holdings assuming theVendor does not proceed to apply the Option Premium in subscribing for newShares at 28p per Share: (i) at the date of this announcement; (ii) following the Placing assuming thatthe Placing raises US$ 150 million at an illustrative Placing Price of 52.5p(being the mid-market closing price of Aricom shares on 20 March 2006); and(iii) following exercise of the Option assuming (a) the Placing raises US$150million at a Placing Price of 52.5p (being the mid-market closing price ofAricom shares on 20 March 2006); (b) the value attributable to the RubiconInterest is at or above US$70 million, so that the Exercise Price is at theUS$61 million cap, and (c) the exercise consideration is applied in subscriptionfor or satisfied by the issue of new Shares at 28p per Share, with no otherShares having been issued. Mr. Peter Hambro and Dr. Pavel Mr. Peter Dr. Pavel Maslovsky and Hambro and Maslovsky and associates associates associates combined Shares % Shares % Shares % Sharescurrently 12,135,461 8.97 33,268,730 24.58 45,404,191 33.55held After Placing if OptionPremium not invested Total 12,135,461 4.08 33,268,730 11.18 45,404,191 15.25 Afterexercise ofOption Total 74,026,694 17.56 95,159,964 22.58 169,186,658 40.14 The tables assume an exchange rate of £1: US$1.76. As shown in the tables, assuming the Placing is completed raising US$150 millionat an illustrative Placing Price of 52.5p (being the closing price of Aricomshares on 20 March 2006) (which is conditional (inter alia) on the Resolutionsbeing passed) the combined holding of the Hambro Associates and the MaslovskyAssociates would fall to 20.15 per cent. or 15.25 per cent. (depending onwhether or not the Option Premium is invested) of the issued share capital asthereby enlarged. Their combined holdings would only increase to above the 30per cent. level upon exercise of the Option and the issue of new Shares as aresult of this, or in application of, the consideration in respect thereof.Whether or not their combined holdings would exceed the 30 per cent. level woulddepend on the size of the consideration, the level of their other holdings atthat stage and whether any additional shares have been issued to others. It is not intended that any of the Hambro Associates or the Maslovsky Associateswill purchase any additional Shares following entry into the Option Agreementand prior to exercise or termination of the Option, save, if applicable, forinvestment of the Option Premium. The Panel has indicated that, subject to approval of the relevant documentation,it will confirm that, subject to Resolution 1 being passed by the requisitemajority by independent shareholders on a poll, no obligation to make a generaloffer under Rule 9 of the City Code would be triggered by virtue of theallotment and issue of 142,045,454 Shares to all or any of the Hambro Associatesand/or Maslovsky Associates pursuant to the Option Agreement (including as aresult of the exercise of the Option) and/or any investment of the OptionPremium in acquiring new Shares at 28p per Share. The Hambro Associates and theMaslovsky Associates will not be voting on Resolution 1 at the EGM. The Hambro Associates and the Maslovsky Associates The Hambro Associates and the Maslovsky Associates include respectively Mr.Peter Hambro and Dr. Pavel Maslovsky. Their interests in the Company are asfollows: At the date of this announcement On Admission (pre-Placing and (post Placing and reinvestment of Option assuming reinvestment of Premium) Option Premium Shares % Shares % Peter Hambro 12,135,461 8.97 21,266,955 6.73Dr. Pavel 33,268,730 24.58 42,400,223 13.42Maslovsky Mr. Peter Hambro was a banker and then Deputy Managing Director of Mocatta andGoldsmid, responsible for worldwide marketing of its precious metal dealing,banking and derivative services. In 1990 he founded Peter Hambro PLC as a miningfinance house in London. He is also Chairman of PHM. Dr. Pavel Maslovsky,formerly professor of plasticity at the Moscow Aircraft Technology Institute,transferred in 1991 to the business world and became Chairman of PokrovskiyRudnik in 1994. Dr. Pavel Maslovsky is the Deputy Chairman of PHM. Mr. Peter Hambro and Dr. Pavel Maslovsky have worked together since 1994 inestablishing and building up Peter Hambro Mining Plc ("PHM") and a number ofother businesses in Russia and the United Kingdom. Each is a Deputy Chairman ofAricom. Expokom and the Vendor are both recently incorporated Cypriot companies whichhave not traded save for participating in the structuring of these arrangements,and have no assets, other than their direct or indirect holdings in Rubicon. As stated above, the Hambro Associates and the Maslovsky Associates currentlyhold in excess of 30 per cent. of Aricom's current issued share capital. Theirholdings will drop below this level on completion of the Placing but, dependingon the valuation, are likely to go back through this level if the Option isexercised. The Hambro Associates and the Maslovsky Associates consider that the proposalsoutlined in this document will enhance the development of the Aricom Group inthe short and longer term and intend that the Company should continue as amining company and they have no plans for the redeployment of its fixed assets.There is no intention to lay off any of the Aricom Group's employees as a resultof these arrangements and additional personnel are likely to be required as theAricom Group's business expands. The Hambro Associates and the Maslovsky Associates have no current intention todispose of any Shares they acquire under these arrangements. Additionalinvestors could in due course become shareholders in the Vendor, but there areno current proposals in this regard. No financing arrangements are in place in connection with these arrangements thepayment of interest on which or repayment of, or security for, which will dependto a significant extent on the business of the Company. A debt owed toPetroPavlovsk (Cyprus) Ltd., a company owned by certain of the Hambro Associatesand certain of the Maslovsky Associates, is intended to be repaid out of theproceeds of the Placing, as described under the heading "Bolshoi Seym" above. Mr. Peter Hambro and Dr. Pavel Maslovsky, and their connected persons, haveundertaken not to dispose of any of the Shares held by them and any Sharesacquired during the lock-in period (but excluding any Shares upon exercise ofthe Option) for a period of six months from Admission, except in certain limitedcircumstances or with the prior written consent of JPMorgan Cazenove, Canaccordand the Company. The agreements cease to have effect if Admission does notbecome effective on or before 15 May 2006. Extraordinary General Meeting The Independent Directors, who have been so advised by Canaccord, consider thatthe obtaining of the Waiver and the possible investment of the Option Premium,entry into and implementation of the Option Agreement with the Vendor and theMaster Services Agreement with MCPHM, and the obtaining of loans from entitiesassociated with the Hambro Associates and the Maslovsky Associates are in thebest interests of the Company and its Shareholders as a whole and are fair andreasonable insofar as the Shareholders are concerned. At an extraordinary general meeting of the Company which is expected to be heldon or around 18 April 2006, two Resolutions will be put to Shareholders. The first resolution ("Resolution 1") will be for the disapplication of Rule 9of the City Code described above and entry into and implementation of the OptionAgreement and the Master Services Agreement. This resolution may only be votedon, by way of a poll, by Shareholders other than the Hambro Associates and theMaslovsky Associates. The second resolution ("Resolution 2") will be a special resolution and willrelate to the share capital authorities required to implement the proposalsdescribed in this announcement and provide flexibility for additional shareissues in the future. If passed, Resolution 2 will replace the prior share issue authorities obtainedat the last Annual General Meeting and will: (1) increase the authorised share capital of the Company to £1,000,000 by the creation of 500,000,000 additional Shares; (2) provide the directors with authority to allot Shares up to a maximum aggregate nominal amount of £864,651 representing the increased authorised share capital less the current number of Shares in issue; and (3) provide the directors with limited authority to allot Shares for cash without being required first to offer such securities to existing shareholders in accordance with the statutory pre-emption rights The Resolutions will be cross-conditional and if either or both are not passed,although the proposed Bolshoi Seym joint venture is not conditional, the Placingand the arrangements in relation to Kimkanskoye and Sutarskoye will not proceed.The absence of Placing proceeds would impair the ability of the Company to fundits share of appraisal work on Bolshoi Seym and to proceed with the developmentof Kuranakh. Risk Factors The exploration for and development of metals and mineral resources is aspeculative activity that involves a high degree of risk. The Directors believethat, in particular, prospective investors should carefully consider thefollowing risks and uncertainties before making an investment decision regardingthe Company. If any of these risks and uncertainties, together with possibleadditional risks and uncertainties of which the Directors are currently unawareor which they consider not to be material in relation to the Company's business,actually occur, the Company's business, financial position or operating resultscould be materially and adversely affected. It should be noted that this list isnot exhaustive and that certain other risk factors may apply. Geology and reserves Any exploration programme entails risks relating to the location of economicorebodies, the development of appropriate metallurgical processes, the receiptof necessary governmental permits and the construction of mining and processingfacilities. No assurance can be given that any exploration programme will resultin any new commercial mining operation or in the discovery of new resources. The exploration for and development of mineral deposits involves significantuncertainties and the Group's operations will be subject to all of the hazardsand risks normally encountered in such activities. These hazards and risksinclude unusual and unexpected geological formations, rock falls, flooding andother climatic conditions, any one of which could result in damage to, ordestruction of, the Group's facilities, damage to life or property,environmental damage or pollution and legal liability which could have amaterial adverse impact on the business, operations and financial performance ofthe Company. Although precautions to minimise risk will be taken, even acombination of careful evaluation, experience and knowledge may not eliminateall of the hazards and risks. As is common with all exploration ventures, there is also uncertainty andtherefore risk associated with the Group's operating parameters and costs. Thesecan be difficult to predict and are often affected by factors outside theGroup's control. With all metals and minerals operations there is uncertaintyand, therefore, risk associated with operating parameters and costs resultingfrom the scaling up of extraction methods tested in pilot conditions. Metals andminerals exploration is speculative in nature and there can be no assurance thatany potential deposits discovered will result in an increase in the Group'sresource base. Implementation of new projects The Company has limited business activity and the Group's mining interests havenot yet been developed. Implementation of the projects outlined in this documentwill in most cases require conclusion of agreements with third parties,government consents and material additional funding. There is no certainty thatthese will be achieved and thus no certainty that these projects can beimplemented or that they would be successful were they to be implemented. Inpursuing the proposed projects, the Company may find itself in competition withcompanies with much more substantial resources. Future funding for such projectscould involve dilution of the interests of existing shareholders. Prices and demand The Group's earnings are intended to be principally derived from the mining andprocessing of ores and are therefore related to the market prices of such oresand related products. Iron ore is currently trading at historically high levels,and there is no certainty that these prices will be maintained. Although theGroup's costs of mining and production are relatively low by world standards,the Group's ability to achieve or maintain earnings, pay dividends in the futureand undertake capital expenditure may be affected in the event of a sustainedmaterial fall in the price of the relevant ores and/or related products. The Group is targeting the Chinese market for a significant proportion of itsfuture sales. A decline in Chinese demand, and/or an increase in Chinesedomestic production or other competition, could adversely affect the Group'sperformance and prospects. The Kimkanskoye and Sutarskoye Option If the Company and the Vendor enter into the Option Agreement, the OptionPremium will be payable. If the Vendor were not to apply this sum in subscribingfor new Shares, the Option Premium would have to be paid out of the Placingproceeds. There is no certainty that following completion of the feasibilitystudy on the Kimkanskoye and Sutarskoye licence areas the Company will elect toproceed to exercise the Option. The Option Premium is not repayable. The twoparticipants in Rubicon own 50 per cent. each and in the event of deadlock thedevelopment of that company's business could be impaired. The Group has a minority stake in the Bolshoi Seym deposit, and the Bolshoi Seymjoint venture arrangements are yet to be finalised The Group's stake in Ural Mining, a Russian company holding the licence todevelop the Bolshoi Seym deposit, is only 49 per cent. It is intended that theother participant in Ural Mining will be Timia, a company related to theInterros investment group, a large Russian private investment company. It is possible that Timia does not become a shareholder in the Bolshoi Seymjoint venture or that the anticipated minority protection and controlarrangements will not be agreed as currently envisaged. Timia and Aricom intendto provide certain minority protections for Aricom, but if they do not so agreethen Aricom may have to rely on statutory protections and those protectionsexisting in the charter of Ural Mining. Timia and Aricom intend to provide for certain deadlock provisions. These couldbe triggered (inter alia) by Mr. Peter Hambro and/or Dr. Pavel Maslovsky ceasingto be involved in Aricom and the resultant position not being addressed toTimia's satisfaction. Deadlock resolution could include a shareholder tabling aprice at which they will buy out the other, but at which they could also bebought out (subject to a 5 per cent. premium for Timia's controlling stake). Joint ventures and minority stakes If the Group enters into the Option Agreement, it has the right to acquire a 50per cent. interest in Rubicon, the Russian company that was awarded the licencesto exploit the Kimkanskoye and Sutarskoye iron ore deposits. The other 50 percent. of Rubicon is owned by Russian financial investors. The Group's interest in Ural Mining, a Russian company holding the licence todevelop the Bolshoi Seym deposit is only 49 per cent. The other participant inUral Mining is intended to be Timia Trading Ltd., a company related to theInterros investment group, a large Russian private investment company. Ifentered into, the shareholders agreement is expected to provide some minorityprotections for Aricom in respect of its stake in Ural Mining. These joint ventures and minority investments may involve special risksassociated with the possibility that the Group may not be in a position to fundits share of expenditure and/or that the partners may (i) have economic orbusiness interests or goals that are inconsistent with those of the Group; (ii)take action contrary to the Group's policies or objectives with respect to itsinvestments, for instance by veto of proposals in respect of the operations;(iii) be unwilling or unable to fulfil their obligations under the venture; or(iv) experience financial or other difficulties. Title to the Group's mineral properties may be challenged, which may prevent orseverely curtail the Group's use of the affected properties Title to properties of the Group may be challenged or impugned, and titleinsurance for the properties may not be available, or the Group may elect not tobe so insured because of high premium costs. Each sovereign state is typicallythe sole authority able to grant mineral property rights, and the Group'sability to maintain extraction rights on some of the Group's properties isdependent on the Government's policy and rules for use of subsoil. Some of theproperties the Group has acquired may be subject to prior claims, and title maybe affected by, among other things, undetected defects. In addition, a varietyof factors beyond the Group's control may preclude the Group from operating itsproperties as permitted or not allow the Group to enforce its rights withrespect to any of its properties despite having perfect legal title. The Group's exploration, development and production licences may be suspended orrevoked prior to their expiration Generally, compliance with environmental and other government regulationsrequires the Group to obtain permits issued by Russian governmental agencies.Some permits require periodic renewal or review of their conditions. The Groupcannot predict whether the Group will be able to renew these permits or whethermaterial changes in permit conditions will be imposed. Non-renewal of a permitmay cause the Group to discontinue the operations requiring the permit, and theimposition of additional conditions on a permit may cause the Group to incuradditional compliance costs, either of which could have a material adverseaffect on the Group's financial condition and results of operations.Additionally, the Group may not be able to, or may voluntarily decide not to,comply, or may not have complied in all respects, with the licence requirementsfor some or all of its licences. If the Group fails to fulfil the specific termsof any of its licences or if the Group operates in the licence areas in a mannerthat violates Russian law, regulators may impose fines on the Group or suspendor revoke its licences, any of which could have a material adverse effect on itsoperations. The licensing regime in Russia for the exploration, extraction and production ofminerals is governed primarily by the Subsoil Law and regulations promulgatedthereunder. Most of the Group's licences provide that they may be revoked if theGroup fails to comply with any of the licence requirements, if the Group doesnot make timely payments of levies and taxes for the use of the subsoil, if theGroup systematically fails to provide information, if the immediate licenceholders go bankrupt or if the Group fails to fulfil any capital expenditure orproduction obligations or both. There have been press reports that the Government is considering proposalsinvolving the replacement of the current subsoil licensing system with a newsystem based on concession agreements between subsoil users and the state. It isnot yet clear whether these proposals will be implemented and what effect thiswould have on the Group's operations. However, there is a risk that theimplementation of such proposals may have an adverse effect on the Group'sbusiness. The Group may not be able to finance the Group's planned capital expenditures The Group's business requires significant capital expenditures, including inexploration and development, production, transport, refining and meeting theGroup's obligations under environmental laws and regulations. The Group expectsto finance a substantial part of these capital expenditures out of proceeds ofthe proposed Placing and from external borrowings. No assurance can be given that the Group will be able to raise the financingrequired for the Group's planned capital expenditures, on a secured basis orotherwise, on acceptable terms or at all. If the Group is unable to raise thenecessary financing, the Group will have to reduce the Group's planned capitalexpenditures. Any such reduction could adversely affect the Group's ability todevelop any of the Group's mineral resources. If the reductions are severeenough, the Group may not be able to commence the Group's operations atKuranakh. If the Group does not conduct sufficient mineral exploration these licences willlapse and the Group will lose all interest that the Group has in these mineralrights. The Group's ability to obtain outside financing will depend in part uponthe prices of ilmenite and iron ore and the industry's perception of theirfuture price and other factors outside the Group's control. Cash constraints andstrategic considerations may also lead the Group to dispose of all or part ofthe Group's interests in some of the Group's projects or mineral rights or toseek third parties to jointly develop one or more projects. Reserves and resources may be subject to restatement. The ore reserve estimates contained in this document are estimates of theresources in the ground on the Group's existing and proposed licensedterritories. Reserves and resources estimates for the, Sutarskoye, Kimkanskoyeand Bolshoi Seym deposits reproduced in this document are extracted from therelevant licence auction materials and have not been audited by independentmining engineers and have not been reviewed by the Group's geologists. TheGroup's ore reserves at Kuranakh are estimates based upon many factors,including:* the results of exploratory drilling and an ongoing sampling of the ore bodies;* past experience with mining properties; and* the experience of the person making the reserve estimates. Because the Group's ore reserve estimates are calculated based on currentestimates of production costs and product prices, they should not be interpretedas assurances of the economic life of the Group's deposits or the profitabilityof the Group's future operations. Reserve estimates may require revisions basedon the definitive exploration figures and actual production experience. Further,a sustained decline in relevant market prices could render ore reservescontaining relatively lower grades and/or mineralisation uneconomic to recoverand ultimately result in a restatement of reserves. Any failure of the reservesto meet the Group's recovery expectations may have a materially adverse effecton the Group's business, financial condition and results of operations. Liquidity The Shares are not listed on the Official List and although the Shares aretraded on AIM, this should not be taken as implying that there will be a liquidmarket in the Shares. An investment in the Shares may, therefore, in certaincircumstances be difficult to realise. Investment risk Prospective investors should be aware that the value of an investment in theCompany may go down as well as up. In addition, there can be no certainty thatthe market price of an investment in the Company will fully reflect itsunderlying value. The price at which investors may dispose of their Shares inthe Company may be influenced by a number of factors, some of which may berelated to the Company and some not. Investors may realise less than theoriginal amount invested. Payment obligations Under the exploration licences and certain other contractual agreements to whichthe Group companies are or may in the future become parties, such companies areor may become subject to payment and other obligations. If such obligations arenot complied with when due, in addition to any other remedies which may beavailable to other parties, this could result in dilution or forfeiture ofinterests held by such companies. The Company may not have, or be able toobtain, financing for all such obligations as they arise. Currency risk The Company reports in US$, the currency in which the markets for the Group'scurrent and proposed products are principally denominated. The Group's initialdebt is principally the dollar debt from Expobank but it may borrow in othercurrencies. The Group also has expenses and income denominated in othercurrencies, including those of the jurisdictions in which it operates. The Groupcould be adversely affected by changes in the exchange rates between currenciesin which it operates or which otherwise affect it. Environmental regulations The Company's operations are subject to the extensive environmental risksinherent in the mining and processing industry. Although the Directors believe that the Subsidiaries are in compliance in allmaterial respects with any applicable environmental laws and regulations, thereare certain risks inherent in their activities and those which the Group willundertake in the future, such as risks of accidental spills, leakages or otherunforeseen circumstances that could subject the Company to extensive liability.The Company is unable to predict the effect of additional environmental laws andregulations which may be adopted in the future, including whether any such lawsor regulations would materially increase the Company's cost of doing business oraffect its operations in any area. Operational considerations The Company's operational targets are subject to the completion of plannedoperational goals on time and according to budget, and are dependent on theeffective support of the Company's personnel, systems, procedures and controls.Any failure of these may result in delays in the achievement of operationaltargets with a consequent material adverse impact on the business, operationsand financial performance of the Company. The location of the Kuranakh, Kimkanskoye, Sutarskoye and Bolshoi Seym depositsmeans that climatic conditions have an impact on operations and, in particular,severe weather could disrupt the delivery of supplies, equipment and fuel. Itis, therefore, possible that exploration and extraction activity levels mightfluctuate as a result of meteorological factors. Unscheduled interruptions in the Company's operations due to mechanical or otherfailures or industrial relations related issues or problems or issues with thesupply of goods or services could have a serious impact on the financialperformance of those operations. Labour Certain of the Company's operations are carried out under potentially hazardousconditions. Whilst the Company intends to continue to operate in accordance withrelevant health and safety regulations and requirements, the Company remainssusceptible to the possibility that liabilities might arise as a result ofaccidents or other workforce-related misfortunes, some of which may be beyondthe Company's control. Uninsured risks The Group, as a participant in exploration and mining programmes, may becomesubject to liability for hazards that cannot be insured against or against whichit may elect not to be so insured because of high premium costs. The Group mayincur a liability to third parties in excess of any insurance cover arising frompollution or other damage or injury. The insurance industry in Russia is in a relatively early stage of developmentand, accordingly, the available cover is relatively limited. Many forms ofinsurance designed to protect against hazards, common in other parts of theworld, are not yet generally available in some of the areas where the Groupoperates. The Group does not have full coverage for all of its plant andfacilities, for business interruption, for third-party liability in respect ofproperty, and for environmental damage arising from accidents on its property orrelating to its operations. Until the Group is able, or decides, to obtainadequate insurance coverage, there is a risk that losses and liabilities arisingfrom such events could significantly increase its costs and have a materialadverse effect on its business, results of operations and financial condition. Project development risks There can be no assurance that the Company will be able to manage effectivelythe expansion of its operations or that the Company's current personnel,systems, procedures and controls will be adequate to support the Company'soperations. Any failure of management to manage effectively the Company's growthand development could have a material adverse effect on the Company's business,financial condition and results of operations. There is no certainty that all or, indeed, any of the elements of the Company'scurrent strategy will develop as anticipated. Dependence on key personnel The Group's business is dependent on retaining the services of a small number ofkey personnel of the appropriate calibre as the business develops. The successof the Group is, and will continue to be to a significant extent, dependent onthe expertise and experience of the Directors and senior management and the lossof one or more could have a materially adverse effect on the Group. Economic, political, judicial, administrative, taxation or other regulatoryfactors The Group may be adversely affected by changes in economic, political, judicial,administrative, taxation or other regulatory factors, in the areas in which theGroup will operate and holds its major assets, as well as other unforeseenmatters. The jurisdictions in which the Company operates may in some cases haveless established judicial systems, a more volatile political environment and/ormore challenging trading conditions than in some other parts of the world. The Group is subject to a broad range of taxes imposed at the federal, regionaland local levels, including but not limited to income tax, mineral extractiontaxes, royalty tax, sales tax, property tax, social taxes and road use tax. Lawsrelated to these taxes, such as the new tax code, have been in force for a shortperiod relative to tax laws in more developed market economies; therefore, theimplementation of these tax laws is often unclear or inconsistent. Accordingly,few precedents with regard to the interpretation of these laws have beenestablished. The Government has indicated that it intends to revise the Russiantax system. Various proposals are being considered and no assurances can be madethat any new tax laws when and if passed will not result in the Group having topay significantly higher taxes, which could have a material adverse effect onthe Group's business. The Group's assets are located in Russia, a country which is still moving from acommand to market-driven economy. While this process of change is establishingin Russia a more western-style business environment, there are still substantialdifferences between it and the west, and both some of these differences and theongoing processes, could adversely affect the Group and its operations. Ethnic,religious, historical and other divisions have, on occasion, given rise tocommunal tensions and military conflict and terrorist activity. Any spread ofviolence or terrorism, or political measures taken to counter them, could hinderthe operation and the expansion of the Group's business. Various recentdevelopments in Russia have caused some concern in relation to the investmentclimate in the country and no assurances can be given that various steps takenor being debated in the Russian Government will not affect investment intoRussia or the public perception thereof. Legal and regulatory environment There is no guarantee that the Company will be successful in all attempts toobtain mining licences. There is no guarantee of the terms of any future mininglicence. The exploration and extraction activities of the Company are subject tovarious laws governing prospecting, development, production taxes, labourstandards and occupational health, site safety, toxic substances and othermatters. Although the Directors believe that the Company's explorationactivities are currently carried out in accordance with all applicable rules andregulations, no assurance can be given that new rules and regulations will notbe enacted or that existing rules and regulations will not be applied in amanner which could limit or curtail exploration, production or development.Amendments to current laws and regulations governing operations and activitiesof exploration for and extraction of mineral resources, or more stringentimplementation thereof, could have a material adverse impact on the business,operations and financial performance of the Group. In some cases, existing or future licences cover, or will cover, only theextraction of specified minerals. In such cases, the exploitation of otherminerals may require additional licences to be obtained, and there can be nocertainty that these will be forthcoming. Litigation Legal proceedings may arise from time to time in the course of the Company'sbusiness. The Directors cannot preclude that litigation may be brought againstthe Company in future from time to time. Forward looking statements Certain statements within this Document, including those in the Chairman'sletter, constitute forward looking statements. Such forward looking statementsinvolve risks and other factors which may cause the actual results, achievementsor performance of the Company to be materially different from any futureresults, achievements or performance expressed or implied by such forwardlooking statements. Such risks and other factors include, but are not limitedto, general economic and business conditions, changes in government regulation,currency fluctuations, the Company's ability to develop its existing or newresources, competition, changes in development plans and the other risksdescribed in this Part 3. There can be no assurance that the results and eventscontemplated by the forward looking statements contained in this Document will,in fact, occur. These forward looking statements are correct only as at the dateof this Document. The Company will not undertake any obligation to releasepublicly any revisions to these forward looking statements to reflect events,circumstance or unanticipated events occurring after the date of this Documentexcept as required by law or by regulatory authority. Lack of infrastructure may adversely affect the Group's ability to develop itsresources The Group's current and proposed reserves and resources are situated in areaslacking infrastructure required to develop and operate the Group's reserves andresources. The Group must invest heavily into the construction of the requiredmining and auxiliary infrastructure (such as roads, loading terminals, railwaysconnecting to the BAM railway and staff living quarters). Construction andoperation of this infrastructure will require substantial capital expenditure bythe Group and no assurance can be given that the market conditions will continueto make such investments viable. Kuranakh and Bolshoi Seym are located in close proximity to the BAM railway,which is operated by a state owned company OJSC Russian Railways. State ownedinfrastructure in Russia largely dates back to Soviet times and much has notbeen adequately funded and maintained over the last 15-20 years. Particularlyaffected are the rail and road networks, building stocks and power generationand transmission. The Group could be adversely affected by insufficient capacityon the BAM railway. China The Company will be exposed to the Chinese economy and to the state ofdiplomatic relations between Russia and China. Deterioration in the Chineseeconomy and/or in the trading environment could adversely affect the tradingposition of the Company. Similarly the imposition of export controls in Russiaor import controls in China could adversely affect the Company's operations. General The risks noted above do not necessarily comprise all those potentially faced bythe Company and are not intended to be presented in any assumed order ofpriority. Licence Terms The Group's principal licence interests The Group has obtained the mineral exploration and extraction rights it requiresto conduct its operations on its properties. The Group uses sub-contractors(including MCPHM related entities) which have the requisite licences to performthe relevant works. In relation to the licence over which the Group has newlyacquired an interest (Bolshoi Seym) and licences over which the Group proposesto acquire an interest (Kimkanskoye and Sutarskoye) the Group is in the processof being issued the necessary mining allotments and other surface rights. Thisis an automatic process which follows the grant of the mineral exploration andextraction rights. Olekma licence (also referred to herein as the Kuranakh licence) This licence No. BLG 01244 BE was issued to LLC Olekma on 25 June 2001 by AmurOblast Geology Committee. LLC Olekma is as at the date of this document in fullcompliance with the terms and conditions of this licence. The licence andlicence agreement provide that LLC Olekma has the exclusive right to explore forand extract titanomagnetite ores within the licensed territory of the Kuranakhtitanomagnetite ore deposit and on its flanks situated in the basin of RiverKhani, 85 km to the South of Olekma village in the Tynda District of AmurOblast. The licence is valid until 1 June 2026 and may be extended with theconsent of the licensing authority. Currently LLC Olekma pays a fee equal to 4 per cent. of the cost of explorationand prospecting works. Once production of titanomagnetite ores will commence,LLC Olekma will have to pay an 8.2 per cent. royalty of the value of the firstcommercial shipment of ilmenite sold and a sub-soil compensation fee of between2 and 6 per cent of the value of extracted materials. LLC Olekma will have to pay a mineral extractor tax at the rates calculated onthe basis of the rules set out in Chapter 26 of the Russian Tax Code. Bolshoi Seym licence Licence No.BLG 13384 TE was issued to Ural Mining on 30 November 2005 by theFederal Agency on Subsoil Use and is valid until 1 December 2030 and may beextended with the consent of the licensing authority. The licence and licenceagreement provide that Ural Mining has the exclusive right to explore for andextract titanomagnetite ores within the licensed territory of the Bolshoi Seymtitanomagnetite ore deposit situated in the basin of River Imangra, 27 km to theWest of the railway station Mostovaya (Baikal-Amur Railway) in the TyndinskyDistrict of Amur Oblast. Ural Mining must ensure that geological exploration ofthe deposit is fully completed by 1 December 2010, and extraction oftitanomagnetite ore shall commence not later than on 1 December 2013 with anextraction rate of 2,000,000 tpa by 1 December 2014. Ural Mining have paid thelicence fee of 46,200,000 RUR, 1,000,000 RUR for geological information and thelicence issue fee of 8,000 RUR in respect of the Bolshoi Seym licence. UralMining will also have to pay an annual fee for each square kilometre of thelicensed area for the period up to the start of industrial production. Thelevels of this annual fee are set out below: Year RUR/ km2 km2 Total RUR 2005 1,900 26 49,400 2006 4,000 26 104,000 2007 6,000 26 156,000 2008 8,000 26 208,000 2009 10,500 26 273,000 Ural Mining will have to pay a mineral extraction tax at the rates calculated onthe basis of the rules currently set out in Chapter 26 of the Russian Tax Code. Kimkanskoye licence This licence No. BIR 13475 TE was issued to Rubicon on 16 February 2006 by theFederal Agency on Subsoil Use and is valid until 30 December 2025 and isrenewable with the consent of the licensing authority. Under this licence,Rubicon has the right to explore for and extract iron ores within the licensedterritory of Kimkanskoye ferruginous quartzite deposit situated in theObluchensky district, 4 km to the South-West of the railway station Izvestkovayain the EAO. Under the licence Rubicon must ensure that the technical developmentplan in relation to the deposit is completed by 30 December 2007, and theextraction of iron ore shall commence not later than on 30 December 2009 with anextraction rate of 5,000,000 tpa by 30 December 2010. Rubicon has paid a licencefee of 136,500,000 RUR, 11,433,000 RUR for geological information and a licenceissue fee of 8,000 RUR to the issuing authority in respect of the Kimkanskoyelicence. Rubicon must pay the mineral extraction tax at the rates calculated on the basisof the rules currently set out in Chapter 26 of the Russian Tax Code. Sutarskoye licence This licence No. BIR 13476 TE was issued to Rubicon on 16 February 2006 by theFederal Agency on Subsoil Use, is valid until 30 December 2025 and is renewablewith the consent of the licensing authority. Under this licence, Rubicon has theright to explore for and extract iron ores within the licensed territory ofSutarskoye ferruginous quartzite deposit situated in the Obluchensky district,10 km to the South-West of the railway station Izvestkovaya in the EAO. Underthe licence Rubicon must ensure that geological exploration of the deposit iscompleted by 30 December 2010, and the extraction of iron ore shall commence notlater than 30 December 2013 with an extraction rate of 5,000,000 tpa by 30December 2014. Rubicon has paid a licence fee of 157,000,000 RUR, payment forgeological information amounting to 10,000 RUR, and a licence issue fee of 8,000RUR to the issuing authority in respect of the Sutarskoye licence. Rubicon willalso have to pay an annual fee for each square kilometre of the licensed areafor the period up to the start of industrial production. The levels of thisannual fee are set out below: Year RUR/ km2 km2 Total RUR 2005 1,900 27 51,300 2006 4,000 27 108,000 2007 6,000 27 162,000 2008 8,000 27 216,000 2009 10,500 27 283,500 Rubicon must pay the mineral extraction tax at the rates calculated on the basisof the rules currently set out in Chapter 26 of the Russian Tax Code. Material Contracts Save as disclosed herein, no member of the Group has entered into any contractnot being a contract entered into in the ordinary course of business in the past24 months, which is or may be material. * Pursuant to an agreement dated 21 January 2005 between LLC Aricom and China National Gold Corporation ("CNGC"), LLC Aricom conditionally undertook to deliver and CNGC conditionally undertook to accept and to pay for titanomagnetite concentrate produced from the Kuranakh Deposit (the "Goods"). The agreement takes effect from the date of entry into force of a debt facility agreement to be entered into between the Company and a foreign bank for the financing of the production of the Goods and shall remain in full force and effect until 1 January 2013. The agreement may be terminated or extended by the parties by mutual agreement. The total quantity of Goods to be delivered in accordance with the delivery schedule shall be a minimum of 3,300,000 metric tonnes at a price based on the prevailing market price and on the basis agreed between the parties. The price may be revised in accordance with the mechanism set out in the agreement no more than three times per calendar year.* Pursuant to an agreement dated 21 January 2005 between LLC Aricom and CNGC, LLC Aricom conditionally undertook to deliver and CNGC conditionally undertook to accept and to pay for ilmenite concentrate produced from the Kuranakh deposit (the "Goods"). The agreement takes effect from the date of entry into force of a debt facility agreement to be entered into between the Company and a foreign bank for the financing of the production of the Goods and shall remain in full force and effect until 1 April 2009. The agreement may be terminated or extended by the parties by mutual agreement. The total quantity of Goods to be delivered in accordance with the delivery schedule shall be a minimum of 360,000 metric tonnes at a price based on the prevailing market price and on the basis agreed between the parties. The price may be revised in accordance with the mechanism set out in the agreement no more than three times per calendar year. The Company entered into a placing agreement dated 16 February 2005 between (1) the Company, (2) the Directors and (3) Canaccord relating to the Company's placing in 2005. Under that agreement, Canaccord conditionally agreed on the terms and conditions of the Placing Agreement to use its reasonable endeavours to procure subscribers for the placing Shares at a price of 28p. Under the agreement the Company agreed on the terms and subject to the conditions of the agreement, to pay to Canaccord commission of 5.5 per cent. of the value of the placing Shares (as reduced by the value of the Shares subscribed for by inter alia Peter Hambro Plc and Viscaria Investments Limited ) placed at the placing price of 28p, a corporate finance fee and to grant Canaccord an option, which has since been exercised, over 1,979,450 Shares on the terms of an Option Agreement dated 16 February 2005. The agreement contained warranties from the Company and the Directors and an indemnity from the Company. That placing was not underwritten.* With effect from 1 January 2004, Sir Rudolph Agnew was appointed as a Special Advisor to the Company for a period of three years. Sir Rudolph Agnew is entitled to a fee of £40,000 per annum payable quarterly in arrears. Either party can terminate the agreement by giving the other party six months' notice. Sir Rudolph Agnew is available to the Company for up to two days a month.* Pursuant to an option agreement dated 16 February 2005 made between (1) the Company and (2) Canaccord, the Company granted to Canaccord an option to subscribe for 1,979,450 Ordinary Shares in the Company at 28p per Share. The option was due to expire on 14 March 2006 and was exercised on 13 February 2006.* Pursuant to lock-in agreements dated February 2005 between Canaccord, the Company and the Directors and the persons connected with the Directors, as specified below, the Directors and their connected persons each agreed with Canaccord and the Company not to dispose of any Shares held by them for a period of 12 months from 15 March 2005, except in certain limited circumstances, or with the prior written consent of Canaccord and the Company. These agreements were entered into with Mr. Peter Hambro, Peter Hambro PLC, H&H Mining (Investments) Ltd, Petropavlovsk Limited (formerly Mining Investors Limited), Viscaria Investments Limited, Macaria Investments Limited, Millennium Implementation Limited, Precious Metal Investments Limited and Sir Malcolm Field. The lock-in agreements expired on 14 March 2006.* Pursuant to a loan facility agreement dated 30 December 2003 entered into between the Company and PHM, following the receipt of PHM shareholder approval, PHM made available to the Company a multiple drawdown loan facility of up to US$6 million to be used by the Company to fund the acquisition of Russia Titan Company Limited ("RTC"), for working capital and general corporate purposes. Interest was payable at the interest rate of 8 per cent. per annum. The loan could be drawn down and prepayments made at any time but, in any event, it had to be repaid five years after the first drawdown date. The agreement contained representations and warranties by each party. The loan was secured by means of a charge over the Company's shares in RTC. This loan facility has been repaid in full and the loan facility agreement has terminated and the charge has been released.* Pursuant to a loan agreement dated 27 December 2005 entered into between the Company and Expobank, Expobank made available to the Company a loan of US$10 million to be used by the Company for working capital and general corporate purposes. Interest is payable at the interest rate of 12 per cent. per annum. The loan was drawn down in full in December 2005 and is repayable in one year. The agreement contains representations and warranties by each party. The loan is secured by means of a charge over the Company's shares in RTC, which represent 99.99 per cent. of RTC.* The Company has entered into a Placing Agreement dated 21 March 2006 between (1) the Company and (2) the Joint Bookrunners. Under the Placing Agreement, the Joint Bookrunners have conditionally agreed on the terms and conditions of the Placing Agreement to use their reasonable endeavours to procure subscribers for the Placing Shares at the Placing Price. Under the Placing Agreement the Company has agreed, on the terms and subject to the conditions of the agreement, to pay to Canaccord a fee of US$2.625 million (assuming the Placing raises US$150 million), and to JPMorgan Cazenove a fee of US$2.625 million (assuming the Placing raises US$150 million). The Placing Agreement contains representations, warranties and undertakings from the Company concerning, inter alia, the accuracy of the information in this document. The Placing Agreement also contains indemnities from the Company in favour of the Joint Bookrunners. The Placing is not being underwritten. The Placing Agreement may be terminated by the Joint Bookrunners in certain limited circumstances prior to Admission. Any such termination would be without prejudice to the continuing enforceability of the warranties, indemnities and undertakings given by the Company or the Company's obligation to pay the costs and expenses of the Joint Bookrunners.* Pursuant to lock-in agreements dated 20 March 2006 between Canaccord, JPMorgan Cazenove, the Company and each of Mr. Peter Hambro and Dr. Pavel Maslovsky and certain persons connected with them, as specified below, each of Peter Hambro and Pavel Maslovsky and their connected persons each agreed with Canaccord, JPMorgan Cazenove and the Company not to dispose of any Shares held by them (including any Shares acquired during the lock-in period other than any Shares issued upon investment of the Option Premium or upon exercise of the Option) for a period of 6 months from the date of Admission except in certain limited circumstances including those permitted by the AIM Rules and a sale to an associate (provided that they adhere to the undertaking) or with the prior written consent of Canaccord, JPMorgan Cazenove and the Company. These agreements were entered into with each of Mr. Peter Hambro, Peter Hambro Limited, Dr Pavel Maslovsky, Precious Metal Investments Limited, Millennium Implementation Limited, Macaria Investments Limited, Viscaria Investments Limited and Philotus Holdings Limited.* On 17 March 2006 CJSC Sogra, a Russian company and Brasenose Services Limited, a subsidiary of Aricom incorporated in Cyprus entered into a share sale purchase agreement pursuant to which Brasenose Services Limited agreed to acquire from CJSC Sogra a 49 per cent. participating interest in the charter capital of Ural Mining for an aggregate consideration of 15,000 RUR conditional on, inter alia, mineral extraction licence No. BLG 01244 BE to prospect for and exploit natural resources at the Bolshoi Seym titanomagnetite ore deposit situated in the basin of the River Imangra, 27km to the west of the railway station Mostovaya (Baikal-Amur Railway) in the Tyndinsky District of the Amur Oblast being in full force and effect. The Seller has given limited representations and warranties as to its title to its interest in the charter capital of Ural Mining customary for these agreements in Russia. The agreement is governed by Russian law.* Pursuant to a loan agreement dated 13 January 2006, entered into between the Company and Petropavlovsk (Cyprus) Ltd., Petropavlovsk (Cyprus) Ltd. made available to the Company a loan of US$2.9 million to be used by the Company to fund the acquisition of the 49 per cent. stake in Bolshoi Seym. Interest is payable at the interest rate of 5 per cent. per annum. The loan is repayable with interest accrued on or before 31 October 2007. US$2.9 million of the loan has been drawn down and this principal amount can be increased by a further US$0.9 million if required in order to fund the increase in the Charter Capital of Ural Mining. The following contracts are due to be entered into following the passingof the Resolutions: * The Option Agreement between the Vendor and the Company, will only be entered into if the Resolutions are passed and will be conditional upon the Placing becoming unconditional. Upon entry into the agreement by the parties, the Company will pay to the Vendor the Option Premium of $9,000,000 which will entitle the Company to acquire all the ordinary shares in Expokom on the terms described below. The Vendor has the right to invest the Option Premium in new Shares at a price of 28p per Share within 30 days following Admission and the Resolutions, if passed, will provide the authority to enable this to take place. If for legal or regulatory reasons the Vendor is not able to invest the Option Premium within 30 days, such period will be extended by up to 2 months or such longer period as the parties may agree, acting reasonably. If the Vendor does not proceed with this subscription, the Option Premium will be paid out of the Placing proceeds. The Option would be exercisable following the completion of an initial feasibility study and independent valuation and the price payable for the acquisition of Expokom (the Exercise Price) would be the value placed on it by an independent discounted cash flow valuation on an ungeared basis (principally of the underlying Kimkanskoye and Sutarskoye deposits and using a discount rate of 30 per cent.) by an expert acceptable to the Company and the Vendor or (in the absence of such agreement) appointed by the President for the time being of the Institute of Materials, Minerals and Mining less the Option Premium which will have been paid and subject to a cap on the Exercise Price of US$61,000,000. The Option Premium is not repayable if the Option is not exercised. If the Option is exercised, its completion will be conditional on the obtaining of any regulatory, shareholder or other approvals required at the time. The Exercise Price will be settled by Aricom through the issue to the Vendor of new Aricom shares at 28p per share. Under the Option Agreement, the Company will fund the Vendor's share of the Rubicon feasibility study and certain other expenses which are to be agreed in advance by Aricom, through the subscription at par for redeemable preference shares in Expokom or in such other manner as may be agreed by the Vendor and the Company. If the Option is not exercised during the period of the Option or if the agreement terminates prior to exercise, the Vendor shall procure redemption or purchase of all or half of such redeemable preference shares (depending on whether the cost of the feasibility study and expenses is lower or higher than the Option Premium).* The Master Services Agreement between the Company and MCPHM will only be entered into if the Resolutions are passed and following completion of the Placing. If entered into, it will govern the overall relationship between Aricom and MCPHM and will cover the provision of a range of services by MCPHM to any member of the Group on what is intended to be an arm's-length basis. Aricom will be entitled but not obliged to use the services of MCPHM (including its subsidiaries). Specific services to be provided pursuant to this agreement will be subject to approval by the Independent Directors. It is intended that the services to be provided under this agreement will include: * taking over from VNIPI the completion and issue of the feasibility study for Kuranakh; * the construction of the mine at Kuranakh on the basis of the Kuranakh Construction Agreement; * the provision of mining, appraisal, development and other services to the relevant licence holding companies in respect of the Bolshoi Seym, Kimkanskoye and Sutarskoye deposits (and potentially any other deposits in which the Group may acquire interests in the future); * such other general management, technical, project management and other services as may be agreed. Personnel provided to Aricom under these arrangements could become members of the boards of Group companies if both parties agree. Services shall be provided on such cost-plus basis as is agreed, with the margin to be agreed for the Company by the Independent Directors. Outside the scope of this agreement the Company would seek shareholder approval for any further arrangements for which the Company is obliged by law to seek advance shareholder approval. The agreement may be terminated by either party giving not less than 3 months' notice to the other. Such termination would be without prejudice to the completion of projects already being carried out under the agreement, save where otherwise agreed between the parties Litigation No member of the Group has engaged in, nor is currently engaged in, any legal orarbitration proceedings which have had or may have a significant effect on thefinancial position of the Company and, so far as the Directors are aware, thereare no such proceedings pending or threatened against the Company or any memberof the Group. Material changes Save as set out in this document there has been no material change in thefinancial or trading position of the Group since 30 June 2005, the date of theCompany's last published interim results. APPENDIX IMPORTANT INFORMATION ON THE PLACING FOR PLACEES ONLY. MEMBERS OF THE PUBLIC ARE NOT ELIGIBLE TO TAKE PART IN THE PLACING. THISAPPENDIX AND THE TERMS AND CONDITIONS SET OUT HEREIN ARE DIRECTED ONLY ATPERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM ACQUIRING, HOLDING, MANAGING ORDISPOSING OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE PURPOSES OF THEIRBUSINESSES AND WHO HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TOINVESTMENTS FALLING WITHIN ARTICLE 19(1) OF THE FINANCIAL SERVICES AND MARKETSACT 2000 (FINANCIAL PROMOTION) ORDER 2005, AS AMENDED ("THE ORDER") OR AREPERSONS FALLING WITHIN ARTICLE 49(2)(a) TO (d) ("HIGH NET WORTH COMPANIES,UNINCORPORATED ASSOCIATIONS, ETC") OF THE ORDER OR TO WHOM IT MAY OTHERWISELAWFULLY BE COMMUNICATED (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS"RELEVANT PERSONS"). THIS APPENDIX AND THE TERMS AND CONDITIONS SET OUT HEREIN MUST NOT BE ACTED ONOR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. ANY INVESTMENT ORINVESTMENT ACTIVITY TO WHICH THIS APPENDIX AND THE TERMS AND CONDITIONS SET OUTHEREIN RELATES IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLYWITH RELEVANT PERSONS. NEITHER THIS APPENDIX NOR THE ANNOUNCEMENT OF WHICH IT FORMS PART CONSTITUTES ANOFFER FOR SALE OR SUBSCRIPTION OF ANY SECURITIES IN THE COMPANY. This announcement does not constitute an offer to sell or issue or thesolicitation of an offer to buy or subscribe for ordinary shares in the capitalof the Company in Australia, Canada, Japan, South Africa, the United States orin any jurisdiction in which such offer or solicitation is unlawful and theinformation contained herein is not for publication or distribution, directly orindirectly, in or into Australia, Canada, Japan, South Africa, the United Statesor any jurisdiction in which such publication or distribution is unlawful. The Placing Shares referred to in this announcement have not been and will notbe registered under the Securities Act and may not be offered or sold in theUnited States except pursuant to an exemption from, or in a transaction notsubject to, the requirements of the Securities Act. There will be no publicoffer of Aricom Shares in the United States, the United Kingdom or elsewhere.Any placing to be made in the United States will be made to a limited number ofQIBs within the meaning of Rule 144A under the Securities Act in reliance onRule 144A or another exemption from the registration requirements of theSecurities Act. The Placing Shares are being offered and sold outside the UnitedStates in reliance on Regulation S under the Securities Act. The Placing Shareshave not been approved by the US Securities and Exchange Commission, any statesecurities commission in the United States or any other regulatory authority,nor have the foregoing authorities passed upon or endorsed the merits of thePlacing. Any representation to the contrary is unlawful. In addition, until 40days after the commencement of the Placing, any offer or sale of Placing Sharesin the United States by any dealer (whether or not participating in the Placing)may violate the registration requirements of the Securities Act. The distribution of this announcement and the offering or sale of the PlacingShares in certain jurisdictions may be restricted by law. Further details inrelation to the securities laws in certain jurisdictions are set out in thisdocument. No action has been taken by the Company, Canaccord or JPMorganCazenove that would permit an offering of such ordinary shares or possession ordistribution of this announcement or any other offering or publicity materialrelating to such ordinary shares in any jurisdiction where action for thatpurpose is required. Persons into whose possession this announcement comes arerequired by the Company, Canaccord and JPMorgan Cazenove to inform themselvesabout and to observe any such restrictions. Details of the Placing Agreement and the Placing Shares The Joint Bookrunners have entered into a placing agreement (the "PlacingAgreement") with the Company whereby each of the Joint Bookrunners has, subjectto the conditions set out therein, undertaken to use its reasonable endeavoursas agent of the Company to procure Placees to subscribe for the Placing Shares. The Placing Shares will be credited as fully paid and will rank equally in allrespects with the existing issued ordinary shares of 0.1 pence each in thecapital of the Company including the right to receive all dividends and otherdistributions declared, made or paid in respect of such ordinary shares aftertheir date of issue. In this Appendix, unless the context otherwise requires, Placee or "you" means aRelevant Person (including individuals, funds or others) by whom or on whosebehalf a commitment to subscribe for Placing Shares has been, or is proposed tobe, given. Application for admission to trading Application will be made to the Exchange for admission of the Placing Shares totrading on the AIM market operated by the Exchange. It is expected that dealingsin the Placing Shares will commence on 19 April 2006. Bookbuild Commencing today each of the Joint Bookrunners will be conducting an acceleratedbookbuilding process (the "Bookbuilding Process") for participation in thePlacing. This Appendix gives details of the terms and conditions of, and themechanics of participation in, the Bookbuilding Process. No commissions will bepaid to Placees or by Placees in respect of any Placing Shares. Principal terms of the Bookbuilding Process Each of Canaccord and JPMorgan Cazenove is arranging the Placing as an agent ofthe Company. Participation will only be available to persons invited to participate by eitherof the Joint Bookrunners. Each of the Joint Bookrunners is entitled to enterbids as principal in the Bookbuilding Process. The Bookbuilding Process willestablish a single price (the "Placing Price") payable by all Placees. ThePlacing Price will be agreed between the Joint Bookrunners and the Companyfollowing completion of the Bookbuilding Process. Subject to the BookbuildingProcess being completed the Placing Price will be announced (the "PricingAnnouncement") on the Regulatory News Service no later than 6.00 p.m. on 21March 2006. To enter a bid into the Bookbuilding Process, you should communicate your bid bytelephone to your usual sales contact at Canaccord or JPMorgan Cazenove. Yourbid should state the number of Placing Shares for which you wish to subscribe ateither the Placing Price which is ultimately established by the Company and theJoint Bookrunners or at prices up to a price limit specified in your bid. Each of the Joint Bookrunners reserves the right not to accept bids or to acceptbids in part rather than in whole. The acceptance of bids shall be at each ofthe Joint Bookrunnersr's absolute discretion. The Bookbuilding Process is expected to close no later than 4.30 p.m. on 21March 2006, but may be closed earlier at the sole discretion of the JointBookrunners. Each of the Joint Bookrunners may, at its sole discretion, acceptbids that are received after the Bookbuilding Process has closed. If successful, your allocation will be confirmed to you orally following theclose of the Bookbuilding Process, and a contract note will be dispatched assoon as possible thereafter. The relevant Manager's oral confirmation to you,following completion of the Bookbuilding Process, will constitute a legallybinding commitment upon you to subscribe for the number of Placing Sharesallocated to you on the terms and conditions set out in this Appendix and inaccordance with the Company's Memorandum and Articles of Association,conditional inter alia upon the EGM and Admission as set out below. The PricingAnnouncement will detail the number of Placing Shares to be issued as well asthe price at which the Placing Shares have been placed. A bid in the Bookbuilding Process will be made on the terms and conditions inthis Appendix, will be legally binding on the Placee by which, or on behalf ofwhich, it is made and will not be capable of variation or revocation after theclose of the Bookbuilding Process. Conditions of the Placing The Placing is conditional, inter alia, on: 1 the Circular being sent to the Shareholders; 2 the resolutions set out in the notice of extraordinarygeneral meeting contained in the Circular having been passed by theShareholders; 3 the Placing Agreement becoming unconditional in allrespects and not having been terminated in accordance with its terms as set outbelow; and 4 Admission having become effective, by no later than 8 am on 19 April 2006 (or such later time and/or date as theCompany, Canaccord and JPMorgan Cazenove may agree being no later than midnighton 28 April 2006). If (a), the conditions above are not satisfied or waived byboth Joint Bookrunners within the stated time period or (b), the PlacingAgreement is terminated in accordance with its terms, the Placing will lapse andyour rights and obligations hereunder shall cease and determine at such time andno claim can be made by you in respect thereof. By participating in the Bookbuilding Process you agree that your rights andobligations hereunder are conditional upon the Placing Agreement becomingunconditional and not being terminated and will terminate only in thecircumstances described above and will not be capable of rescission ortermination by you. The Joint Bookrunners reserve the right (with the agreementof the Company) to waive or to extend the time and /or date for fulfilment ofany of the conditions in the Placing Agreement. Any such extension or waiverwill not affect Placees' commitments. Neither of the Joint Bookrunners shallhave any liability to any Placee (or to any other person whether acting onbehalf of a Placee or otherwise) in respect of any decision it may make as towhether or not to waive or to extend the time and/or date for the satisfactionof any condition in the Placing Agreement or as to whether or not to terminatethe Placing Agreement. Right to terminate under the Placing Agreement Either Canaccord or JPMorgan Cazenove may by notice in writing to the Companyprior to Admission terminate their obligations under the Placing Agreement,inter alia, if: 1 any statement contained in the Circular has become untrue, incorrect or misleading or a new matter has arisen or a change has taken pace which would, if the Circular was published at that time, constitute a material omission therefrom; or2 any of the warranties and representations contained in the Placing Agreement are not true and accurate or have become misleading in respect of a matter which, in the reasonable opinion of the relevant Manager, is material in the context of the Placing or the Company fails to comply with its obligations in the Placing Agreement which is material in the context of the Placing; or3 if there shall have occurred, in the opinion of either Manager (acting in good faith), a material adverse change in or affecting the operations, properties, conditions (financial or other), trading position or prospects or results of operations or general affairs of the Company and its subsidiaries taken as a whole; or4 there has been, in the opinion of either Manager (acting in good faith) any change in national or international financial, political, economic or stock market conditions or any incident of terrorism, outbreak or escalation of hostilities, war, declaration of martial law or any calamity or crisis or a suspension or material limitation in trading of securities generally on any stock exchange or any change in currency exchange rates or exchange controls or a disruption of settlement systems or a material disruption in commercial banking as would, in the opinion of the relevant Manager (acting in good faith) be likely to prejudice the success of the Placing. By participating in the Bookbuilding Process you agree with the JointBookrunners that the exercise by Canaccord and JPMorgan Cazenove of any right oftermination or other discretion under the Placing Agreement shall be within theabsolute discretion of Canaccord and JPMorgan Cazenove and that the JointBookrunners need make no reference to you and shall have no liability to youwhatsoever in connection with any such exercise. No Prospectus No prospectus has been or will be submitted to be approved by any regulatoryauthority in any jurisdiction in relation to the Placing Shares and the Placees'commitments will be made solely on the basis of the information contained inthis announcement, the Pricing Announcement, and any information publiclyannounced to a Regulatory Information Service by or on behalf of the Companyprior to the date of this announcement (together, the "Publicly AvailableInformation"). Each Placee, by accepting a participation in the Placing, agreesthat it has not relied on any other information, representation, warranty orstatement made by or on behalf of either of the Joint Bookrunners or the Companyand neither of the Joint Bookrunners will be liable for any Placee's decision toaccept this invitation to participate in the Placing based on any otherinformation, representation, warranty or statement. Nothing in this paragraphshall exclude the liability of any person for fraudulent misrepresentation. Registration and Settlement Settlement of transactions in the Placing Shares following Admission will takeplace within the CREST system, subject to certain exceptions. Each of the JointBookrunners reserves the right to require settlement for and delivery of thePlacing Shares to Placees in such other means that it deems necessary ifdelivery or settlement is not possible within the CREST system within thetimetable set out in this announcement or would not be consistent with theregulatory requirements in the Placee's jurisdiction. If you are allocated any Placing Shares in the Bookbuilding Process you will besent a contract note. Settlement will be on delivery versus payment on the dateof Admission. Interest is chargeable daily on payments to the extent that valueis received after the due date at the rate of 5 percentage points aboveprevailing LIBOR. If you do not comply with these obligations, the relevant Manager may sell yourPlacing Shares on your behalf and retain from the proceeds, for its own accountand benefit, an amount equal to the Placing Price plus any interest due. Youwill, however, remain liable for any shortfall below the Placing Price and youmay be required to bear any stamp duty or stamp duty reserve tax (together withany interest or penalties) which may arise upon any transaction in the PlacingShares on your behalf. If Placing Shares are to be delivered to a custodian or settlement agent, pleaseensure that the contract note is copied and delivered immediately to therelevant person within that organisation. Insofar as Placing Shares are registered in your name or that of your nominee orin the name of any person for whom you are contracting as agent or that of anominee for such person, such Placing Shares will, subject as provided below, beso registered free from any liability to UK stamp duty or stamp duty reservetax. You will not be entitled to receive any fee or commission in connectionwith the Placing. Representations and Warranties By participating in the Bookbuilding Process you (and any person acting on yourbehalf): 1 represent and warrant that you have read this announcement, that you are a Relevant Person and that in entering a bid in the Bookbuilding Process you acknowledge and accept that such bid is legally binding on you and any person on whose behalf you make the bid and will not be capable of variation or revocation after the close of the Bookbuilding Process; 2 represent and warrant that the only information upon which you have relied in committing yourself to subscribe for the Placing Shares is that contained in this announcement for which the Joint Bookrunners accept no responsibility and confirm that you have not relied on any other information, representation, warranty or statement made by or on behalf of the Company or either of the Joint Bookrunners; 3 represent and warrant that you are not, or at the time the Placing Shares are subscribed and purchased will not be, subscribing on behalf of a resident of Australia, Canada, Japan or South Africa; 4 acknowledge that the Placing Shares have not been and will not be registered under the securities legislation of Australia, Canada, Japan, South Africa or the United States and, subject to certain exceptions, may not be offered, sold, taken up, renounced or delivered or transferred, directly or indirectly, within Australia, Canada, Japan, South Africa or the United States; 5 represent and warrant that you are entitled to subscribe for and/or purchase Placing Shares under the laws of all relevant jurisdictions which apply to you and that you have fully observed such laws and obtained all such governmental and other guarantees and other consents which may be required thereunder and complied with all necessary formalities and that you have not taken any action or omitted to take any action which will or may result in Canaccord, JPMorgan Cazenove, the Company or any of their respective directors, officers, agents, employees or advisers acting in breach of the legal or regulatory requirements of any territory in connection with the Placing or your application; 6 if the Placing Shares are offered to you in the United States, represent and warrant that in making your investment decision: (i) you have relied on your own examination of the Company and the terms of the Placing, including the merits and risks involved; (ii) you have made your own assessment of the Company, the Placing Shares and the terms of the Placing based on this announcement and on such information as is publicly available; (iii) you have consulted your own independent advisors or otherwise have satisfied yourself concerning, without limitation, the effects of United States federal, state and local income tax laws and foreign tax laws generally and the US Employee Retirement Income Security Act of 1974, the US Investment Company Act of 1940, as amended and the Securities Act; and (iv) you have received all information that you believe is necessary or appropriate in order to make an investment decision in respect of the Company and the Placing Shares; 7 if the Placing Shares are offered to you in the United States, represent and warrant that you understand that the financial information made publicly available by the Company has been prepared in accordance with a UK format and style. In particular, without limitation, such financial information has been prepared in accordance with UK generally accepted accounting principles and thus may not be comparable to financial statements of US companies prepared in accordance with US generally accepted accounting principles; 8 represent and warrant that you either (i) are a QIB and you have received and duly executed an investor letter relating to the Placing from one of the Joint Bookrunners, or (ii) are acquiring the Placing Shares in an "offshore transaction" in accordance with Rule 903 of Regulation S under the Securities Act ("Regulation S") and if you are a QIB (i) you are subscribing for the Placing Shares for your own account, or for one or more accounts as to each of which you exercise sole investment discretion and each of which accounts is a QIB, for investment purposes, and not with a view to any distribution or for resale in connection with the distribution thereof, in whole or in part, in the United States; and (ii) have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of your investment in the Placing Shares, and you and any accounts for which you are subscribing for Placing Shares (a) are each able to bear the economic risk of your or their investment in the Placing Shares; (b) will not look to the Company or the Joint Bookrunners for all or part of such loss or losses you or they may suffer; (c) are able to sustain a complete loss on your or their investment in the Placing Shares; (d) have no need for liquidity with respect to your or their investment in the Placing Shares; and (e) have no reason to anticipate any change in your or their circumstances, financial or otherwise, which may cause or require any sale or distribution by you or them of all or any part of the Placing Shares; 9 acknowledge that the Placing Shares have not been and will not be registered under the Securities Act or with any state or other jurisdiction of the United States, nor approved or disapproved by the US Securities and Exchange Commission, any state securities commission in the United States or any other United States regulatory authority, and you agree not to re-offer, resell, pledge or otherwise transfer the Placing Shares except (i) outside the United States in offshore transactions in accordance with Regulation S under the Securities Act, (ii) in the United States to QIBs pursuant to Rule 144A under the Securities Act (iii) in compliance with Rule 144 under the Securities Act if available, (iv) pursuant to another exemption from the registration requirements of the Securities Act, if available and, in each such case in compliance with all applicable laws;10 acknowledge that no representation has been made as to the availability of Rule 144 or any other exemption under the Securities Act for the re-offer, resale, pledge or transfer of the Placing Shares;11 acknowledge and understand that the Placing Shares are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, and represent and warrant on your own behalf and on behalf of any accounts for which you are acting that, for so long as the Placing Shares are "restricted securities" you will not deposit the Placing Shares into any unrestricted depositary receipt facility maintained by any depositary bank in respect of the Company's ordinary shares;12 represent and warrant that the issue to you, or the person specified by you for registration as holder, of Placing Shares will not give rise to a liability under any of sections 67 to 72 inclusive and 93 to 97 inclusive of the Finance Act 1986 (depositary receipts and clearance services);13 if you are in the UK, represent and warrant that you have complied with your obligations in connection with money laundering under the Criminal Justice Act 1993 and the Money Laundering Regulations (2003) (the "Regulations") and, if you are making payment on behalf of a third party, that satisfactory evidence has been obtained and recorded by you to verify the identity of the third party as required by the Regulations;14 represent and warrant that you fall within section 86(7) of the Financial Services and Markets Act 2000 ("FSMA"), being a qualified investor, and within Article 19 and/or 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and undertake that you will acquire, hold, manage or dispose of any Placing Shares that are allocated to you for the purposes of your business;15 represent and warrant that you have not offered or sold and, prior to the expiry of a period of six months from the commencement of trading of the Placing Shares, will not offer or sell any Placing Shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their business or otherwise in circumstances which have not resulted and which will not result in an offer to the public in the United Kingdom within the meaning of Section 85(1) of FSMA, as amended;16 represent and warrant that you have only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) relating to the Placing Shares in circumstances in which section 21(1) of FSMA does not require approval of the communication by an authorised person;17 represent and warrant that you have complied and will comply with all applicable provisions of FSMA with respect to anything done by you in relation to the Placing Shares in, from or otherwise involving the United Kingdom;18 represent and warrant that you have all necessary capacity and have obtained all necessary consents and authorities to enable you to commit to this participation and to perform your obligations in relation thereto (including, without limitation, in the case of any person on whose behalf you are acting, all necessary consents and authorities to agree to the terms set out or referred to in this announcement);19 undertake that you will pay for the Placing Shares acquired by you in accordance with this announcement on the due time and date set out herein, failing which the relevant Placing Shares may be placed with other subscribers at such price as each of the Joint Bookrunners determines;20 acknowledge that participation in the Placing is on the basis that, for the purposes of the Placing, you are not and will not be clients of either of the Joint Bookrunners and that neither of the Joint Bookrunners has duties or responsibilities to you for providing the protections afforded to their clients or for providing advice in relation to the Placing nor in respect of any representations, warranties, undertakings or indemnities contained in the Placing Agreement;21 undertake that the person who you specify for registration as holder of the Placing Shares will be (i) the Placee or (ii) a nominee of the Placee, as the case may be. Neither of the Joint Bookrunners nor the Company will be responsible for any liability to stamp duty or stamp duty reserve tax resulting from a failure to observe this requirement. Each Placee and any person acting on behalf of the Placee agrees to subscribe on the basis that the Placing Shares will be allotted to the CREST stock account of either of the Joint Bookrunners who will hold them as nominee on behalf of the Placee until settlement in accordance with its standing settlement instructions;22 acknowledge that time shall be of the essence as regards obligations pursuant to this Appendix to the announcement; and23 acknowledge that any agreements entered into by the Placee pursuant to these terms and conditions shall be governed by and construed in accordance with the laws of England and you submit (on behalf of yourself and on behalf of any Placee on whose behalf you are acting) to the exclusive jurisdiction of the English courts as regards any claim, dispute or matter arising out of any such contract. The Company, the Joint Bookrunners and others will rely upon the truth andaccuracy of the foregoing representations, warranties and acknowledgements. The agreement to settle your subscription (and/or the subscription of a personfor whom you are contracting as agent) free of stamp duty and stamp duty reservetax depends on the settlement relating only to a subscription by you and/or suchperson direct from the Company for the Placing Shares in question. Suchagreement assumes that the Placing Shares are not being acquired in connectionwith arrangements to issue depositary receipts or to transfer the Placing Sharesinto a clearance service. If there were any such arrangements, or the settlementrelated to other dealings in the Placing Shares, stamp duty or stamp dutyreserve tax may be payable, for which neither the Company nor either of theJoint Bookrunners will be responsible. If this were the case, you should takeyour own advice and notify the relevant Manager accordingly. General This Appendix and the announcement of which it forms part are not fordistribution directly or indirectly in or into the United States, Canada,Australia, Japan or South Africa. Neither this Appendix nor the announcement ofwhich it forms part constitutes an offer to sell or issue or the solicitation ofan offer to buy or acquire ordinary shares in the capital of the Company in anyjurisdiction in which such offer or solicitation is unlawful. The Placing Shares have not been and will not be offered to the public in Franceand the Circular or any material relating to the Placing Shares has not been andwill not be distributed to any members of the public in France other than toqualified investors (investisseurs qualifies) or to a restricted circle ofinvestors ("cercle restreint d'investisseurs") acting on their own account, inaccordance with article L.411-2 of the French Monetary and Financial code ("Codemonetaire et financier"). Neither the Circular nor any material relating to the Placing Shares has been orwill be submitted to the clearance procedure ("visa") of the French Autorite desMarches Financiers. Investors in France may only participate in the issue of thePlacing Shares for their own account in accordance with the conditions set outin the French decret no 98-880 dated 1 October 1998. The Placing Shares to beissued may only be issued, directly or indirectly, to the public in France inaccordance with the applicable provisions of the French Monetary and FinancialCode. If more than 100 French investors participate in the Placing, they willhave to provide certification as to their personal, professional or familyrelationship with a member of the management of the Company. This document is not being distributed in the context of, and does notconstitute, a public offer, public advertisement or similar offer of securitiesin Germany within the meaning of Section 1(1) and Section 2 no. 4 of the GermanSecurities Prospectus Act (Wertpapierprospektgesetz, "WpPG"). This document doesnot constitute a prospectus within the meaning of the WpPG and has not beenfiled with, approved by or notified to the German Federal Financial ServicesSupervisory Authority (Bundesanstalt fur Finanzdienstleistungsaufsicht -"BaFin") for public distribution in the Federal Republic of Germany. Neither aGerman prospectus within the meaning of the WpPG, nor any German translationwithin the meaning of Article 18 of the European Securities Prospectus Directive(No. 2003/71/EC), has been, or will be, prepared, published, notified orotherwise provided. In Germany, this document, copies of this document or anyother documents relating to the Placing Shares may not be distributed, and thePlacing Shares may not be advertised, promoted, offered, sold, or resold, otherthan in compliance with the provisions of the WpPG, and of any other lawsapplicable in the Federal Republic of Germany governing the issue, offering andsale of securities. Therefore, this document and any other related offeringmaterial is directed only at persons who qualify as "qualified investors" in themeaning of Section 2 no. 6 of the WpPG. The Circular does not constitute an issue prospectus pursuant to article 652a ofthe Swiss Code of Obligations. The Placing Shares will not be listed on the SWXSwiss Exchange and, therefore, the Circular does not comply with the disclosurestandards of the Listing Rules of the SWX Swiss Exchange. Accordingly, thePlacing Shares may not be offered to the public in or from Switzerland, but onlyto a selected and limited group of investors, who do not subscribe the PlacingShares with a view to distribution to the public. The investors will beindividually approached from time to time. The Circular is not a Securities Sales Prospectus (Prospekt) within the meaningof Sections 2 and 7 of the Austrian Capital Markets Act (Kapitalmarktgesetz) andhas not been filed with and approved by the Oesterreichische KontrollbankAktiengesellschaft or any other competent authority in Austria. Furthermore, theCircular does not constitute a Prospectus (Prospekt) pursuant to Section 74 ofthe Austrian Stock Exchange Act (Borsegesetz) that would be required for thelisting (admission to trade) of the Placing Shares at the Stock Exchange inVienna. The Circular, copies of the Circular or any other documents relating tothe Placing Shares may not be distributed and the Placing Shares may not beoffered or sold other than to a limited number of persons (investors)(begrenzter Personenkreis), who commercially or professionally (im Rahmen vondessen beruflicher oder gewerblicher Tatigkeit) acquire or sell shares or othersecurities pursuant to Section 3 para 1 numeral 11 of the Austrian CapitalMarkets Act (Kapitalmarktgesetz). The Company represents and agrees that it will not directly or indirectly offerthe Placing Shares to the public in the Netherlands. The Company will notdistribute or cause to be distributed this document or any other offeringmaterial relating to the Placing Shares to the public in the Netherlands in anysuch case where the offer or distribution is made otherwise than:(a) to professional parties (professionele marktpartijen) within the meaning of section 1a (S) 2 of the Exemption Regulation under the Act on the Supervision of the Securities Trade 1995 as amended (Vrijstellingsregeling Wet toezicht effectenverkeer 1995); or(b) in an offer addressed to a number of investors of less than 100 per EU member state; or(c) in denominations of at least EUR 50,000 per Share; or(d) in an offer addressed to investors to acquire the Shares for a total consideration of at least EUR 50,000 per investor; or(e) as part of an offer where the total consideration of such offer is less than EUR 2,500,000, which limit shall be calculated over a period of 12 months. This Appendix and the announcement of which it forms part have been issued bythe Company and are the sole responsibility of the Company. The Joint Bookrunners are acting for the Company and no one else in connectionwith the Placing and will not be responsible to any other person for providingthe protections afforded to their respective clients nor for providing anyadvice in relation to the Placing or any other matters referred to in thisAppendix or the announcement of which it forms part. END This information is provided by RNS The company news service from the London Stock Exchange

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