5th Feb 2009 07:09
5 February 2009
PETER HAMBRO MINING PLCPROPOSED PLACING TO RAISE APPROXIMATELY £55 MILLION
Introduction
Peter Hambro Mining Plc (the "Company" or "PHM") today announces a proposed placing (the "Placing") to raise approximately £55 million by way of an issue of new ordinary shares in the capital of the Company (the "Placing Shares").
Background to the Placing
On 9 January 2009, PHM made a statement regarding a possible all share offer for Aricom plc ("Aricom"). In response to recent speculation in the press PHM has today announced a further update on its discussions regarding the offer. The discussions are at an advanced stage for a recommended merger between PHM and Aricom. Agreement has not yet been reached on the exchange ratio for the merger and certain other terms and there can therefore be no certainty that the merger will proceed. However, the Independent Board Committees of the respective companies are working towards agreement on a fixed exchange ratio which would see Aricom Shareholders receive one fully paid PHM Share in exchange for between 15.77 and 17.14 fully paid Aricom Shares. The fixed exchange ratio (which would be in this range) is expected to be based on a number of factors which are still subject to negotiation between the parties.
Based on a pre-announcement PHM closing price of 397.75p on 8 January 2009, this equates to a potential offer price per Aricom share of between 23p and 25p. Based on last night's closing price for PHM shares of 585p this equates to a potential offer price of between 34p and 37p.
Placing Rationale and Use of Proceeds
The net proceeds of the Placing are expected to be used to reduce the Company's short term obligations including its exposure to the US$180 million, 7.000% Gold Equivalent Exchangeable Bonds (the "Bonds") which are repayable at the holders' option on or after 19 October 2009. The reduction in this exposure will support the intended move of the enlarged company to the Main Market, should a merger with Aricom complete.
Details of the Placing
Under the terms of the Placing, PHM intends to raise approximately £55 million by way of an issue of new ordinary shares in the capital of the Company.
The Placing is being conducted through an accelerated bookbuild which will be launched immediately following this announcement. The number of Placing Shares and the price at which the Placing Shares are to be placed will be determined at the close of the bookbuild and announced shortly thereafter. Preferential treatment in the allocation process will be given to existing institutional shareholders of PHM. Strong support for the proposed placing has already been indicated by existing shareholders.
The Placing is conditional, inter alia, on the Placing Shares being admitted to trading on AIM ("Admission"). The Placing is not conditional on the merger and will complete on Admission.
JPMorgan Cazenove has been appointed as sole bookrunner in respect of the placing and is joint broker to the Company. Canaccord Adams is acting as co-lead manager in respect of the placing and is joint broker to the Company.
Appendix 1 to this announcement (which forms part of this announcement) sets out the terms and conditions of the Placing. Appendix 2 to this announcement sets out certain risk factors for the Placing.
Commenting on the Placing, Peter Hambro, PHM's Executive Chairman, said:
"The proceeds of the placing that we announce this morning provide additional working capital headroom and support our potential recommended merger with Aricom. Together these transactions enable us to de-risk our balance sheet and develop our world class portfolio of growth projects."
For further information, please contact:
Peter Hambro Mining +44 (0) 207 201 8900
Alya Samokhvalova
Rachel Tuft
JPMorgan Cazenove +44 (0) 207 588 2828
Ian Hannam
Patrick Magee
Joe Seifert
Canaccord Adams +44 (0) 20 7050 6500
Neil Johnson
Merlin +44 (0) 207 653 6620
David Simonsen
Tom Randell
JPMorgan Cazenove is acting as sole bookrunner in connection with the Placing.
JPMorgan Cazenove and Canaccord Adams are acting as Managers in connection with the Placing. The books will open with immediate effect. It is currently expected that the results of the Placing will be announced on 5 February 2009. The timing of the closing of the books and allocations may be amended at the absolute discretion of the Managers.
The proposed Placing is not underwritten and will take place at a price which will be established through a bookbuilding process. It is expected that the bookbuilding process will be completed on 5 February 2009.
The Placing will take place in accordance with the terms and conditions set out in Appendix 1 to this announcement.
Application will be made to London Stock Exchange plc ("the Exchange") for the Placing Shares to be admitted to AIM Market of the London Stock Exchange. Admission of the Placing Shares is expected to take place on or around 8.00am on 10 February 2009. The Placing Shares will be credited as fully paid and will rank equally in all respects with the existing ordinary shares in the share capital of PHM, including the right to receive all dividends and other distributions declared, made or paid after their date of issue.
Disclaimers
This announcement has been issued by and is the sole responsibility of the Company. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by JPMorgan Cazenove or Canaccord Adams or by any of their respective affiliates or agents as to or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.
JPMorgan Cazenove and Canaccord Adams, which are authorised and regulated by the Financial Services Authority are acting for the Company in connection with the Placing and no-one else and neither JPMorgan Cazenove nor Canaccord Adams will be responsible to anyone other than the Company for providing the protections afforded to clients of JPMorgan Cazenove or Canaccord Adams respectively nor for providing advice in relation to the Placing.
Canaccord Adams is acting exclusively for Aricom and no-one else in connection with the merger described in this announcement and will not be responsible to anyone other than Aricom for providing the protections afforded to clients of Canaccord Adams nor for providing advice in relation to the possible merger or any matter related to the possible merger.
The distribution of this announcement and the Placing of the Placing Shares in certain jurisdictions may be restricted by law. No action has been taken by the Company JPMorgan Cazenove or Canaccord Adams that would permit an offering of such shares or possession or distribution of this announcement or any other offering or publicity material relating to such shares in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes are required by the Company, JPMorgan Cazenove and Canaccord Adams to inform themselves about, and to observe, such restrictions.
APPENDIX 1
Terms and Conditions
This announcement, including the Appendix (together "this Announcement"), is not for distribution directly or indirectly in or into the United States, Canada, Australia or Japan or any jurisdiction into which the same would be unlawful. This Announcement does not constitute an offer to sell or issue or the solicitation of an offer to buy or acquire shares in the capital of the Company in the United States, Canada, Australia or Japan or any jurisdiction in which such an offer or solicitation is unlawful. The shares in the Company referred to in this Announcement have not been and will not be registered under the US Securities Act of 1933, as amended ("Securities Act") and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state laws. No public offering of shares in the Company will be made in the United States.
This Announcement has been issued by and is the sole responsibility of the Company. No representation or warranty express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by JPMorgan Cazenove Limited ("JPMC") or Canaccord Adams Limited ("Canaccord") (together the "Managers") or by any of their respective affiliates or agents as to or in relation to, the accuracy or completeness of this Announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.
JPMC and Canaccord, which are each authorised and regulated by the Financial Services Authority, are acting for the Company in connection with the Placing and noߛone else and neither JPMC nor Canaccord will be responsible to anyone other than the Company for providing the protections afforded to clients of JPMC or Canaccord respectively nor for providing advice in relation to the Placing.
The distribution of this Announcement and the offering of the Placing Shares in certain jurisdictions may be restricted by law. No action has been taken by the Company or the Managers that would permit an offering of such shares or possession or distribution of this Announcement or any other offering or publicity material relating to such shares in any jurisdiction where action for that purpose is required. Persons into whose possession this Announcement comes are required by the Company and the Managers to inform themselves about, and to observe, and such restrictions.
Certain statements in this Announcement are forward-looking statements which are based on the Company's, expectations, intentions and projections regarding its future performance, anticipated events or trends and other matters that are not historical facts. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of such statements and, except as required by applicable law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Any indication in this Announcement of the price at which ordinary shares have been bought or sold in the past cannot be relied upon as a guide to future performance. No statement in this Announcement is intended to be a profit forecast and no statement in this Announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.
APPENDIX : FURTHER DETAILS OF THE PLACING
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN.
IMPORTANT INFORMATION ON THE PLACING FOR INVITED PLACEES ONLY.
MEMBERS OF THE PUBLIC ARE NOT ELIGIBLE TO TAKE PART IN THE PLACING. THIS APPENDIX AND THE TERMS AND CONDITIONS SET OUT HEREIN ARE FOR INFORMATION PURPOSES ONLY AND ARE DIRECTED ONLY AT: (A) PERSONS IN MEMBER STATES OF THE EUROPEAN ECONOMIC AREA WHO ARE QUALIFIED INVESTORS; (B) IN THE UNITED KINGDOM, QUALIFIED INVESTORS WHO ARE PERSONS WHO (I) HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS FALLING WITHIN ARTICLE 19(1) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 (THE "ORDER"); (II) ARE PERSONS FALLING WITHIN ARTICLE 49(2)(A) TO (D) ("HIGH NET WORTH COMPANIES, UNINCORPORATED ASSOCIATIONS, ETC") OF THE ORDER; OR (III) ARE PERSONS TO WHOM IT MAY OTHERWISE BE LAWFULLY 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 ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS APPENDIX AND THE TERMS AND CONDITIONS SET OUT HEREIN RELATES IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. THIS APPENDIX DOES NOT ITSELF CONSTITUTE AN OFFER FOR SALE OR SUBSCRIPTION OF ANY SECURITIES IN THE COMPANY.
Persons who are invited to and who choose to participate in the Placing, by making an oral or written offer to subscribe for Placing Shares (the "Placees"), will be deemed to have read and understood this Announcement, including this Appendix, in its entirety and to be making such offer on the terms and conditions, and to be providing the representations, warranties, acknowledgements, and undertakings contained in this Appendix. In particular each such Placee represents, warrants and acknowledges that it is a Relevant Person (as defined above) and undertakes that it will acquire, hold, manage or dispose of any Placing Shares that are allocated to it for the purposes of its business.
In addition, Placees located in certain jurisdictions will be required to execute investor letters in a form provided.
This Announcement does not constitute an offer to sell or issue or the solicitation of an offer to buy or subscribe for Placing Shares in any jurisdiction in which such offer or solicitation is or may be unlawful. This Announcement and the information contained herein is not for publication or distribution, directly or indirectly, to persons in the United States, Canada, Australia or Japan or in any jurisdiction in which such publication or distribution is unlawful. No public offer of securities of the Company is being made in the United Kingdom, United States or elsewhere.
In particular, the Placing Shares referred to in this Announcement have not been and will not be registered under the Securities Act or the laws of any state and may not be offered, sold or transferred within the United States except pursuant to an exemption from, or as part of a transaction not subject to, the registration requirements of the Securities Act and applicable state laws.
The relevant clearances have not been, and nor will they be, obtained from the securities commission of any province or territory of Canada; no prospectus has been lodged with or registered by, the Australian Securities and Investments Commission or the Japanese Ministry of Finance; and the Placing Shares have not been, and nor will they be, registered under or offered in compliance with the securities laws of any state, province or territory of Canada, Australia or Japan. Accordingly, the Placing Shares may not (unless an exemption under the relevant securities laws is applicable) be offered, sold, resold or delivered, directly or indirectly, in or into the United States, Canada, Australia or Japan or any other jurisdiction outside the United Kingdom.
The Placing Shares have not been approved or disapproved by the US Securities and Exchange Commission, any State securities commission or other regulatory authority in the United States, nor have any of the foregoing authorities passed upon or endorsed the merits of the Placing or the accuracy or adequacy of this Announcement. Any representation to the contrary is unlawful.
Persons (including, without limitation, nominees and trustees) who have a contractual or other legal obligation to forward a copy of this Appendix or the announcement of which it forms part should seek appropriate advice before taking any action.
Details of the Placing Agreement and the Placing Shares
The Managers have entered into a Placing Agreement (the "Placing Agreement") with the Company under which the Managers have severally (and not jointly and severally), on the terms and subject to the conditions set out therein, undertaken to use their reasonable endeavours to procure subscribers for the Placing Shares at the Placing Price.
The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing issued ordinary shares in the capital of the Company ("Ordinary Shares") including the right to receive all dividends and other distributions declared made or paid after the date of issue.
In this Appendix, unless the context otherwise requires, Placee means a Relevant Person (including individuals, funds or others) on whose behalf a commitment to subscribe for Placing Shares has been given.
Application for listing and admission to trading
Application will be made to the London Stock Exchange plc for admission to trading of the Placing Shares to AIM, a market operated by the London Stock Exchange ("AIM") ("Admission"). It is expected that Admission will become effective on or around 10 February 2009 and that dealings in the Placing Shares will commence at that time.
Bookbuild
The Managers will today commence an accelerated bookbuilding process in respect to the Placing (the "Bookbuild") to determine demand for participation in the Placing by Placees. This Appendix gives details of the terms and conditions of, and the mechanics of participation in, the Placing. No commissions will be paid to Placees or by Placees in respect of any Placing Shares.
The Managers and the Company shall be entitled to effect the Placing by such alternative method to the Bookbuild as they may, in their sole discretion, determine.
Participation in, and principal terms of, the Placing
1. JPMC is arranging the Placing as sole bookrunner and Canaccord as co-lead manager and both as an agent of the Company.
2. Participation in the Placing will only be available to persons who may lawfully be, and are, invited to participate by JPMC. The Managers and their respective Affiliates are entitled to enter bids as principal in the Bookbuild.
3. The Bookbuild will establish a single price payable to JPMC by all Placees whose bids are successful (the "Placing Price"). The Placing Price and the aggregate proceeds to be raised through the Placing will be agreed between JPMC and the Company following completion of the Bookbuild. The Placing Price will be announced on a Regulatory Information Service following the completion of the Bookbuild (the "Pricing Announcement").
4. To bid in the Bookbuild, Placees should communicate their bid by telephone to their usual sales contact at JPMC or Canaccord. Each bid should state the number of Placing Shares which the prospective Placee wishes to subscribe for at either the Placing Price which is ultimately established by the Company and JPMC or at prices up to a price limit specified in its bid. Bids may be scaled down by JPMC on the basis referred to paragraph 8 below.
5. The Bookbuild is expected to close no later than 5.00p.m. (GMT) on 5 February 2009 but may be closed earlier or later at the discretion of the Managers. JPMC and Canaccord may, in agreement with the Company, accept bids that are received after the Bookbuild has closed. The Company reserves the right to reduce or seek to increase the amount to be raised pursuant to the Placing, in its absolute discretion.
6. Each Placee's allocation will be confirmed to Placees orally by JPMC following the close of the Placing, and a trade confirmation will be dispatched as soon as possible thereafter. JPMC's oral confirmation to such Placee will constitute an irrevocable legally binding commitment upon such person (who will at that point become a Placee) in favour of JPMC and the Company, under which it agrees to acquire the number of Placing Shares allocated to it at the Placing Price on the terms and conditions set out in this Appendix and in accordance with the Company's Memorandum and Articles of Association.
7. The Company will make a further announcement following the close of the Bookbuild detailing the number of Placing Shares to be issued and the price at which Placing Shares have been placed.
8. Subject to paragraphs 4 and 5 above, JPMC may choose to accept bids, either in whole or in part, on the basis of allocations determined at its discretion (in agreement with the Company) and may scale down any bids for this purpose on such basis as it may determine. JPMC may also, notwithstanding paragraphs 4 and 5 above, subject to the prior consent of the Company (i) allocate Placing Shares after the time of any initial allocation to any person submitting a bid after that time and (ii) allocate Placing Shares after the Bookbuild has closed to any person submitting a bid after that time. JPMC and Canaccord each reserve the right not to accept bids or to accept bids in part rather than in whole.
9. A bid in the Bookbuild will be made on the terms and subject to the conditions in this Announcement and will be legally binding on the Placee on behalf of which it is made and except with JPMC's consent will not be capable of variation or revocation after the time at which it is submitted. Each Placee will also have an immediate, separate, irrevocable and binding obligation, owed to JPMC, to pay it (or as it may direct) in cleared funds an amount equal to the product of the Placing Price and the number of Placing Shares such Placee has agreed to acquire. Each Placee's obligations under this paragraph will be owed to JPMC.
10. Except as required by law or regulation, no press release or other announcement will be made by either Manager or the Company using the name of any Placee (or its agent), in its capacity as Placee (or agent), other than with such Placee's prior written consent.
11. Irrespective of the time at which a Placee's allocation pursuant to the Placing is confirmed, settlement for all Placing Shares to be acquired pursuant to the Placing will be required to be made at the same time, on the basis explained below under "Registration and Settlement".
12. All obligations under the Bookbuild and Placing will be subject to fulfilment of the conditions referred to below under "Conditions of the Placing" and to the Placing not being terminated on the basis referred to below under "Right to terminate under the Placing Agreement".
13. By participating in the Bookbuild, each Placee will agree that its rights and obligations in respect of the Placing will terminate only in the circumstances described below and will not be capable of rescission or termination by the Placee.
14. To the fullest extent permissible by law, neither of the Managers nor any of their respective affiliates shall have any liability to Placees (or to any other person whether acting on behalf of a Placee or otherwise). In particular, neither the Managers nor any of their respective affiliates shall have any liability (including to the extent permissible by law, any fiduciary duties) in respect of the conduct of the Bookbuild process or of such alternative method of effecting the Placing as the Managers and the Company may agree.
Conditions of the Placing
The obligations of the Managers under the Placing Agreement in respect of the Placing Shares are conditional on, inter alia:
(a) Admission taking place not later than 8.00 a.m. on 10 February 2009 or such later date as the Company and the Managers may otherwise agree but not being later than close of business on 13 February 2009;
(b) the Company complying with its obligations and having satisfied all conditions to be satisfied by it under the Placing Agreement to the extent the same fall to be performed or satisfied prior to Admission in all material respects;
(c) the Company issuing a pricing announcement setting out the results of the placing no later than 7.00 am on 6 February 2009 or such later date as the Company and the Managers may otherwise agree;
(d) the Company allotting, subject only to Admission, the Placing Shares in accordance with the Placing Agreement;
(e) the delivery to the Managers of a certified copy of the certificate of incorporation of JerseyCo and a certified copy of the consent certificate of the Jersey Financial Services Commission issued to JerseyCo pursuant to the Control of Borrowing (Jersey) Order 1958 and a legal opinion as to Jersey law in the agreed form;
(f) the execution and delivery of the Term Sheet by the Company and the Managers in accordance with the Placing Agreement;
(g) the execution of the Preference Share Term Sheet by all the parties thereto in accordance with the Placing Agreement;
(h) the Subscription and Transfer Agreement having been duly executed and delivered by the Company and JerseyCo and there having occurred no default or breach by the Company or JerseyCo of its terms by the time immediately prior to Admission;
(i) the Option Agreement having been duly executed and delivered by the Company and JerseyCo and there having occurred no default or breach by the Company or JerseyCo of its terms by the time immediately prior to Admission; and
(j) the warranties contained in the Placing Agreement being true and accurate and not misleading at all times (by reference to the facts then subsisting) before Admission.
If (i) any of the conditions contained in the Placing Agreement in relation to the Placing Shares are not fulfilled or waived by the Managers by the respective time or date where specified (or such later time or date as the Company and the Managers may agree), (ii) any of such conditions becomes incapable of being fulfilled or (iii) the Placing Agreement is terminated in the circumstances specified below, the Placing in relation to the Placing Shares will lapse and the Placee's rights and obligations hereunder in relation to the Placing Shares shall cease and terminate at such time and each Placee agrees that no claim can be made by the Placee against either the Company or the Managers in respect thereof.
Each of the Managers may, at their discretion and upon such terms as they think fit, waive compliance by the Company with the whole or any part of any of the Company's obligations in relation to the conditions in the Placing Agreement save that the above condition relating to Admission taking place may not be waived. Any such extension or waiver will not affect Placees' commitments as set out in this Announcement.
Neither the Managers nor the Company shall have any liability to any Placee (or to any other person whether acting on behalf of a Placee or otherwise) in respect of any decision it may make as to whether or not to waive or to extend the time and /or date for the satisfaction of any condition to the Placing nor for any decision they may make as to the satisfaction of any condition or in respect of the Placing generally and by participating in the Placing each Placee agrees that any such decision is within the absolute discretion of the Managers and the Company.
Right to terminate under the Placing Agreement
The Managers are entitled, at any time before Admission, to terminate the Placing Agreement in relation to their obligations in respect of the Placing Shares by giving notice to the Company in certain circumstances, including a breach of the warranties given to the Managers in the Placing Agreement, the failure of the Company to comply with obligations which are material in the Managers' opinion or, the occurrence of a force majeure event which in the opinion of the Managers, is likely to prejudice the success of the Placing.
By participating in the Placing, the Placees agree that the exercise by either or both of the Managers of any right of termination or other discretion under the Placing Agreement shall be within the absolute discretion of the Managers and the Company and that they need not make any reference to Placees and that they shall have no liability to Placees whatsoever in connection with any such exercise.
No Prospectus
The Placing Shares are being offered to a limited number of specifically invited persons only and will not be offered in such a way as to require a prospectus in the United Kingdom or in any other jurisdiction. No offering document or prospectus has been or will be submitted to be approved by the FSA in relation to the Placing and Placees' commitments will be made solely on the basis of the information contained in this Announcement. Each Placee, by accepting a participation in the Placing, agrees that the content of this Announcement is exclusively the responsibility of the Company and confirms that it has neither received nor relied on any other information, representation, warranty, or statement made by or on behalf of the Company or the Managers or any other person and neither of the Managers nor the Company nor any other person will be liable for any Placee's decision to participate in the Placing based on any other information, representation, warranty or statement which the Placees may have obtained or received. Each Placee acknowledges and agrees that it has relied on its own investigation of the business, financial or other position of the Company in accepting a participation in the Placing. Nothing in this paragraph shall exclude the liability of any person for fraudulent misrepresentation.
Registration and Settlement
Settlement of transactions in the Placing Shares (ISIN: GB0031544546) following Admission will take place within the CREST system, subject to certain exceptions, the Managers reserve the right to require settlement for and delivery of the Placing Shares to Placees by such other means that they deem necessary if delivery or settlement is not possible or practicable within the CREST system within the timetable set out in this Announcement or would not be consistent with the regulatory requirements in the Placee's jurisdiction.
Each Placee allocated Placing Shares in the Placing will be sent a trade confirmation in accordance with the standing arrangements in place with the respective Manager, stating the number of Placing Shares allocated to it at the Placing Price, the aggregate amount owed by such Placee to JPMC and settlement instructions. Each Placee agrees that it will do all things necessary to ensure that delivery and payment is completed in accordance with either the standing CREST or certificated settlement instructions that it has in place with the relevant Manager.
It is expected that settlement will be on 10 February 2009 on a T+3 basis in accordance with the instructions set out in the trade confirmation.
Interest is chargeable daily on payments not received from Placees on the due date in accordance with the arrangements set out above at the rate of two percentage points above LIBOR as determined by the Managers.
Each Placee is deemed to agree that, if it does not comply with these obligations, the relevant Manager may sell any or all of the Placing Shares allocated to that Placee on such Placee's behalf and retain from the proceeds, for the relevant Manager's account and benefit, an amount equal to the aggregate amount owed by the Placee plus any interest due. The relevant Placee will, however, remain liable for any shortfall below the aggregate amount owed by it and may be required to bear any stamp duty or stamp duty reserve tax (together with any interest or penalties) which may arise upon the sale of such Placing Shares on such Placee's behalf.
If Placing Shares are to be delivered to a custodian or settlement agent, Placees should ensure that the trade confirmation is copied and delivered immediately to the relevant person within that organisation.
Insofar as Placing Shares are registered in a Placee's name or that of its nominee or in the name of any person for whom a Placee is contracting as agent or that of a nominee for such person, such Placing Shares should, subject as provided below, be so registered free from any liability to UK stamp duty or stamp duty reserve tax.
Representations and Warranties
By participating in the Placing each Placee (and any person acting on such Placee's behalf):
1. represents and warrants that it has read this Announcement, including the Appendix, in its entirety;
2. acknowledges that no offering document or prospectus has been prepared in connection with the placing of the Placing Shares and represents and warrants that it has not received a prospectus or other offering document in connection therewith;
3. acknowledges that neither the Managers nor the Company nor any of their affiliates nor any person acting on behalf of any of them has provided, and will not provide it, with any material regarding the Placing Shares or the Company other than this Announcement; nor has it requested any of JPMC, Canaccord, the Company, any of their affiliates or any person acting on behalf of any of them to provide it with any such information;
4. acknowledges that the content of this Announcement is exclusively the responsibility of the Company and that neither JPMC nor Canaccord nor any person acting on their respective behalf has or shall have any liability for any information, representation or statement contained in this Announcement or any information previously published by or on behalf of the Company and will not be liable for any Placee's decision to participate in the Placing based on any information, representation or statement contained in this Announcement prospectus or otherwise. Each Placee further represents, warrants and agrees that the only information on which it is entitled to rely and on which such Placee has relied in committing itself to acquire the Placing Shares is contained in this Announcement and any information previously published by the Company by notification to a Regulatory Information Service, such information being all that it deems necessary to make an investment decision in respect of the Placing Shares and that it has neither received nor relied on any other information given or representations, warranties or statements made by any of JPMC, Canaccord or the Company and neither JPMC, Canaccord nor the Company will be liable for any Placee's decision to accept an invitation to participate in the Placing based on any other information, representation, warranty or statement. Each Placee further acknowledges and agrees that it has relied on its own investigation of the business, financial or other position of the Company in deciding to participate in the Placing;
5.acknowledge that the Ordinary Shares are admitted to trading on AIM, and the Company is therefore required to publish certain business and financial information in accordance with the AIM Rules (collectively, the "Exchange Information"), which includes a description of the nature of the Company's business and the Company's most recent AIM admission document and financial statements, and similar statements for preceding financial years, and that you are able to obtain or access the Exchange Information without undue difficulty;
6.acknowledges that neither JPMC, Canaccord nor any person acting on behalf of it nor any of its affiliates has or shall have any liability for the Exchange Information, any publicly available or filed information or any representation relating to the Company, provided that nothing in this paragraph excludes the liability of any person for fraudulent misrepresentation made by that person;
7.acknowledges that it is not, and at the time the Placing Shares are acquired will not be a resident of Australia, Canada or Japan, and that the Placing Shares have not been and will not be registered under the securities legislation of the United States, Australia, Canada or Japan and, subject to certain exceptions, may not be offered, sold, taken up, renounced or delivered or transferred, directly or indirectly, within those jurisdictions;
8. unless otherwise specifically agreed with the Managers, represents and warrants that it is, or at the time the Placing Shares are acquired that it will be, the beneficial owner of such Placing Shares, or that the beneficial owner of such Placing Shares is not a resident of Australia, Canada or Japan;
9.acknowledges that the Placing Shares have not been and will not be registered under the securities legislation of the United States, Australia, Canada or Japan and, subject to certain exceptions, may not be offered, sold, taken up, renounced or delivered or transferred, directly or indirectly, within those jurisdictions;
10.represents and warrants that the issue to it, or the person specified by it for registration as holder, of Placing Shares will not give rise to a liability under any of sections 67, 70, 93 or 96 of the Finance Act 1986 (depositary receipts and clearance services) and that the Placing Shares are not being acquired in connection with arrangements to issue depositary receipts or to transfer Placing Shares into a clearance system;
11. represents and warrants that it has complied with its obligations in connection with money laundering and terrorist financing under the Proceeds of Crime Act 2002, the Terrorism Act 2003 and the Money Laundering Regulations 2003 (the "Regulations") and, if making payment on behalf of a third party, that satisfactory evidence has been obtained and recorded by it to verify the identity of the third party as required by the Regulations;
12. if a financial intermediary, as that term is used in Article 3(2) of the EU Prospectus Directive (which means Directive 2003/71/EC and includes any relevant implementing measure in any member state) (the "Prospectus Directive"), represents and warrants that the Placing Shares purchased by it in the Placing will not be acquired on a non-discretionary basis on behalf of, nor will they be acquired with a view to their offer or resale to, persons in a Member State of the European Economic Area which has implemented the Prospectus Directive other than qualified investors, or in circumstances in which the prior consent of the Managers has been given to the offer or resale;
13. represents and warrants that it has not offered or sold and, prior to the expiry of a period of six months from Admission, 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 the Financial Services and Markets Act 2000 ("FSMA");
14. represents and warrants that it has not offered or sold and will not offer or sell any Placing Shares to persons in the European Economic Area prior to Admission 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 in and which will not result in an offer to the public in any member state of the European Economic Area within the meaning of the Prospectus Directive;
15. represents and warrants that it has 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 the FSMA) relating to the Placing Shares in circumstances in which section 21(1) of the FSMA does not require approval of the communication by an authorised person;
16. represent and warrant that as far as it is aware it is not acting in concert (within the meaning given in The City Code on Takeovers and Mergers) with any other person in relation to the Company;
17.represents and warrants that it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Placing Shares in, from or otherwise involving, the United Kingdom;
18. represents and warrants that it and any person acting on its behalf is entitled to acquire the Placing Shares under the laws of all relevant jurisdictions and that it has all necessary capacity and has obtained all necessary consents and authorities to enable it to commit to this participation in the Placing and to perform its obligations in relation thereto (including, without limitation, in the case of any person on whose behalf it is acting, all necessary consents and authorities to agree to the terms set out or referred to in this Announcement) and will honour such obligations;
19. acknowledge that where it is acquiring Placing Shares for one or more managed accounts, represents and warrants that it is authorised in writing by each managed account (a) to acquire the Placing Shares for each managed account; (b) to make on its behalf the representations, warranties and agreements in this Appendix and the announcement of which it forms part; and (c) to receive on its behalf any investment letter relating to the Placing in the form provided to you by JPMC or Canaccord, as the case may be;
20. undertakes that it (and any person acting on its behalf) will make payment for the Placing Shares allocated to it 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 placees or sold as the Managers may in their sole discretion determine and without liability to such Placee;
21. acknowledges that none of JPMC, Canaccord, nor any of their respective affiliates, nor any person acting on behalf of any of them, is making any recommendations to it, advising it regarding the suitability of any transactions it may enter into in connection with the Placees and that participation in the Placing is on the basis that it is not and will not be a client of JPMC or Canaccord and that neither JPMC nor Canaccord have any duties or responsibilities to it for providing the protections afforded to their respective clients or customers or for providing advice in relation to the Placing nor in respect of any representations, warranties, undertakings or indemnities contained in the Placing Agreement nor for the exercise or performance of any of its rights and obligations thereunder including any rights to waive or vary any conditions or exercise any termination right;
22. undertakes that the person whom it specifies for registration as holder of the Placing Shares will be (i) itself or (ii) its nominee, as the case may be. Neither JPMC, Canaccord 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 such Placee agrees to participate in the Placing and it agrees to indemnify the Company, JPMC and Canaccord in respect of the same on the basis that the Placing Shares will be allotted to the CREST stock account of JPMC or Canaccord, as the case may be, who will hold them as nominee on behalf of such Placee until settlement in accordance with its standing settlement instructions;
23. acknowledges that any agreements entered into by it pursuant to these terms and conditions shall be governed by and construed in accordance with the laws of England and Wales and it submits (on behalf of itself and on behalf of any person on whose behalf it is acting) to the exclusive jurisdiction of the English courts as regards any claim, dispute or matter arising out of any such contract, except that enforcement proceedings in respect of the obligation to make payment for the Placing Shares (together with any interest chargeable thereon) may be taken by the Company, JPMC or Canaccord in any jurisdiction in which the relevant Placee is incorporated or in which any of its securities have a quotation on a recognised stock exchange;
24. acknowledge that time shall be of the essence as regards obligations pursuant to this Appendix to the announcement;
25. agrees that the Company, JPMC, Canaccord and their respective affiliates and others will rely upon the truth and accuracy of the foregoing representations, warranties, acknowledgements and undertakings which are given to JPMC and Canaccord on their own behalf and on behalf of the Company and are irrevocable; and
26. agrees to indemnify and hold the Company, JPMC, Canaccord and their respective affiliates harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the representations, warranties, acknowledgements, agreements and undertakings in this Appendix and further agrees that the provisions of this Appendix shall survive after completion of the Placing.
The agreement to settle a Placee's acquisition (and/or the acquisition of a person for whom such Placee is contracting as agent) free of stamp duty and stamp duty reserve tax depends on the settlement relating only to a acquisition by it and/or such person direct from the Company for the Placing Shares in question. Such agreement assumes that the Placing Shares are not being acquired in connection with arrangements to issue depositary receipts or to transfer the Placing Shares into a clearance service. If there are any such arrangements, or the settlement related to any other dealing in the Placing Shares, stamp duty or stamp duty reserve tax may be payable, for which neither the Company, JPMC nor Canaccord will be responsible. If this is the case, each Placee should seek its own advice and notify the Managers accordingly.
In addition, Placees should note that they will be liable for any stamp duty and all other stamp, issue, securities, transfer, registration, documentary or other duties or taxes (including any interest, fines or penalties relating thereto) payable outside the UK by them or any other person on the subscription by them of any Placing Shares or the agreement by them to acquire any Placing Shares.
Each Placee, and any person acting on behalf of the Placee, acknowledges that neither JPMC nor Canaccord owe any fiduciary or other duties to any Placee in respect of any representations, warranties, undertakings or indemnities in the Placing Agreement.
Each Placee and any person acting on behalf of the Placee acknowledges and agrees that JPMC or Canaccord or any of their respective affiliates may, at their absolute discretion, agree to become a Placee in respect of some or all of the Placing Shares.
When a Placee or person acting on behalf of the Placee is dealing with JPMC or Canaccord, any money held in an account with JPMC or Canaccord as the case may be, on behalf of the Placee and/or any person acting on behalf of the Placee will not be treated as client money within the meaning of the rules and regulations of the FSA made under the FSMA. The Placee acknowledges that the money will not be subject to the protections conferred by the client money rules; as a consequence, this money will not be segregated from JPMC's or Canaccord's money, as the case may be, in accordance with the client money rules and will be used by JPMC or Canaccord in the course of their own respective businesses and the Placee will rank only as a general creditor of JPMC or Canaccord, as the case may be.
All times and dates in this Announcement may be subject to amendment. The Managers shall notify the Placees and any person acting on behalf of the Placees of any changes.
APPENDIX 2
Risk Factors
The exploration for and development of metals and mineral resources is a speculative activity that involves a high degree of risk. The directors of the Company ("Directors") believe that, in particular, prospective investors should carefully consider the following risks and uncertainties before making an investment decision regarding the Company. If any of these risks and uncertainties, together with possible additional risks and uncertainties of which the Directors are currently unaware or which they consider not to be material in relation to the Company's business, actually occur, the Company's business, financial position or operating results could be materially and adversely affected. It should be noted that this list is not exhaustive and that certain other risk factors may apply.
Company Risk Factors
Russian foreign investment legislation
New legislation has recently been introduced in the Russian Federation regulating foreign investment into strategic sectors of the Russian economy. The Federal Law No. 57-FZ of 29 April 2008 "On the manner of conducting foreign investments into companies having strategic significance for securing the defence of the country and the security of the State" ("New Law") and Federal Law No 58-FZ dated 29 April 2008 "On introducing amendments in certain legal acts of the Russian Federation and declaring null and void certain provisions of legal acts of the Russian Federation in connection with the adoption of the Federal Law on the manner of conducting of foreign investments into companies having strategic significance for securing the defence of the country and the security of the State ("Amendment Law" and together with the New Law the "Laws"). The New Law imposes restrictions on the acquisition by foreign investors of direct or indirect interests into strategic sectors of the Russian economy, including in respect of gold reserves in excess of a specified amount.
At the present time some of the effects of the Laws are difficult to predict, but the Laws will or can, depending upon the circumstances, affect investment transactions in Russia, including those made or to be made by the Company. The impact could adversely affect the Group and its business. The New Law could also adversely affect the amount of Ordinary Shares that an investor may acquire without obtaining Russian Government consent if such acquisition would lead to an investor (or its group) acquiring control of the Company or indirectly acquiring control of a member of the Group which is classified as a Strategic Entity.
The provisions of the Laws are likely to impact upon the Group in the future and, depending upon the circumstances, the impact could adversely affect the Group and its business. On the basis of the Amendment Law, the licence areas in which the Malomir deposit is located could be classified as a Strategic Area. If either is so classified, then the aforementioned legislation could or will have an effect on the Group.
The Group is dependent on revenue from key mines
In 2007 and 2008 a substantial portion of the Group's revenues and cash flows were derived from sales of gold mined at Pokrovskiy and Pioneer. As a result, the Group's results of operations, cash flows and financial condition could be materially and adversely affected by fluctuations in the price of gold realised by Pokrovskiy and Pioneer or by the failure of Pokrovskiy and Pioneer to produce the expected amounts of gold, among other factors.
The Group may not be able to finance the Group's planned capital expenditure.
In addition to operating expenses, the Group's business requires significant capital expenditure, including in relation to exploration and development, production, transport, refining and meeting the Group's obligations under environmental laws and regulations.
No assurance can be given that the Group will be able to raise the financing required for the Group's planned capital expenditure on acceptable terms or at all. Any such reduction could adversely affect the Group's ability to carry out mineral exploration programmes and/or to appraise or develop any of its mineral resources.
If the Group does not perform mineral exploration programmes or other works or operations required by the terms of the relevant mineral licences, these mineral licences may be suspended or revoked or may lapse and, in the event of revocation or lapsing, the Group will lose all interest that the Group has in these deposits. The Group's ability to obtain outside financing will depend in part upon the prices of gold and the industry's perception of their future price and other factors outside the Group's control. Cash constraints and strategic considerations may also lead the Group to dispose of all or part of the Group's interests in some of the Group's projects or mineral rights or to seek third parties jointly to develop one or more projects.
Geology and reserves.
The exploration for and development of mineral deposits involves significant uncertainties and the Group's operations will be subject to all of the hazards and risks normally encountered in such activities. In addition, any metals exploration programme entails risks relating to the location of economically viable ore bodies, the development of appropriate metallurgical processes, the receipt of necessary governmental permits and the construction of mining and processing facilities. The geology in which vein gold occurs can make evaluations of the potential size of deposits especially difficult to determine, as the veins in which they occur have inherently unpredictable characteristics. No assurance can be given that any metals exploration programme will result in any new commercial mining operation or in the discovery of new resources.
As is common with all exploration ventures, there is also uncertainty and therefore risk associated with the Group's operating parameters and costs. These can be difficult to predict and are often affected by factors outside the Group's control. With all metals and minerals operations there is uncertainty and, therefore, risk associated with operating parameters and costs resulting from the scaling up of extraction methods tested in pilot conditions. In addition, it may take many years from the initial phase of exploration and drilling before production is possible. During this time, the economic feasibility of exploiting a discovery may change as a result of changes in metal and/or mineral market prices.
The Group is subject to the risks of international operations and the risks of overseas expansion
Recently, the Group has made investments outside Russia. There are a number of risks inherent in doing business in overseas markets. The Group's inability to manage successfully the risks inherent in its international activities could adversely affect its business, financial condition and operating results. There can be no assurances that the Group's overseas expansion will be successful or have a positive effect on its financial results and condition.
If the Group fails to acquire licences or develop properties successfully, the Group's rate of expansion could slow and the Group's results of operations and financial condition could suffer.
The Group expects to expand its operations and reserves in the future through exploration, development and acquisitions. Except to the extent that the Group conducts successful exploration and development activities or acquires further licences and/or properties containing reserves or both, the Group's reserves will decline as gold is produced and reserves are depleted. In addition, the volume of production from gold properties generally declines as reserves are depleted. To the extent that the making of future acquisitions is dependent upon obtaining the consent of the new Competent Authority, the Group's rate of expansion could slow and the Group's results of operations and financial condition could suffer. Moreover, regardless of the outcome of any application for consent, the Group may, in relation to the process, encounter serious delays and costs due to any procedural and other administrative difficulties. Additionally, the ability of the Group to participate in licence tenders or auctions could be restricted in the future if the Russian Government decides to exercise certain of the new powers it has been given under the new foreign investment legislation to restrict the participation of companies under foreign control in such tenders or auctions.
Implementation of new projects.
Implementation of the projects outlined in this document will in most cases require, inter alia, conclusion of agreements with third parties and government consents. There is no certainty that any of these will be achieved. Thus, there is no certainty that these projects can be implemented or that they will be successful if they were to be implemented. In pursuing the proposed projects, the Company may find itself in competition with companies with more substantial resources or with Russian owned companies which are not subject to the constraints of the new foreign investment legislation.
Possible impact of the new foreign investment legislation on new projects.
The Laws relating to foreign investment permit the Russian Government to prevent the exploitation of a newly discovered deposit if it is a Strategic Gold Deposit or a PGM Deposit on the grounds of a threat to state security. Where the relevant mineral licence is a combined licence, the Russian Government has power to terminate such licence. Where the relevant mineral licence is an exploration (prospecting) only licence, the authorities can refuse to issue an "exploration and development licence" to the relevant company. In relation to its principal assets on which production has not yet commenced, the Group currently holds: (a) combined licences for the Malomir, Albyn and Yamalzoloto (Novogodnee) projects and (b) exploration (prospecting) licences for the Pokrovskiy, Pokrovskiy Satellite Deposits, Malomir ("Diagonal Object") and Yamalzoloto (Petropavlovskoye) projects. Any compensation payable as a consequence of preventing the Group from exploiting a newly discovered deposit may not adequately reflect the value of the asset.
The profitability of the Group's operations and the cash flows generated by the Group's operations are affected by changes in the market price for gold, which in the past has fluctuated widely.
Although the Group's anticipated GIS cash operating costs, GIS total cash costs and GIS total production costs are each expected to be relatively low by world standards, the Group's ability to achieve or maintain earnings, pay dividends in the future and undertake capital expenditure may be affected in the event of a sustained material fall in the price of gold and/or related products.
Under Russian law, the Group has the right to export freely its refined product in exchange for hard currency payment. There is no developed system for sales of gold produced by Russian producers directly onto the international markets and should any of the Russian banks purchasing the gold terminate current gold sales arrangements with the Group for any reason whatsoever the Group will have a short period of uncertainty until new gold sales arrangements are put in place and, accordingly, the Group's financial performance could suffer. There is no guarantee that the Group will be able to make new arrangements for sales of gold at similar or at least not worse terms.
The Group's revenues could also be materially affected should the Government or the CBR reߛimpose price regulation for precious metals. Should this happen there is no guarantee that the prices set by the CBR for such sales will not be lower than the market price of gold.
The Group's future profitability is dependent on the operation of the Group's proposed new technology, including the Pioneer and Malomir refractory processes.
Historically, the Group has used heapߛleach and RIP recovery routes at Pokrovskiy to extract gold from mined ore. In addition, the Pioneer Mine features new technology for the separation of ore and both the Pioneer Mine and Malomir projects will use pressure oxidisation methods which are new to the Group. Technical failure or delays in their implementation could affect the Group's profitability at these mines.
Reserves and resources may be subject to restatement.
The Company's reserves and resource estimates are estimates of the reserves and resources in the ground on the Group's existing licence areas. The Group's ore reserves and resources estimates are based on many factors.
Because the Group's ore reserve and resource estimates are calculated based on current estimates of production costs and product prices, they should not be interpreted as assurances of the economic life of the Group's deposits or the profitability of the Group's future operations. Reserve and resource estimates may require revisions based on the definitive exploration figures and actual production experience. Furthermore, a sustained decline in relevant market prices could render ore reserves and resources containing lower grades and/or mineralisation uneconomic to recover and ultimately require a restatement of reserves and resources.
To the extent that any estimated reserves and resources are not recoverable, this would have a materially adverse effect on the Group's business, financial condition and results of operations.
Payment and other obligations.
Licences: under the mineral licences (and related agreements) which are held by the relevant Group companies or which may be held by them in the future, such companies are or may become subject to payment and other obligations. If such obligations are not complied with when due to be performed, in addition to any other remedies which may be available to the State authorities, this could result in loss of such mineral licences.
Contractual: there are contractual agreements to which the Group companies are, or may in the future become, parties and which relate to direct or indirect interests held by such Group companies in or in respect of such mineral licences. If a Group company does not comply with its payment or obligations under such agreements when they are due to be performed, in addition to any other remedies which may be available to other parties, this could result in dilution or forfeiture of interests held by such companies.
Currency risk.
The Company reports in US Dollars, being the currency in which the markets for the Group's proposed products are principally denominated. A large part of the Group's expenses are denominated in Roubles and a substantial portion are denominated in Sterling. The Group's financial condition and results of operations could be adversely affected by changes in the exchange rates between currencies in which it operates or which otherwise affect it against US Dollars.
The Group's joint venture arrangements may not be successful.
There are special risks involved in joint ventures by their nature. Any of these may have a material adverse effect on the results of operations, financial condition or prospects of the Group through operational issues arising or the delay or non-completion of joint venture development projects. Also, the termination of any or all of the Group's joint venture arrangements could have a material effect on the results of operations, financial condition or prospects of the Group.
The Group's mineral licences may be challenged, which may prevent or severely curtail the Group's use of the affected mineral deposits.
Title to some of the Group's properties may be challenged or impugned, and title insurance for all of the properties may not be available or sufficient. Each sovereign state is the sole authority able to grant mineral property rights, and the Group's ability to maintain extraction rights on some of the Group's properties is dependent on the Government policy and rules for use of subsoil. Some of the properties the Group has acquired may be subject to prior claims, and title may be affected by, among other things, undetected defects. In addition, a variety of factors beyond the Group's control may preclude the Group from operating its properties as permitted or allow the Group to enforce its rights with respect to any of its properties despite having perfect legal title.
Licensing and extensions.
Some of the Group's production licences, including the Pokrovskiy and Pioneer licences, are due to expire in 2014 and 2013, respectively. The licence in respect of the deposit at Tokur is also due to expire in 2013. Currently the Subsoil Law does not provide for an automatic extension of a producing mining licence to its current holder, but allows the current holder to apply to the licensing authority for the extension of an existing licence provided that it has complied with the terms and conditions of the licence. No assurances can be given that the Group's respective licences will be in a position to achieve renewal by way of extension.
Omchak, in which the Group has a 50 per cent interest, has been successful in renewing and/or extending several of its alluvial gold extraction licences in the past. No assurances can be given that Omchak will be able to renew/extend all of its alluvial gold extraction licences.
However, in connection with a Strategic Deposit, see also the risk factors above relating to the potential impact of the new foreign investment laws in relation to the award of an extraction/ production licence or the continuation of a combined licence.
Permitting.
Generally, compliance with various government regulations requires the Group to obtain permits issued by Russian governmental agencies. Some permits require periodic renewal or review of their conditions. The Group cannot predict whether the Group will be able to renew these permits or whether material changes in permit conditions will be imposed. Non-renewal of a permit may cause the Group to discontinue the operations requiring the permit, and the imposition of additional conditions on a permit may cause the Group to incur additional compliance costs, either of which could have a material adverse affect 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 requirements for some or all of the licences. If the Group fails to fulfil the specific terms of any of its licences or if the Group operates in the licence areas in a manner that violates Russian law, regulators may impose fines on the Group or suspend or withdraw its licences, any of which could have a material adverse effect on the operational and financial position of the Group.
If the permitting process or any other state authority actions are delayed, for whatever reason, or the issue of permits, authorisations, consents or licences is delayed or does not take place or if any of the aforesaid are issued subject to onerous conditions, this could have a serious impact upon the Group, its operations and its financial position.
Environmental regulations.
The Group's operations are subject to the extensive environmental risks inherent in the mining and processing industry.
Although the Directors believe that the Company's subsidiaries are in compliance in all material respects with any applicable environmental laws and regulations and hold all necessary approvals, licences and permits under those laws and regulations, there are certain risks inherent in their activities and those which the Group will undertake in the future, such as risks of accidental spills, leakages or other unforeseen circumstances, that could subject the Group to considerable liability. In addition, the Group is subject to checks, including spot checks, by various regulators including Rosprirodnazor, the environmental regulator in Russia.
Environmental legislation and permitting requirements and the manner in which these are enforced are likely to evolve in a manner which will require higher and more demanding standards and stricter enforcement, as well as increased fines and penalties for non-compliance. However, the Group is unable to predict the extent and effect of additional environmental laws and regulations which may be adopted in the future, including whether any such laws or regulations would materially increase the Group's cost of doing business or affect its operations in any area.
Access rights to mining tenements, land rights and third party rights.
There may be cases where the Group requires additional rights to access or to exploit future mining projects, including in respect of the Omchack mine (Biryinskiy licence area), Rudoperspektiva (Oldoyskiy licence area) and Koboldo (Shashin licence and Maliy licence areas).
In accordance with the Russian legislation and terms commonly included in licence agreements, a licence holder is obliged to obtain rights to the part of licensed area where certain geological works are carried out. This requires the licence holder obtaining lease agreements and mine allotment acts in respect of those areas to ensure it has all of the required land rights. The lease agreements must also be registered with the state to be enforceable (together, "Land Rights"). If the Land Rights are not obtained fines can be imposed on licence holders.
Obtaining the required Land Rights can be a long, drawn out and bureaucratic process for licence holders for reasons beyond their control. The Company and its subsidiaries may not always have the required Land Rights at the time of commencing their mining operations or for periods of time where agreements expire in relation to Land Rights.
Reorganisation.
In accordance with Russian legislation, a company may be voluntarily reorganised in the procedure provided for by the LLC Law. A reorganisation of a company can be effected in the form of consolidation, merger, division, spin-off and transformation. Members of the PHM Group have effected reorganisations by way of merger where the rights and obligations of one company is transferred to another company.
There is often a delay between the time the decision is made by the participant to the time all of the relevant assets (including licences) are transferred to the reorganised company. There is a risk that if the subsidiaries subject to the reorganisation continue to operate there may be certain tax burdens.
There is also a risk that third parties, the participant or creditors may bring a claim based on the non-observance of the merger procedure. The time limitations for each of these are different but can be up to 3 years from the date of the decision. There is a risk that such actions may be brought in the future.
Negative Net Assets.
There are certain requirements under both the Federal law "On Limited Liability Companies" and the Federal Law "On Joint Stock Companies" (together, "Russian Company law") which require companies to have net assets that are more than its charter capital. In relation to mining companies where there are considerable capital expenditure, especially in the development stages, there is a risk that these obligations may be breached. If companies do not rectify the situation then the Russian tax authorities will be entitled to file an action to liquidate the company.
There is a risk that at certain times members of the PHM Group may have negative net assets. Accordingly, there is a risk that the Russian tax authorities may bring an action if this situation is not rectified within two financial years or there are not at least signs of improvement.
Factors such as the ability to perform obligations owed to creditors, to pay salaries, to make mandatory payments and to perform other monetary obligations may prevent a company which has negative net assets from being liquidated. However, the possibility of a successful claim being brought for liquidation cannot be excluded. In addition, rectification of the breach and/or improving the financial condition of a company resulting in the company having positive net assets theoretically does not prevent a successful claim for liquidation of the company.
Operational considerations.
The achievement of the Group's operational targets are subject to the completion of planned operational goals on time and according to budget, and are dependent on the effective support of the Group's personnel, systems, procedures and controls. Any failure of these may result in delays in the achievement of operational targets with a consequent material adverse impact on the business, operations and financial performance of the Company.
Lack of infrastructure may adversely affect the Group's ability to develop its resources.
Some of the Group's non-principal assets are situated in areas lacking infrastructure required to develop and operate the Group's reserves and resources. The Group must invest heavily in the construction of the required mining and auxiliary infrastructure (such as roads, loading terminals, railways connecting to the BAM and/or Trans-Siberian railways and staff living quarters). Construction and operation of this infrastructure will require substantial capital expenditure by the Group and no assurance can be given that the market conditions will continue to make such investments financially viable.
Labour.
Certain of the Group's operations are carried out under potentially hazardous conditions. Whilst the Group intends to continue to operate in accordance with relevant health and safety regulations and requirements, the Group remains susceptible to the possibility that liabilities might arise as a result of accidents or other workforce-related misfortunes, some of which may be beyond the Group's control.
A substantial number of the Group's employees are members of the Pokrovskiy Rudnik trade union which is unaligned with any national trade union. The Group is at risk of having its mining and exploration operations stopped for indefinite periods due to strikes and other labour disputes. Should any labour disruptions occur, the Group's operational and financial performance could be materially and adversely affected.
Dependence on key personnel.
The Group's growth and future success depends in significant part upon the continued contributions of a number of the Group's key senior management and personnel, in particular the Group's Executive Chairman and Chief Executive Officer and member of the Board of Directors, Peter Hambro, and the Chairman of Pokrovskiy Rudnik and Chief Operating Officer, Pavel Maslovskiy. There is no certainty that the services of these key persons will continue to be available to the Group and, if the Group is not successful in retaining or attracting highly qualified individuals in key management positions its business may be harmed. The Group does not maintain "key man" insurance, and, due to the risks associated with doing business in Russia, no assurances can be made that the Group will be able to acquire such cover at acceptable rates or at all.
The Group's insurance coverage may prove inadequate to satisfy future claims against the Group or to protect the Group against natural disasters or operations catastrophes.
The Group, as a participant in exploration and mining programmes, may become subject to liability for hazards that cannot be insured against, which could exceed policy limits or against which it may elect not to be so insured because of high premium costs. The Group may incur a liability to third parties in excess of any insurance cover arising from pollution or other damage or injury.
The insurance industry in Russia is in a relatively early stage of development and, accordingly, the available cover is relatively limited. Many forms of insurance designed to protect against hazards, common in other parts of the world, are not yet generally available in some of the areas where the Group operates. The Group does not have full coverage for all of its plant and facilities, for business interruption, for third-party liability in respect of property, and for environmental damage arising from accidents on its property or relating to its operations. Until the Group is able, or decides, to obtain adequate insurance coverage, there is a risk that losses and liabilities arising from such events could significantly increase its costs and have a material adverse effect on its business, results of operations and financial condition.
Litigation.
Legal proceedings may arise from time to time in the course of the Group's business. The Directors cannot prevent litigation being brought against the Company or any of its subsidiaries in future. There have been occasions in Russia where litigation has been used as a means of creating difficulties for companies operating in the natural resources sector.
The Group faces competition from other mining companies.
The Group faces competition from other gold mining companies in all areas of its operations, including the acquisition of mineral licences, exploratory prospects and producing properties. Some of these companies have significantly greater resources than the Group. Other companies may have a competitive advantage as a result of legislation which regulates foreign investment in Russia. Existing or future levels of competition in the mining industry could materially and adversely affect the Group's prospects for mineral exploration and success in the future.
Exploration involves commercial risks.
Exploration is highly speculative and involves numerous risks, including the risk that the Group will encounter no commercially productive gold deposits. The Group's future growth and profitability will depend, in part, on its ability to identify and acquire additional mineral rights, and on the costs and results of its continued exploration and development programs. The subsoil areas over which the Group's mineral exploration rights relate may not contain commercially exploitable reserves of gold. Uncertainties as to the metallurgical recovery of any gold discovered may not warrant mining on the basis of available technology.
Risks relating to the jurisdictions in which the Group operates.
The Group may be adversely affected by changes in economic, political, judicial, administrative, taxation or other regulatory factors or foreign policy in the areas in which the Group operates or will operate and holds or will hold its major assets, as well as other unforeseen matters. The jurisdictions in which the Company operates may in some cases have less established judicial systems, a more volatile political environment and/or more challenging trading conditions than in some other parts of the world. Unlawful, selective, discriminatory or arbitrary government action could have a material adverse effect on the Group's business and prospects.
The Group is subject to a broad range of taxes imposed at the federal, regional and local levels, including but not limited to income tax, mineral extraction taxes, royalty tax, sales tax, property tax, social taxes and road use tax. Laws related to these taxes, such as the Russian Tax Code, have been in force for a short period relative to tax laws in more developed market economies; therefore, the implementation of these tax laws by different tax authorities and courts is often unclear and/or inconsistent. No assurances can be made that tax authorities and/or courts will apply various tax laws and regulations in a way consistent with that taken by the Group. If the tax authorities and/or courts adopt a different interpretation of various tax laws and regulations, the Group may have to pay significantly higher taxes, and impose additional burdens and costs on the Group's operations, including management resources, which could have a material adverse effect on the Group's business.
The Group's assets are located in Russia, a country which is still developing its own version of a market economy. While this process of change is establishing in Russia a business environment which is influenced by the western-style business environment, there are still substantial differences between the Russian economy and the market-driven economies which are found in other countries with long histories and experience of such an economy. Ethnic, religious, historical, social and other divisions have, on occasion, given rise to tensions, armed conflict and terrorist activity.
Weaknesses in the Russian legal system and Russian legislation could create an uncertain environment for investment and for business activity.
Russia is still developing the legal framework typically required by a market economy. Several fundamental Russian laws have only recently become effective. The recent nature of much of Russian legislation and the rapid evolution of the Russian legal system place the enforceability and underlying constitutionality of some laws in doubt and result in ambiguities, inconsistencies and anomalies. In addition, Russian legislation often leaves substantial gaps in the regulatory infrastructure. All of these weaknesses could affect the Group's ability to enforce the Group's rights under contracts or statutes, or to defend itself against claims by others.
These uncertainties also extend to property rights. Expropriation or nationalisation of the Group or any of the Group's subsidiaries, the Group's or their assets or portions thereof, potentially with inadequate or no compensation, would have a material adverse effect on the Group. In such a scenario, the Group might have no remedy under protections afforded to a foreign investor under customary international law or relevant international treaties or, if it had a remedy, might not be able or willing to enforce its rights or might not be able to enforce any award that it obtained.
Costs of compliance affected by legal and regulatory environment.
The Group accrues estimated rehabilitation costs over the operating life of a mine. Estimates of ultimate rehabilitation costs are subject to revision as a result of future changes in regulations and cost estimates. The costs associated with compliance with laws and government regulations may ultimately be material and adversely affect the Group's business.
Risks relating to bonds in issue by the Group and their potential refinancing.
In August 2005, the Group issued US$140 million convertible bonds due in 2010 (the "Convertible Bonds"). The Group has outstanding Convertible Bonds. In October 2007, in order to fund its development plans, the Group raised US$180 million by issuing 5 year exchangeable bonds with a coupon rate of 7 per cent per annum (the "Exchangeable Bonds"). The Group has outstanding Exchangeable Bonds.
A breach of the provisions thereof and/or other events of default thereunder could result inter alia in an early repayment obligation in respect of such bonds, which could have an adverse effect on the trading or financial position of the Group.
The Exchangeable Bonds may be exercised from 19 October 2009. In the event of a spike in the gold price there is a possibility that a large number of Exchangeable Bonds may be exercised in a short period of time. In order to fund such an exercise, the Company may need to utilise a number of financing options including a debt facility (subject to the limitation of US$150 million in aggregate outstanding principal amount on secured Group indebtedness set out in the Convertible Bonds and the Exchangeable Bonds) or issuing more equity in the Company at a time which may be commercially sub-optimal and results in dilution to the existing shareholders of the Company.
Upon the occurrence of a change of control in the Company (as Guarantor) or a Licence Event (as defined under the Convertible Bonds) (i.e. revocation, termination or disposal of certain licences (Relevant Licence), modification to any Relevant Licence which is materially prejudicial to the Bondholders, or the Guarantor ceases to control and own at least 51 per cent of the issued share capital of Pokrovskiy Rudnik), Convertible Bondholders will have the right to require the Issuer (a subsidiary of the Company) to redeem the Convertible Bond at its principal amount together with accrued interest or to exercise their Conversion Right at a lower predetermined Conversion Price. Exchangeable Bondholders will have the right to convert their Exchangeable Bonds for a cash amount in US dollars equal to the higher of (i) US$90,000 and (ii) the Conversion Value on the Conversion Date (capitalised terms defined in the Exchangeable Bonds).
The Group's largest Shareholders will have significant control over the Group's affairs.
The Group's largest shareholders are Dr Pavel Alexeivich Maslovskiy, and/or other other holders of shares in the Company in which he is interested ("Maslovskiy Associates").
The Masolovskiy Associates have a material influence on the outcome of votes of the shareholders of the Compnay, including in relation to the election of Directors and other decisions affecting the Company. They may vote their shares in a way with which other shareholders of the Company do not agree and this concentration of ownership could adversely affect the trading volume or market price of the Company's shares or delay, deter or prevent transactions that could result in a change of control that could otherwise be beneficial to shareholders of the Company.
The market price of the Ordinary Shares could be adversely affected by potential future sales.
The trading price of the Ordinary Shares could be adversely affected as a result of sales of substantial numbers of the Ordinary Shares in the public market, or by the perception that this could occur. These factors could also make it more difficult to raise capital through equity or equityߛlinked offerings.
Liquidity.
Although the Ordinary Shares will be listed on the Official List, this should not be taken as implying that there will be a liquid market in the Ordinary Shares. An investment in the Ordinary Shares may, therefore, in certain circumstances be difficult to realise.
Investment risk.
Prospective investors should be aware that the value of an investment in the Company may go down as well as up. In addition, there can be no certainty that the market price of an investment in the Company will fully reflect its underlying value. The price at which investors may dispose of their Ordinary Shares may be influenced by a number of factors, some of which may be related to the Company and some not. Investors may realise less than the original amount invested.
Possible Merger
There may not be an offer made to Aricom shareholders
There is no certainty that an offer will be made to Aricom shareholders.
The terms of the offer to Aricom shareholders may change
The terms of any offer to Aricom shareholders may change from those disclosed in the further update on the Company's discussions regarding the offer announced by the Company earlier today.
Conditions to the offer may not be satisfied
The offer being made to Aricom shareholders contains certain conditions and those conditions may not be satisfied. At the time, the Company may decide in its absolute discretion to waive or amend those conditions. Alternatively the offer may be terminated or may lapse.
The offer may not be approved
The offer may be made by the Company but not approved as required by the Court, if implemented by way of a scheme (the current intention) or the required percentage of shareholders of Aricom. If this occurs the conditions may not be satisfied and the Offer may be terminated or may lapse .
The integration of the Company and Aricom may not occur as planned
The offer to Aricom shareholders if made will be undertaken with the expectation that their successful completion will result in increased earnings and cost savings for the Enlarged Entity. This expectation is based on presumed synergies from consolidation and enhanced growth opportunities of the Enlarged Entity. These anticipated benefits will depend in part on whether the operations, systems, management and cultures of each of Aricom and the Company can be integrated in an efficient and effective manner, the timing and manner of completion of the proposed merger and whether the expected bases or sources of synergies do in fact produce the benefits anticipated.
Most operational and strategic decisions, and certain staffing decisions, with respect to the Enlarged Entity have not yet been made and may not have been fully identified. These decisions may present significant challenges to management, including the integration of systems and personnel of the two companies, and special risks, including possible unanticipated liabilities, significant one-time write-offs or restructuring charges, unanticipated costs and the loss of key employees. There can be no assurance that there will be operational or other synergies realised by the Enlarged Entity, or that the integration of the companies' operations, systems, management and cultures will be timely or effectively accomplished, or ultimately will be successful in increasing earnings and reducing costs.
The Enlarged Entity may not realise the benefits of new projects
As part of its strategy, it is intended following a successful offer the Enlarged Entity will continue its efforts to develop new projects and will have an expanded portfolio of projects as a result of the proposed merger. A number of risks and uncertainties are associated with the development of these types of projects, including political, regulatory, design, construction, labour, operating, technical and technological risks, uncertainties relating to capital and other costs and financing risks.
Change of Control
There is a risk that certain contracts of the Group and/or Aricom Group may be contain change of control provisions and in connection with certain of those contracts, there is a risk that the proposed merger could constitute a change of control. There is a risk that a disgruntled party or creditor may bring an action claiming there has been a change of control.
There is a risk that contracts where change of control provisions will be invoked that the Group and/or the Aricom Group can not deal with those adverse effects before any proposed merger. These effects may have adverse consequences for the enlarged entity.
Dilution of Company Shareholders
If the offer is made to Aricom shareholders, Ordinary Shares will be issued to the shareholders of Aricom. The increase in the number of Ordinary Shares in the market upon exercise of any of the bonds and the possibility of sales of such shares may have a depressive effect on the market price of the Ordinary Shares. In addition, as a result of such additional Ordinary Shares being issued, the voting power of the Company's existing shareholders, to the extent that the same did not participate in the Placing, would be substantially diluted.
Market price of Ordinary Shares
Following completion of a successful offer, a significant number of additional Ordinary Shares will be available for trading in the public market. This increase in the number of Ordinary Shares may lead to sales of such shares or the perception that such sales may occur, either of which may adversely affect the market for, and the market price of, Ordinary Shares.
Related Shares:
POG.L