REG - Amur Minerals Corp - Proposed disposal of the Kun-Manie Project

Amur MineralsAnnouncement

05/08/2022 11:30

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RNS Number : 1126V  Amur Minerals Corporation  05 August 2022

 

05 August 2022

 

AMUR MINERALS CORPORATION

(AIM: AMC)

 

Proposed disposal of the Kun-Manie Project for US$ 35 Million

 

Amur Minerals Corporation ("Amur" or the "Company"), the nickel-copper
sulphide mineral exploration and resource development company focused on the
far east of Russia, announces that it, together with its wholly owned
subsidiary Irosta Trading Limited ("Irosta"), has entered into a Share
Purchase Agreement (the "SPA") for the sale of 100% of its interest in
Irosta's wholly owned subsidiary, AO Kun-Manie ("AO KM" or "Kun-Manie").  For
a total consideration of US$ 35 million, Bering Metals LLC (the "Buyer" or
"Bering") will purchase AO KM and the benefit of all amounts owed by AO KM to
Amur under intra-group loans (the "Transaction").  AO KM is an exploration
and mining company which holds the Detailed Exploration and Mine Production
mineral licence for the Kun-Manie nickel-copper sulphide project located in
Amur Oblast of the Russian Federation.

 

 

Highlights:

 

·    The total consideration for the Transaction is US$ 35 million to be
paid upon completion of the Transaction. The Transaction consideration is
payable in US$.

 

·    The divesture price represents a premium of 119% to the Company's
market capitalisation of 3 August 2022 (£13.2 million) and 44% to the current
Kun-Manie book value of US$24.3 million as at 31 December 2021 in Amur's
latest annual report. The closing share price on 3 August 2022 was 0.89 pence
per share.

 

·    In addition to shareholder approval of the Transaction at a General
Meeting scheduled for 24 August 2022 ("General Meeting"), completion of the
Transaction requires the approval by a newly created Russian Federation
government commission per the Presidential Decree No. 81 dated 1 March 2022
(which specifically addresses change of control of western held assets) and
the consent of the Federal Antimonopoly Service of Russia.

 

·    If the Transaction receives approval at the General Meeting and all
other consents and approvals, following receipt of the consideration of US$ 35
million, the Company intends to pay a special dividend of 1.8 pence per share
to Shareholders within 90 days of Completion.

 

 

Robin Young, CEO of Amur, commented:

 

"The US$ 35 million offer for the purchase of our Kun-Manie asset is a last
and final offer from Bering Metals LLC, a Russian incorporated company
controlled by Vladislav Sviblov.  Economic sanctions and Russian foreign
currency exchange controls implemented with regard to the 'Special Military
Operation' have adversely impacted our ability to advance, develop and place
Kun-Manie into production in the foreseeable future,

 

Given the geopolitical situation, we highly recommend that shareholders
approve the offer which at completion and receipt of a single payment of US$
35 million, a special dividend of 1.8 pence will be paid to shareholders
within 90 days of receipt of funds.

 

Should shareholders reject the sale of Kun-Manie, there are virtually no
alternatives available to our advancing development of the project.  This
includes a sale to non-Russian entities or to the ever increasing list of
Russian sanctioned mining companies, funding institutions and banks.  The
majority of international resource associated entities within Russia have or
are also withdrawing from Russian activities and operations.

 

The Company does not foresee that another offer to purchase Kun-Manie would be
forthcoming in the event that the current offer is rejected."

 

 

Order 81 and Company Approvals

 

The Transaction is subject to certain conditions occurring within 90 days of
the signing of the SPA ("Completion") including:

 

 

·    the dispatch of a shareholder circular ("Circular") and approval of a
resolution to complete the Transaction at a general meeting of the Company
("General Meeting") scheduled for 24 August 2022;

 

·    the approval under the commission created with regard to the
Presidential Decree No. 81 dated 1 March 2022 having been granted on the terms
required by applicable law, and not having been subsequently revoked, and such
approval not being conditional upon any further actions or omissions by any
party; and

 

·    the consent of the Federal Antimonopoly Service of Russia or its
relevant territorial department to the Transaction being granted and such
consent not being conditional upon any further actions or omissions by any of
the parties to the SPA.

 

 

Background to and evaluation of the Disposal Price

 

In 2020, Amur developed a shortlist of potential partners or purchasers to
whom a Russia-based project would be of interest.  The list included Russian
and internationally based mining companies, investment groups, financial
institutions, metal trading groups and electric vehicle battery
manufacturers.  Discussions were held with potential partners and
confidentiality agreements were signed with interested parties.

 

During 2021, three parties (one western and two Russian) demonstrated bona
fide interest in funding or purchasing Kun-Manie. Negotiations advanced with
all three parties and funding alternatives and purchase options were tabled.
Of the three, a proposed outright purchase of Kun-Manie was selected as it
offered the highest consideration available to the Company, approaching fair
market value. Work on negotiating transaction documentation was initiated and
neared completion in late February 2022.

 

On 24 February 2022, Russia initiated a special military operation ("SMO") in
Ukraine.  The action resulted in the immediate implementation of sanctions
and counter-measure responses by the Russian Government on 28 February, 1
March and 8 March 2022.  The combined actions had an immediate impact on the
terms of the proposed sale of Kun-Manie.  The buyer and Amur agreed to
monitor the situation and revisit the acquisition once the full impact of the
sanctions and orders were understood.

 

Upon completion of a sanction and order review period, negotiations were
resumed to modify the terms of the Disposal allowing for all constraints to be
considered.  Specific considerations and impacts on the transaction were as
follows:

 

·    A transaction with a Russian entity or individual can be implemented
provided they are not subject to sanctions.

·    Russian Government implemented orders restricting foreign currency
flow out of Russia have a considerable impact.  Foreign exchange payments may
only be made with the approval of a newly formed Currency Control Committee
and this committee has final approval on the quantity and timing of currency
flow from Russia.

·    For the transaction, the Company requires legal support using Russian
solicitors to ensure that the transaction will meet all regulatory and
statutory considerations.  Many legal entities have exited Russia, including
the Company's former Russian solicitors who were involved in negotiations.
Amur had anticipated that this might occur and have already engaged a highly
regarded, experienced Russian law firm, Birch Legal.

 

From late March through early May 2022, a revised share purchase agreement was
negotiated and executed.  All necessary associated documentation was
completed, including a circular for shareholder approval of the
offer.  Stanmix Holding Limited offered to purchase Kun-Manie on the
following terms.

 

·    US$ 15 million upon Completion of the Transaction (to occur within 60
days of signing the SPA)

·    US$ 10 million within 12 months of the date of the SPA

·    US$ 50 million within 48 months of the date of the SPA

·    US$ 30 million, payable in ten annual instalments of US$3 million
commencing in 2027

 

Requiring shareholder approval, a general meeting was held on 25 May 2022.
At the request of attending shareholders, Amur's Chief Executive Officer,
Robin Young conducted a Q&A session related to the transaction.
Subsequent to the Q&A session, the offer from Stanmix was rejected.  The
primary reasons from Shareholders attending were:

 

·    the payment terms extended over too long a period i.e. up to 15
years;

·    there was no absolute guarantee that all payments would be
forthcoming;

·    the initial payment of US$ 15 million was regarded as too low; and

·    specific dividends to shareholders or other uses of proceeds were not
identified.

 

Since 26 February 2022, the continuation of and responses to the SMO have
substantially and further adversely impacted the opportunity to sell and/or
develop Kun-Manie.  Sanctions have and continue to eliminate many companies'
interests, including mining entities, off-take metal marketers and all
sanctioned Russian companies, as potential business counterparties.
Additionally, the larger and well-funded Russian resource banks and fund
sources are predominantly now sanctioned.  International funding sources are
avoiding participation in Russian based projects making it extremely difficult
if not impossible to continue operations in Russia let alone develop and fund
the future development of Kun-Manie.

 

Following the shareholder vote on 25 May 2022, the Board re-engaged with the
buyer team and sought to negotiate a package which addresses the concerns of
Shareholders raised at the meeting.  At the same time, the situation in
Ukraine has only deteriorated and it is increasingly clear that the SMO will
be ongoing and its effects will be widespread and protracted. The Board has
negotiated a consideration structure in which the initial payment has been
increased and all of the consideration will be paid at the outset in
conjunction with the transfer of shares in Kun-Manie.  At the same time, the
total purchase price proposed by the Buyer has been significantly reduced.

 

Given the worsening situation the Board has considered the revised Disposal
price of US$ 35 million, which is a substantial decrease in price compared to
the US$ 105 million of the original transaction which was rejected by
Shareholders, and has ultimately concluded that this is now the final
opportunity to recoup the Company's sunk costs in Russia when taking into
account a number of internal and external factors that have affected the
Kun-Manie Project:

 

·    The geopolitical situation between Russia and Western countries has
deteriorated since the announcement of 9 May 2022 detailing the original
proposed sale, both in terms of market sentiment towards Russia and within
Russia to Western companies.

·    Market conditions have deteriorated in the months since the original
transaction, driven by rising inflation, supply chain disruption and the
threat of a recession, which has put downward pressure on UK small cap stocks.

·    The Disposal addresses Shareholder concerns about the initial
transaction, including a more substantial initial consideration which is all
delivered at Completion, and a commitment to the payment of a special dividend
of 1.8 pence per share to be paid to Shareholders within 90 days of
Completion. After Completion of the Disposal, the Company will become a cash
shell and will seek to complete a reverse takeover which will require
Shareholder approval within 12 months.  Should an acceptable reverse takeover
opportunity not be identified and approved by the Shareholders, the remaining
funds from the transaction less costs shall be distributed as a second special
dividend.

·    The Company has been advancing the Project in accordance with the
terms of its Detailed Exploration and Mining Licence and notes the anticipated
life of mine capital cost estimate of US$ 1.92 billion, including US$1.14
billion for preproduction and construction costs of a 12.4 million open pit
ore tonne per annum operation, as detailed in the TEO Project Russian
feasibility study. The Company does not foresee this financing being readily
available in order to advance the Project to production.

·    The Company has received no other proposals for the acquisition of
Kun-Manie and is not in discussions with any other parties regarding a
disposal of the asset.

·    The Company does not foresee that another offer to purchase Kun-Manie
would be forthcoming in the event that the current offer is rejected.

 

The structure of the transaction, the purchase price and payment terms are
consistent with the sale of other Russian assets owned by Western companies
that have been purchased by Russian entities since the start of the SMO.

 

 

Future Strategy and Special Dividend

 

The Transaction is a fundamental disposal pursuant to Rule 15 of the AIM Rules
for Companies. A Circular containing full details of the Transaction will be
published and notified by RNS and a General Meeting is expected to be held on
24 August 2022.

 

Following receipt of the consideration of US$ 35 million, the Company intends
to pay a special dividend of 1.8 pence per share to be paid to Shareholders
within 90 days of Completion and receipt of funds.  The Company has received
tax advice that the Disposal is unlikely to attract capital gains or
withholding tax. The Board proposes that the record date and payment date for
the distribution of the post-Completion dividend shall be no later than 90
days following receipt of the consideration payment.

 

The Directors intend to seek to acquire another company or business in
exchange for the issue of Ordinary Shares in a single transaction (a "reverse
takeover"), which will only be able to go forward with Shareholder approval.
In considering the Company's future strategy, the Board will seek to identify
opportunities offering the potential to deliver value creation and returns to
Shareholders over the medium to long-term in the form of capital and / or
dividends.

 

The Company will be required to make an acquisition or acquisitions which
constitute(s) a reverse takeover under AIM Rule 14 on or before the date
falling six months from the completion of the Disposal, or be re-admitted to
trading on AIM as an investing company under AIM Rule 8. Failing that, the
Company's Ordinary Shares would then be suspended from trading on AIM pursuant
to AIM Rule 40. If the Company's shares remain suspended for six months,
admission of the Company's shares will be cancelled.

 

Pursuant to Rule 14 of the AIM Rules, a reverse takeover transaction would
require the publication of an admission document in respect of the proposed
enlarged entity and would be conditional upon the consent of Shareholders
being given at a general meeting.

 

Market conditions may have a negative impact on the Company's ability to make
an acquisition or acquisitions which would constitute a reverse takeover under
AIM Rule 14. There is no guarantee that the Company will be successful in
meeting the AIM Rule 14 deadline as described above.

 

As at 31 December 2021, the net asset value of the Company was US$ 31.1
million.

 

 

About Bering Metals LLC

 

Bering Metals LLC is a Russian incorporated company controlled by Vladislav
Sviblov. Mr Sviblov is a Russian entrepreneur and shareholder in some major
mining and industrial assets including Highland Gold Mining, one of the
largest gold miners in Russia which Mr Sviblov acquired in 2020.  Mr Sviblov
has previously completed two additional major M&A transactions, namely the
acquisition of Trans-Siberian Gold in Kamchatka, and the assets of the Zoloto
Kamchatki group. In April 2022, Highland Gold Mining entered into a definitive
agreement to acquire the Russian assets of New York Stock Exchange-listed
Kinross Gold Corporation.

 

 

Market Abuse Regulation (MAR) Disclosure)

 

This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the Company's obligations under Article 17 of
MAR.

 

 

Terms used and not defined in this announcement shall have the same meanings
given to them in the Circular.

 

 

 Company               Nomad and Broker                   Public Relations

 Amur Minerals Corp.   S.P. Angel Corporate Finance LLP   BlytheRay
 Robin Young CEO       Richard Morrison                   Megan Ray

                       Adam Cowl                          Tim Blythe
 +44 (0) 7981 126 818  +44 (0) 20 3470 0470               +44 (0) 20 7138 3203

 

For additional information on the Company, visit the Company's website,
www.amurminerals.com (http://www.amurminerals.com) .

 

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