14th Jan 2010 13:30
Weatherly International Plc ('Weatherly' or the 'Company')
Proposed Disposal of Smelter Business
Termination of Letter of Intent with East China Mineral Exploration and Development Bureau ('ECE')
Weatherly International Plc is pleased to announce that it has entered into a conditional, legally binding agreement (the 'Agreement') for the sale of the Tsumeb smelter business ('Smelter Business') operated by its wholly owned subsidiary, Namibian Custom Smelters (Pty) Limited ('NCS'), to Dundee Precious Metals Inc ('DPM') for net consideration of approximately US$33 million and the assumption by DPM of non-intra group debt and certain other obligations of NCS (the 'Disposal').
In addition, DPM has agreed to provide the Company and NCS with working capital facilities of up to US$6 million in aggregate while the Disposal is concluded.
Following the receipt of representations from certain major shareholders of Weatherly which mean that the conditions set out in the Company's letter of intent with ECE as announced on 15 September 2009 (the 'LOI') are not capable of being fulfilled, and as a result of entering into the Agreement, the Company has terminated the LOI and the proposed subscription by ECE for new ordinary shares in the Company as envisaged by the LOI will not proceed.
KEY TERMS OF THE DISPOSAL
Subject to the conditions set out below, DPM is to acquire the full legal and beneficial interest of the Smelter Business and associated assets for a consideration of US$33 million to be satisfied as to:
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(i) |
US$18 million in cash; |
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(ii) |
the issue of 4,446,420 new ordinary DPM shares ('DPM Shares') valued at US$15 million (based on a DPM Share price of $C3.50 per DPM Share and an exchange rate of CS$1=$US0.96); |
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(iii) |
the assumption by DPM of NCS' outstanding indebtedness to Chelopech Mining EAD ("Chelopech") (a subsidiary of DPM) of US$7 million together with accrued interest of approximately US$0.3 million as at 31 January 2010; and |
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(iv) |
the assumption by DPM of the external obligations of NCS, including debts to Louis Dreyfus Commodities Metals Suisse SA ('Louis Dreyfus'), certain trade creditors and outstanding metal exposures resulting from tolling contract reconciliations. . |
On completion, US$5 million of the cash consideration and 2,678,571 DPM shares (with a value of US$9 million on the basis described above) will be delivered to the holders of the outstanding convertible loan notes (the "Noteholders") to redeem those loan notes in full together with accrued interest. The loan notes have a face value of US$12 million and accrued interest stands at approximately US$2.2 million as at 31 January 2010.
The balance of the share based consideration with a value of US$6 million on the basis described above will be placed in escrow to be released and distributed by Weatherly to its shareholders; with half being distributed six months after the completion of the Disposal and half after 12 months subject to certain approvals as described below.
The Disposal is conditional upon, inter alia:
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the parties entering into a detailed sale and purchase agreement (the 'Sale and Purchase Agreement') containing warranties, indemnities and other terms provided for in the Agreement; |
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the approval of the Disposal by simple majority of the Company's shareholders in general meeting (the 'General Meeting'); |
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the consent of the Noteholders; |
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there having been no material adverse change in the physical assets, licences, permits, waivers, consents or approvals which benefit the Smelter Business; and |
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Weatherly not exercising its remaining rights under its subscription agreement with DPM dated 31 July 2009 to call on DPM to subscribe for ordinary shares in the Company and the obligations of DPM thereunder being released at completion. |
The outstanding conditions to the Agreement are to be satisfied by 28 February 2010 or such other date as the parties may agree. The Company will also propose a special resolution at the General Meeting to approve a capital reduction, the purpose of which is to create distributable reserves to allow the distribution of the DPM Shares to shareholders on the basis explained above. The capital reduction will also require approval by the High Court.
DPM has reserved the option of implementing the Disposal either as a purchase of the Smelter Business or of NCS directly or indirectly, subject to NCS acquiring any relevant assets owned by other Weatherly group companies.
Weatherly has retained the commercial relationship with Louis Dreyfus which gives it the option to access the Tsumeb smelter for its own mine production subject to agreement of commercial terms.
INTERIM FUNDING
As at 31 December 2009, the Company had cash at bank and on hand of approximately US$200,000 and in order to continue to operate as a going concern requires further funding.
DPM has agreed to provide the Company with a working capital loan facility of up to US$2 million from which DPM will transfer the sum of US$1.3 million to the Government of Namibia on behalf of Weatherly in satisfaction of outstanding royalty obligations. Any amounts drawn down are to be repaid from the Disposal proceeds unless the Disposal has not completed by 30 June 2010, at which point repayment would be due on demand.
DPM has agreed to provide a further working capital loan facility to NCS of up to US$4 million (of which US$2 million will be provided at DPM's discretion). Liability for any amounts drawn down would be acquired by DPM unless the Disposal has not completed by 30 June 2010, at which point repayment would be due on demand.
BOARD AND SHAREHOLDER SUPPORT
DPM has received irrevocable undertakings from the Directors in their capacity as shareholders and certain other shareholders in respect of 195,297,246 ordinary shares representing in aggregate approximately 43.8 per cent. of the Company's issued share capital to vote in favour of the Disposal.
In addition, DPM is currently interested in 40,468,000 ordinary shares, representing approximately 9.1 per cent. of the Company's issued share capital. Accordingly, DPM is either interested in or has received irrevocable undertakings in respect of 235,765,246 ordinary shares representing, in aggregate, approximately 52.9 per cent. of the Company's issued share capital.
TERMINATION OF LETTER OF INTENT WITH ECE
With its own interests and irrevocable undertakings in favour of the Disposal amounting to over 50 per cent. of shareholders supporting the DPM proposal, the proposed ECE investment cannot proceed and the Company has formally notified ECE accordingly.
The Board considers the DPM proposal to acquire the assets of NCS and retire debt to be superior to the proposed ECE investment and will formally recommend shareholders vote to vote in favour of the Disposal.
STRATEGY
On completion of the Disposal, the Company will be debt free, with all material outstanding creditors having been settled. The Company will have sufficient cash on hand to advance its strategic objectives.
The Company will continue to evaluate the reopening of the Otjhase and Matchless mines, and the development of its Tschudi open pit project.
Commenting on Disposal and interim funding provided by DPM, Rod Webster, CEO of Weatherly, stated:
"The Board considers that the disposal of the Smelter Business represents good value for the Company. The transaction provides the Company with the funding it requires to address its near term working capital requirements and thereafter to execute its strategy. We expect to continue discussions with ECE with a view to exploring possible opportunities for our respective groups to work together in the future."
This summary announcement should be read in conjunction with the further details of the Disposal and Agreement as set out in the full detailed announcement below.
For further information, please contact:
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Rod Webster, Chief Executive Officer, Weatherly International Plc |
+44 (0) 20 7917 2989 |
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Richard Greenfield, Ambrian Partners Limited |
+44 (0) 20 7634 4710 |
FULL ANNOUNCEMENT
Weatherly International Plc is pleased to announce that it has entered into a conditional, legally binding Agreement for the sale of the Smelter Business operated by its wholly owned subsidiary, NCS, to DPM for consideration of approximately US$33 million and the assumption by DPM of non-intragroup debt and certain other obligations of NCS.
Following the receipt of representations from certain major shareholders of Weatherly which mean that the conditions set out in the Company's LOI with ECE (namely the ability of the Company to secure the passing of a special resolution to disapply statutory pre-emption rights to facilitate the investment) are not capable of being fulfilled, and as a result of entering into the Agreement, the Company has terminated the LOI and the proposed subscription by ECE for new ordinary shares in the Company as envisaged by the LOI will not proceed.
Key terms of the Disposal
The full terms of the Disposal are to be agreed in the definitive Sale and Purchase Agreement to be entered into between the parties. The key terms of the Disposal have been agreed pursuant to the legally binding Agreement as follows:
DPM will acquire the full legal and beneficial interest of the Smelter Business and all land, plant and other assets used by or which benefit the Tsumeb Smelter.
The full consideration to be paid by DPM upon completion of the Disposal will be:
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(i) |
US$18 million in cash; |
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(ii) |
the issue of 4,446,420 DPM Shares valued at US$15 million (based on a DPM share price of $C3.50 per DPM Share and an exchange rate of CS$1=$US0.96); |
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(iii) |
the assumption by DPM of NCS' outstanding indebtedness to Chelopech Mining EAD (a subsidiary of DPM) of US$7 million, together with accrued interest of approximately US$0.3 million; and |
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(iv) |
the assumption by DPM of the external obligations of NCS, including debts to Louis Dreyfus, certain trade creditors and outstanding metal exposures resulting from tolling contract reconciliations. |
At completion:
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(i) |
US$5 million of the cash consideration together with 2,678,571 DPM Shares (valued at US$9 million on the basis described above) will be paid to the Company's convertible Noteholders in redemption of their notes and settlement of all amounts due to them; |
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(ii) |
1,785,714 DPM shares (valued at US$6 million on the basis described above) will be placed into escrow to be released and distributed by the Company to its shareholders as to half after six months and half after 12 months; and |
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(iii) |
The balance of the cash consideration of US$13 million will be paid to the Company as it shall nominate. |
DPM has reserved the option of implementing the Disposal either as a purchase of the Smelter Business or of NCS directly or indirectly, subject to NCS acquiring any relevant assets owned by other Weatherly group companies.
Weatherly has retained the commercial relationship with Louis Dreyfus which gives it the option to access the Tsumeb smelter for its own mine production subject to agreement of commercial terms.
Use of proceeds
As described above, the proceeds of the Disposal are to be partly paid to the Company's Noteholders with a further 1,785,714 DPM Shares to be held in escrow to be distributed to the Company's shareholders.
The Company expects to deploy the balance of the Disposal proceeds of US$13 million to continue to evaluate the reopening of the Otjhase and Matchless mines, the development of its Tschudi open pit project and for general working capital purposes.
Requirement for Shareholder Approval
The Disposal is classified as a disposal resulting in a fundamental change of business pursuant to Rule 15 of the AIM Rules for Companies. Accordingly, completion of the Disposal is conditional upon the consent of the Company's shareholders being given in general meeting.
Following the signature of the definitive Sale and Purchase Agreement to effect the Disposal, the Company intends to convene the General Meeting with the publication of a shareholder circular (the 'Circular') in early February 2010.
The distribution of DPM shares to Weatherly shareholders as described above will also require shareholder approval and a court approved reduction of capital process to create sufficient distributable reserves. The Company expects to seek shareholder approval for this process at the General Meeting.
The Company currently intends that shareholders appearing on the Company's register of shareholders as at the date of the General Meeting will be eligible for the distribution of DPM Shares as described above, subject to receipt of any necessary regulatory and other approvals. The Company expects to provide further details in this respect in the Circular.
Conditions to the Disposal
In addition to the requirement for shareholder approval described above, the Disposal is conditional upon the satisfaction of the following conditions by 28 February 2010 (or such other date as the parties may agree):
the parties entering into the definitive Sale and Purchase Agreement containing the warranties, indemnities and other terms as provided for in the Agreement;
the approval by simple majority of the Company's shareholders in a general meeting to be convened;
the consent of the Company's convertible Noteholders;
Weatherly not exercising its remaining rights under its subscription agreement with DPM dated 31 July 2009 to call on DPM to subscribe for ordinary shares in the Company and the obligations of DPM thereunder being released at completion;
any necessary Toronto Stock Exchange approvals;
any statutory notices;
warranties given in respect of the Disposal as set out in the Agreement being accurate in all respects at completion and there being no breaches of the Agreement or the Sale and Purchase Agreement by the Company or its subsidiaries; and
there having been no material adverse change in the physical assets, licences, permits, waivers, consents or approvals which benefit the Smelter Business and no material contract, licence, waiver, consent or agreement having been terminated or material adversely changed or entered into.
The Company has granted DPM an exclusivity period to the later of 28 February 2010 or completion of the Disposal and has given DPM certain assurances as to the conduct of the Smelter Business and otherwise during that period.
Irrevocable undertakings
DPM has received irrevocable undertakings from the Directors in their capacity as shareholders and certain other shareholders in respect of 195,297,246 ordinary shares representing in aggregate approximately 43.8 per cent. of the Company's issued share capital to vote in favour of the Disposal.
In addition, DPM is currently interested in 40,468,000 ordinary shares, representing approximately 9.1 per cent. of the Company's issued share capital. Accordingly, DPM is either interested in or has received irrevocable undertakings in respect of 235,765,246 ordinary shares representing, in aggregate, approximately 52.9 per cent. of the Company's issued share capital.
The irrevocable undertakings received by DPM will lapse if the Sale and Purchase Agreement is not entered into by 28 February 2010 or if the Disposal has not completed by 9 April 2010.
Financial Effects of the Disposal
In the year to 30 June 2009, the Company reported a loss before interest and tax for its smelting operations the subject of the Disposal of US$3,804,000 from revenues of US$108,507,000. As at 30 June 2009 the net carrying value of the assets was US$25,951,000.
Interim Funding Arrangements
As at 31 December 2009, the Company had cash at bank and on hand of approximately US$200,000 and in order to continue to operate as a going concern requires further funding.
Pursuant to the Agreement, DPM has agreed to provide a working capital loan facility to the Company of up to US$2 million and to NCS of up to US$4 million (of which US$2 million will be advanced at DPM's discretion). It is intended that any amounts drawn down under the facility provided to the Company will be repaid from the Disposal proceeds whereas any amounts drawn down by NCS would be assumed by DPM on completion of the Disposal.
Of the loan facility provided to the Company, DPM will transfer the sum of US$1.3 million to the Government of Namibia on behalf of a subsidiary of the Company to satisfy an outstanding royalty payment obligation.
Interest is payable at LIBOR plus 4 per cent. per annum on amounts drawn down under the loan facilities and if the Disposal has not completed by 30 June 2010, any amounts drawn down will become immediately repayable.
Pursuant to the subscription agreement entered into by DPM as announced on 6 August 2009, the Company has the right to call on DPM to subscribe for ordinary shares in the Company on up to two occasions for aggregate consideration of up to US$5 million at the higher of the then prevailing market price or (save in certain circumstances) 3 pence per ordinary share. Under the terms of the Agreement, the Company has agreed not to exercise this right other than to fund the repayment of the DPM loan facilities described above in the event that the Disposal has not completed by 30 June 2010.
Termination of ECE Letter of Intent
On 15 September 2009, the Company announced that it had entered into the LOI with ECE, pursuant to which ECE was to subscribe for 446,851,840 new ordinary shares in the Company at a price of 3.6 pence per share to provide the Company with new funding of approximately GBP16.1 million and give ECE an interest of approximately 50.1 per cent. in the Company's issued share capital as enlarged by the subscription.
The ECE subscription envisaged by the LOI would have required the Company's shareholders to approve a special resolution in general meeting, with an approval threshold of 75 per cent. of shares voted at that meeting. In light of the irrevocable undertakings received by DPM to vote in favour of the Disposal, in addition to DPM's own shareholding in the Company, the LOI would be incapable of being fulfilled.
While the Directors consider that a strategic relationship with ECE could have benefited the Company, the Disposal provides the Company with the immediate and longer term funding it requires without the issue of new equity and without a change of control. The Directors therefore consider that the Disposal represents better value for shareholders than the transaction set out in the LOI with ECE.
NOTES TO EDITIORS
About Weatherly International Plc
Weatherly's principal assets are its two operating subsidiaries in Namibia, NCS and Weatherly Mining Namibia, which hold the Group's copper mining and processing assets.
The Tsumeb Smelter operated by NCS is one of only five commercial scale smelters operating in Africa. Since the completion of the acquisition of Ongopolo Mining and Processing Limited by Weatherly in July 2006, the Tsumeb Smelter has been successfully transformed into a custom smelting facility to treat third party concentrates which treatment attracts premium processing charges. Concentrates are primarily supplied to the smelter under two long term supply arrangements with DPM and Louis Dreyfus on tolling terms which are independent of the copper price. The recent expansion of the smelter has been principally funded by loans from DPM and Louis Dreyfus.
Following the closure of its mining operations in late 2008 as a result of significant falls in the copper price, Weatherly Mining Namibia is currently working to recommence mining activities at the Otjihase and Matchless underground mines based on a lower cost operating strategy and to develop an open pit operation at Tschudi.
About Dundee Precious Metals Inc
Dundee Precious Metals Inc. is a Canadian based, international mining company engaged in the acquisition, exploration, development and mining of precious metals. Its common shares and share purchase warrants are listed on the Toronto Stock Exchange under the symbols DPM, DPM.WT and DPM.WT.A. DPM owns the Chelopech Mine, a producing gold/copper mine, and the Krumovgrad Gold Project, a mining development project, both located in Bulgaria, as well as a 95% interest in the Kapan Mine in Armenia. In addition, it is engaged in mineral exploration activities in Serbia.
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Weatherly International Plc