TIDMALO
RNS Number : 4186S
Alecto Minerals PLC
21 December 2016
Alecto Minerals plc / EPIC: ALO / Market: AIM / Sector:
Mining
21 December 2016
Alecto Minerals plc ("Alecto" or the "Company")
Proposed Acquisition of the Mowana Copper Mine, Botswana
Suspension of trading in shares on AIM
Board changes
Alecto Minerals plc (AIM: ALO), the Africa-focused gold and base
metal exploration and development company, is delighted to announce
the proposed acquisition of Cradle Arc Investments (Proprietary)
Limited ("Cradle"), a company incorporated in Botswana, which owns
the Mowana Copper Mine ("Mowana" or the "Mine") in north eastern
Botswana (the "Proposed Transaction").
The Proposed Transaction constitutes a reverse takeover under
the AIM Rules for Companies (the "AIM Rules"); accordingly, trading
in the Company's ordinary shares on AIM will be suspended with
effect from 7.30 a.m. today and will remain suspended until an
admission document is published in accordance with the AIM Rules,
and the Proposed Transaction is subject, inter alia, to shareholder
approval.
Highlights
-- Proposed Transaction will be transformational - Alecto will
acquire a 60% interest in Mowana, a former producing copper mine,
and plant which can be brought back into production at a relatively
low cost
-- An offtake financing agreement has been agreed by Cradle for
US$20 million which will provide funding for investment in the mine
and the plant in order to increase recoveries
-- Mowana has a mineral resource inventory of 683,000 tonnes
copper ("Cu") in the Measured and Indicated categories (JORC-code
compliant) with an additional 945,000 tonnes Cu in the Inferred
category
-- The Mine was commissioned in 2008 at a cost of US$60 million.
It operated successfully between 2008-2015 processing an average of
775,406 tonnes per annum ("tpa") of ore at an average grade of
1.72% copper. In FY13/14 Mowana produced 43,301 tonnes of
concentrate, representing 9,724 tonnes of Cu
-- Alecto and its partners in the Proposed Transaction have
re-modelled the Mine to ensure that it can produce from a much
lower cost base to generate profit even at depressed commodity
prices. At a copper price of US$2.50 per lb, Alecto's internal
estimate for the project's NPV is US$245 million
-- Alecto intends to perform process route upgrades including
the installation of a Dense Media Separation ("DMS") plant to
increase throughput from 1.2 million tpa to 2.6 million tpa to
achieve an average copper production of 22,000 tonnes saleable Cu
per annum
-- The process route upgrades, which are expected to cost US$20
million, will be funded through an agreement with Fujax Minerals
and Energy Limited ("Fujax") and Northern Heavy Industries Group
Company Limited ("NHI")
-- Alecto has agreed a 10-year management contract for Mowana
with its partners and will receive management fees equal to 1.5% of
revenue
-- Mowana key data and assumptions:
Life of Mine 11 years (from known resources
(LOM) with exploration upside potential)
------------------- ------------------------------------
Annual Production 22,000 tonnes of Cu
------------------- ------------------------------------
Average Copper 1.34% Cu
Grade
------------------- ------------------------------------
Average Silver 30 g/t
Grade
------------------- ------------------------------------
Average Gold 0.5 g/t
Grade
------------------- ------------------------------------
NPV (10%) US$245 million
------------------- ------------------------------------
IRR 55%
------------------- ------------------------------------
Source: Leboam Mowana Financial Model dated 20 December 2016
-- Alecto will require additional funding in order to proceed
with the Proposed Transaction and in order to provide funding to
Mowana for the recommencement of production and it is in
discussions with potential providers of such working capital
financing
Mark Jones, CEO of Alecto Minerals, commented:
"Mowana is a first class copper mining project and I am very
excited about the prospect of bringing it into Alecto's portfolio.
The proposed acquisition of Mowana will be transformational for
Alecto, turning the Group in to a producing miner and materially
strengthening its balance sheet.
"I very much look forward to effectively completing our
transformation from a greenfield exploration company into a
multi-commodity metals producer in Africa in the coming months, and
the team has conducted significant work to ensure that this is
achievable. Our technical team has worked tirelessly to generate a
robust business model that will target early cash flow from both
the profitable mining of copper and the management of the
operation. Additionally, our commercial team has secured
commitments for funding, so that we can realise the maximum value
from copper production and quickly initiate plant improvements at
Mowana that are expected to deliver substantial production
efficiencies.
"The proposed Mowana acquisition represents an ideal opportunity
to achieve a complete transformation of Alecto and we look forward
to keeping investors abreast of our progress."
The Proposed Transaction
Alecto has agreed conditionally to acquire 100% of the issued
share capital of Cradle for a consideration of GBP1,000,000 payable
in cash (the "Cash Consideration") and the issue of new ordinary
shares of 0.01 pence each ("Ordinary Shares") to the Vendor and its
Nominees (as defined below) (the "Consideration Shares") that will
represent 60% of the issued share capital of Alecto, as enlarged by
the Proposed Transaction (including any associated equity
fundraising) and any other share issues prior to completion. The
final number of Consideration Shares will therefore be determined
by, inter alia, the scale of any equity fundraising undertaken by
Alecto prior to or in conjunction with the Proposed Transaction.
However, as at the date of this announcement, the number of
Consideration Shares to be issued is estimated to be 8,793,869,932.
Accordingly, at 0.065 pence (being yesterday's closing price per
Alecto share), the aggregate consideration to be paid by Alecto is
therefore currently estimated to be approximately GBP6.72m.
The Proposed Transaction would constitute a reverse takeover
under the AIM Rules due to its size and nature and will be subject
to, inter alia, the publication of an admission document in respect
of the enlarged group in accordance with the AIM Rules and
shareholder approval.
Furthermore, the AIM Rules require that where a company
announces a reverse takeover, trading in its shares on AIM be
suspended pending publication of an admission document.
Accordingly, trading in Alecto's shares will be suspended from 7.30
a.m. today until an admission document setting out full information
on the Proposed Transaction and the enlarged group can be
published. It is currently anticipated that an admission document
will be published by the end of March 2017.
PenMin and Alecto have conducted considerable technical due
diligence over a period of several months, as a result of which the
Directors believe that the Proposed Transaction represents an
attractive proposition for Alecto and its shareholders. However,
the Proposed Transaction remains subject, inter alia, to formal
legal, financial and technical due diligence, and to both financing
and shareholder and regulatory approval and there can be no
certainty as to when and if the Proposed Transaction will
complete.
Alecto will require additional funding in order to proceed with
the Proposed Transaction and to provide funding to Mowana for the
recommencement of production and is in discussions with potential
providers of such working capital financing, further details of
which are set out below. If such funding cannot be raised, Alecto
will not be able to proceed with the Proposed Transaction and will
not be able to fund the recommencement of production at Mowana.
Cradle Arc Investments (Pty) Limited
Cradle is a holding company which currently owns 100% of the
Mowana copper mine and plant in Botswana through its wholly owned
subsidiary, Leboam Holdings (Pty) Limited ("Leboam").
The Mine consists of an open pit operation and a process plant,
located within a PaleoProterozoic sedimentary basin of the southern
African Shield, in north-east Botswana, that uses standard
flotation process technology and has been designed to produce
saleable copper concentrates from the treatment of up to 1.2Mtpa of
oxide, supergene and sulphide ores. The process plant has two
flotation circuits. Minerals are separated first, and tailings from
the roughers are sent to an oxide circuit. Most other mineral
species are recovered in the oxide flotation process. Concentrates
are filtered to recover excess process water. Tailings are
dewatered using thickeners and deposited onto a tailings storage
facility. Water recovered in the dewatering stages is recycled to
the various parts of the plant as appropriate. The plant is in good
condition and capable of re-commencing mining using the existing
infrastructure.
The plant consists of:
-- a conventional crushing and screening circuit consisting of a
primary crusher (fed from the ROM pad), and a secondary and
tertiary crushers presenting a 15mm feed size to the mill;
-- a single 150tph ball mill;
-- a conventional dual oxide/sulphide flotation circuit;
-- a concentrate drying circuit, including a Larox filter;
-- a concentrate bagging station; and
-- tailings dewatering equipment.
Power is supplied via a 132kV overhead line from a switching
station on the national grid, 19km west of the site.
A detailed scoping study has been completed by Minero Consulting
and SENET (Pty) Ltd ("SENET"), a leading South African project
management and engineering company, for the introduction of a new
DMS pre-concentration process and upgraded crushing that will
increase throughput to 2.6 million tonnes per annum.
Leboam purchased the assets that comprise Mowana from Messina
Copper Botswana (Pty) Limited ("MCB") through a liquidation process
which was confirmed following a court approved arrangement with
MCB's creditors on 16 December 2016. MCB was previously controlled
by African Copper plc (previously listed on AIM), prior to its
takeover by JSE-listed, ZCI Limited ("ZCI") (JSE: ZCI).
Under the terms of the Leboam acquisition a US$20 million
payment (the "Leboam Payment") is due to the liquidators in May
2017 to settle the MCB creditors' claims. Additionally, Leboam has
also agreed to take over US$112m of existing debt owed by MCB to
ZCI. ZCI was the major creditor to MCB and holds security over the
assets of Mowana. ZCI has agreed that on payment of the Leboam
Payment it will release its security in its entirety, convert
US$79m of its outstanding debt into 40% of the equity in Leboam,
and leave the remaining US$21m as a term loan repayable over 10
years.
Accordingly, following the Leboam Payment, Alecto's interest in
the Mine will be 60%.
Rationale for the Proposed Transaction
The proposed acquisition of Mowana is in line with Alecto's
strategy to become a major metals producer in Africa. The Board is
mindful that a strong balance sheet and debt servicing capacity is
essential in order to enable it to finance its projects, and
challenges in providing adequate security have slowed the
development of the Matala Gold Project in Zambia. By acquiring a
producing asset, Alecto will be capable of achieving its stated
objective - to become a profitable metals producer in Africa.
As previously stated in its 2016 Interim Results, Alecto intends
to be much more than simply a small gold producer in one country.
The Company is focused on becoming a multi-commodity mining company
with diverse geographical reach. The development of Matala will be
capable of being progressed on better terms than had previously
been offered, and the Board looks forward to active participation
in its joint venture projects when appropriate.
Copper mines in Africa have generally been under considerable
pressure in recent years with low commodity prices and an inability
to contain costs after years of poor management. Alecto's approach
when looking for a suitable project was to look at how mining could
be recommenced from a much lower cost base in order to generate
profit even at depressed commodity prices.
The proposed Mowana acquisition represents the ideal opportunity
to generate cash flows and achieve a complete transformation of
Alecto as a company. Alecto has agreed a 10-year management
contract with its partners for operating the Mine which will
generate income at the parent level at a rate of 1.5% of Mowana's
revenue.
Financing
The Mine process upgrades, including the installation of a DMS
plant, will require US$20m in funding during the first year of
operation. Agreement has been reached with Fujax for the provision
of US$3m as pre-payment for copper concentrate, and a further
US$17m from NHI in the form of vendor financing for the equipment.
Fujax is a minerals and energy trading company based in South
Africa, and has been awarded the copper offtake contract for a
period of five years. NHI is a mining machinery manufacturer based
in China.
The Leboam Payment due to the liquidator of MCB will also be
funded as an advance payment for copper concentrate production.
Cradle has agreed that the sum of US$20m will be paid by Fujax in
addition to the US$3m that they will provide for the process plant
upgrades.
Alecto will also require funding to:
-- provide working capital to Mowana of up to US$1m in the short
term to enable production to re-commence (to be provided by way of
a secured loan on normal market terms and which Fujax has agreed to
match);
-- meet the expenses of the Proposed Transaction;
-- provide working capital for the Company's ongoing corporate costs.
The Company is currently in discussions regarding potential
funding by way of a convertible loan note in order to provide the
additional working capital needed to complete the Proposed
Transaction and re-start production at Mowana. Accordingly, if such
funding cannot be raised, Alecto will not be able to proceed with
the Proposed Transaction and will not be able to fund the
recommencement of production at Mowana.
The Company also currently intends that at the time of the
enlarged group's re-admission of the shares to trading on AIM, a
further funding round will be undertaken by way of a placing of new
shares and an open offer, to allow all shareholders to participate
in providing the requisite additional working capital for the
Company.
As announced previously, the Company is also progressing
financing arrangements for the group's Matala asset in Zambia and
will provide further updates as appropriate.
The Vendor and its Nominees
The Vendor is PenMin Botswana (Pty) Limited ("PenMin"), a
Botswana registered company owned by PenMin (Pty) Ltd, a South
African company performing Design, Build and Operate contracts
within the mining sector in Africa, which is in turn controlled by
Kevin van Wouw. Under the terms of the SPA, PenMin has nominated
that a proportion the Consideration shares will be received by C3W
Limited ("C3W") and an employee trust established for the benefit
of PenMin's employees (together, the "Nominees").
Neither PenMin nor the employee trust is currently a shareholder
in Alecto.
C3W is a company incorporated in Mauritius owned and controlled
by Gerald Chapman, a director of Alecto. Gerald Chapman is
currently interested in 943,750,000 existing Ordinary Shares
representing 17.90% of the existing issued share capital,
US$304,635 of Convertible Loan Notes (the "CLNs") and GBP307,500 of
deferred consideration relating to the acquisition of Matala in
2015 (the "Deferred Matala Consideration"). Subject to and at
completion, Mr Chapman intends to convert all of the outstanding
CLNs into 205,890,105 new Ordinary Shares at a price of 0.12 pence
per share (in accordance with their terms) and receive 384,375,000
new Ordinary Shares in lieu of the Deferred Matala Consideration
(an effective issue price of 0.08 pence per share, in accordance
with the original terms of the Deferred Matala Consideration).
Immediately following completion of the Proposed Transaction
(and after conversion of the CLN and settlement of the Deferred
Matala Consideration in shares), it is expected that Mr Chapman and
PenMin will each be interested in 29.9% of the enlarged issued
share capital of Alecto.
Related Party Transaction
Mr Chapman is a related party of the Company under the AIM Rules
as he is both a director and a substantial shareholder.
Accordingly, the Transaction is also subject to the independent
directors, being the directors of the Company other than Mr
Chapman, reaching an opinion, in consultation with Strand Hanson
Limited (the Company's nominated adviser) that the terms of the
Transaction are fair and reasonable insofar as shareholders are
concerned.
City Code on Takeovers and Mergers (the "Code")
The Proposed Transaction gives rise to certain considerations
under the Code. Brief details of the Panel, the Code and the
protections they afford are described below.
The Code is issued and administered by the Panel. The Code
applies to all takeover and merger transactions, however effected,
where the offeree company has its registered office in the United
Kingdom, the Channel Islands or the Isle of Man and, inter alia,
whose securities are admitted to trading on a multilateral trading
facility in the United Kingdom (such as AIM). The Company is
therefore subject to the Code.
Rule 9 of the Code requires that any person who acquires,
whether by a series of transactions over a period of time or not,
an interest (as defined in the Code) in shares which, taken
together with shares in which persons acting in concert with him
are interested, carry 30% or more of the voting rights of a company
which is subject to the Code, will normally be required to make a
general offer to all of the remaining shareholders to acquire their
shares.
Similarly, when any person, together with any persons acting in
concert with him, is interested in shares which, in aggregate,
carry not less than 30% of the voting rights of such a company but
not more than 50% of such voting rights, a general offer will
normally be required if any further interests in shares are
acquired by any such person, or any person acting in concert with
him. An offer under Rule 9 of the Code must be made in cash and at
the highest price paid by the person required to make the offer, or
any person acting in concert with him, for any interest in shares
in the company during the 12 months prior to the announcement of
the offer.
Rule 9 of the Code further provides, inter alia, that where any
person who, together with persons acting in concert with him, holds
over 50% of the voting rights of a company and acquires an interest
in shares which carry additional voting rights, then they will not
normally be required to make a general offer to the other
shareholders to acquire their shares. However, the Panel may deem
an obligation to make an offer to have arisen on the acquisition by
a single member of a concert party of an interest in shares
sufficient to increase his individual interest to 30% or more of a
company's voting rights, or, if he already holds more than 30% but
less than 50%, an acquisition which increases his interest in
shares carrying voting rights in that company.
Under the Code, a concert party arises where persons acting
together pursuant to an agreement or understanding (whether formal
or informal) co-operate to obtain or consolidate control of, or to
frustrate the successful outcome of an offer for a company, subject
to the Code. Control means an interest, or interests, in shares
carrying, in aggregate, 30% or more of the voting rights of a
company, irrespective of whether such interest or interests give de
facto control.
Mr Chapman, PenMin and the employee trust (the "Concert Party")
are expected to be regarded as acting in concert for the purposes
of the Code.
Accordingly, the interests of the Concert Party will increase,
if the Proposed Transaction completes, to above 50%, which, absent
a waiver of the obligations under Rule 9, would then oblige the
Concert Party to make a general offer under Rule 9 in certain
circumstances.
Under Note 1 on the Notes on the Dispensations from Rule 9 of
the Code, the Panel will normally waive the requirement for a
general offer to be made in accordance with Rule 9 of the Code if,
inter alia, the shareholders of the company who are independent of
the person who would otherwise be required to make an offer and any
person acting in concert with him pass an ordinary resolution on a
poll at a general meeting approving such a waiver (a "Whitewash
Resolution").
The Company intends to seek the Panel's agreement, subject to a
Whitewash Resolution being passed on a poll by independent
shareholders at a general meeting, to waive such an obligation on
the Concert Party to make a general offer to shareholders under
Rule 9 of the Code, which would otherwise arise in connection with
the Proposed Transaction and the associated issues of new Ordinary
Shares.
Further information regarding the Code and the protections it
affords to Shareholders will be set out in an admission
document.
Key terms of the Proposed Transaction
The Company has agreed to acquire the whole of the issued share
capital of Cradle for the consideration of GBP1 million in cash and
the issue and allotment of such number of new Ordinary Shares which
represents 60% of the fully diluted enlarged issued share capital
of the Company on admission. The share purchase agreement is
conditional on, inter alia, publication of an admission document
and admission of the fully diluted enlarged share capital of the
Company to trading on AIM.
Board changes
Mr Chapman has decided that, given his close involvement with
the Proposed Transaction, he should step down as Chairman with
immediate effect, but remain as a non-executive director of the
Company. Toby Howell, an existing non-executive director of the
Company, has therefore assumed the role of Non-Executive Chairman
with immediate effect.
The Proposed Transaction will represent a substantial change in
the scale and nature of the Group and the Directors anticipate
making further appointments to strengthen both the Company's
executive and non-executive capacity.
Suspension of Trading in the Company's Shares and Publication of
Admission Document
Trading in the Company's shares on AIM will be suspended with
effect from 7.30 a.m. today and remain suspended until an admission
document is published in accordance with the AIM Rules.
An admission document will be published by the Company setting
out full details of the Proposed Transaction and the enlarged
group, and giving formal notice of a general meeting at which
resolutions giving effect to the Proposed Transaction will be put
before shareholders. Publishing an admission document requires an
extensive due diligence process and it is currently anticipated
that an admission document will be published and that trading in
the Company's shares will recommence towards the end of March
2017.
Further updates, including timescales, will be provided as and
when appropriate.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) No. 596/2014 ("MAR").
**ENDS**
For further information, please visit www.alectominerals.com or
contact:
Alecto Minerals plc Tel: +44 (0)20 7499 5881
Mark Jones
Strand Hanson Limited Tel: +44 (0)20 7409 3494
Andrew Emmott
Matthew Chandler
James Dance
Beaufort Securities Limited Tel: +44 (0)20 7382 8300
Jon Belliss
St Brides Partners Ltd Tel: +44 (0)20 7236 1177
Elisabeth Cowell
Charlotte Page
This information is provided by RNS
The company news service from the London Stock Exchange
END
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