REG - Central Asia Metals - Proposed acquisition of Lynx Resources Limited <Origin Href="QuoteRef">CAML.L</Origin> - Part 2

Central Asia MetalsAnnouncement

22/09/2017 07:08

- Part 2: For the preceding part double click  ID:nRSV5104Ra 

quartile of the lead industry cost curve (source: Wood
Mackenzie). The SASA Mine's production guidance for 2017 is 21,500 tonnes of zinc and 29,000 tonnes of lead. In H1 2017,
zinc production was 10,700 tonnes and lead production was 14,900 tonnes, and therefore the Directors believe that the
Company is on track to meet its production guidance for 2017. 
 
Global zinc consumption is forecast to grow at a compound average annual rate of 1.7 per cent. over the period from 2017 to
2035. This consumption growth creates a requirement for extra raw material supply to smelters. Whilst some of the extra
mine capacity will come from expansions and mine life extensions of existing producers, the majority will be from new
mines. Given that it takes 18 months to five years to commission a mine, this is a significant challenge for the zinc
industry. Refined market tightness and falling inventories are expected to provide fundamental support to prices and the
price is forecast to reach a cyclical high of US$3,875 per tonne in 2018 (source: Wood Mackenzie). 
 
Mine production cuts in 2015 and 2016 caused the rapid draw-down of global lead concentrate inventories last year, leading
stocks to fall to the 29 days of consumption last year, from which they are projected to fall further to the critically low
level of 25 days in 2017. Undersupply of mined lead is expected to continue to constrain primary output for the next couple
of years, thereby maintaining the supply-demand balance in deficit until 2018. The increased mine output encouraged by
higher prices is not expected to restore the market fully to balance, or a small surplus, until 2019. Prices are expected
to average around US$2,350 per tonne for 2017 and slightly over US$2,400 per tonne in 2018 (source: Wood Mackenzie). 
 
The Directors believe that the Enlarged Group should have combined recoverable copper equivalent mineral resources of
499,000 tonnes 1  and be able to produce in the order of 34,800 tonnes 2  (based upon commodity prices) of copper
equivalent metal annually, representing an increase in metal equivalent production of 148 per cent. to 2016 Kounrad
production. 
 
11.           Strategy of the Enlarged Group 
 
The Directors believe that the Enlarged Group would be an attractive AIM quoted company as a mid-tier low-cost base metals
producer with geographical, operational and commodity diversity. With two, low operating cost, long life assets, the
Enlarged Group's strategy would be to remain a highly cash generative business that is focused on maximising shareholder
returns, primarily in the form of dividend distributions. 
 
The Directors believe that the Enlarged Group will provide an enhanced platform for growth through both its organic growth
potential, including further exploration at the Shuak project and brownfields exploration programmes at the SASA Mine, as
well as strategic acquisitions. 
 
12.           Dividend Policy 
 
The Company's dividend policy is currently to return a minimum of 20 per cent. of the attributable revenues generated from
the Kounrad Project to shareholders subject to maintaining three times cash cover. The final dividend for the year ended 31
December 2016 of 10 pence per Ordinary Share was paid to Shareholders on 7 June 2017 and brought total dividends paid in
respect of 2016 to 15.5 pence (2015: 12.5 pence). On 22 September 2017 the Company announced an interim dividend for the
period from 1 January 2017 to 30 June 2017 of 6.5 pence per Ordinary Share. It is expected that this interim dividend will
be paid to Shareholders on 27 October 2017. 
 
For the avoidance of doubt, the Placing Shares and Consideration Shares will not be entitled to the interim dividend for
the period ended 30 June 2017, declared on 22 September 2017 and expected to be paid on 27 October 2017. Subscribers for
new Ordinary Shares and purchasers of the Selling Shareholder Placing Shares will however be entitled to any final dividend
in respect of the period ended 31 December 2017, which will be announced in Q2 2018. 
 
In respect of periods commencing on 1 January 2018, the Company's dividend policy is intended to be to return to
Shareholders a target range of between 30 per cent. and 50 per cent. of free cash flow (defined as net cash generated from
operating activities less capital expenditure). The dividends will only be paid provided there is sufficient cash remaining
in the Group to meet the ongoing contractual debt repayments and that banking covenants are not breached. 
 
13.           Extraordinary General Meeting and Summary of the Resolutions 
 
The Acquisition and the Company Placing require Shareholders' approval of the Resolutions. 
 
Both Resolutions are special resolutions. The purpose of the Resolutions is to, inter alia: 
 
●    approve the Acquisition; 
 
●    provide all of the authorities necessary to issue the Company Placing Shares and the Consideration Shares; and 
 
●    provide the Company with certain general authorities, conditional upon Completion, calculated by reference to the
Enlarged Share Capital. 
 
14.           Irrevocable Undertakings 
 
The Company has received irrevocable undertakings from the Directors that they will, or will use reasonable endeavours to
procure that the legal Shareholders will (where the Directors are not the registered holders of such Ordinary Shares) vote
in favour of the Resolutions at the Extraordinary General Meeting in respect of Ordinary Shares, representing, in
aggregate, approximately 23.5 per cent. of the Existing Ordinary Shares. 
 
Shareholders should note that if the Resolutions are not passed, the Acquisition and the Placing will not be completed, in
which event the Company will continue to pursue its strategy of identifying acquisition targets. 
 
15.           Admission, Readmission, Settlement and Dealings 
 
Application will be made for the Company Placing Shares to be admitted to trading on AIM and, if the Resolutions are passed
at the Extraordinary General Meeting, it is expected that Admission will become effective and dealings in the Placing
Shares will commence at 8.00 a.m. on 12 October 2017. Admission is not conditional on the Acquisition having completed. 
 
As the Acquisition is classified as a reverse takeover under the AIM Rules for Companies, upon Completion occurring, the
admission of the Existing Ordinary Shares (including the Placing Shares) will be cancelled and application will be made for
the Enlarged Share Capital to be admitted to trading on AIM. Completion is subject to certain conditions being satisfied
(or, if permitted, waived). 
 
If the Acquisition completes, application will be made for Readmission and it is expected that Readmission will become
effective and dealings in the Ordinary Shares will commence in Q4  2017. 
 
If the Resolutions are not passed at the Extraordinary General Meeting, the Acquisition will not proceed and the Directors
will consider alternative options for the Company. 
 
16.           Risk Factors 
 
YOUR ATTENTION IS DRAWN TO THE RISK FACTORS REFERRED TO BELOW. 
 
17.           Directors' Recommendation 
 
The Directors believe that the proposed Company Placing and the Acquisition promote the success of the Company for the 
benefit  of  its  Existing  Shareholders  as  a  whole.  Accordingly,  the  Independent Board unanimously recommend that
Existing Shareholders vote in favour of the Resolutions to be proposed at the Extraordinary General Meeting. 
 
By virtue of Kenges Rakishev's interest in the Selling Shareholder Placing as the beneficial owner of the Selling
Shareholder Placing Shares, he has not participated in the Directors' recommendation to the Existing Shareholders. 
 
The Directors, whose shareholdings in aggregate represent 23.5 per cent. of the issued ordinary share capital of the
Company (excluding treasury shares) as at 21 September 2017, have given irrevocable undertakings to vote (or procure that
the relevant registered holders vote) in favour of the Resolutions. 
 
18.           RISK FACTORS 
 
Shareholders should carefully consider the following risk factors in addition to the rest of the information contained or
incorporated by reference in this announcement prior to making any decision as to whether or not to vote in favour of the
Resolutions. 
 
The Directors consider the following to be the material risk factors relating to the Placing and the Acquisition and to
which the Group and, following Completion, the Enlarged Group will be exposed as a result of the Acquisition. If any of the
risks described below were to occur, it could have a material adverse effect on the business, results of operations,
financial condition and/or growth prospects of the Group and, if Completion takes place, the Enlarged Group, and the value
of Shares could decline and Shareholders could lose all or part of the value of their investment in Shares. The risks
described below should not be considered to be an exhaustive statement of all the potential risks and uncertainties that
the Group and the Lynx Group face and that the Enlarged Group may face if the Acquisition is completed. There may be
additional risks, or risks that are considered to be immaterial at the time of publication of this announcement that may
become material and adversely affect the Group and, if Completion takes place, the Enlarged Group. 
 
Unless otherwise indicated or the context otherwise requires, references in this section 18 to 'the Group' should be taken
as referring to the Enlarged Group if the Acquisition is successfully completed, and the risks summarised below should be
considered as applying to the Enlarged Group. 
 
Shareholders should read this announcement as a whole and not rely solely on the information set out in this section. 
 
RISKS RELATING TO THE ACQUISITION NOT PROCEEDING 
 
The conditions of the Acquisition may not be satisfied and the Acquisition may not be completed 
 
Completion of the Acquisition is subject to certain conditions, including but not limited to, the approval of Shareholders
at the Extraordinary General Meeting, the Placing Agreement becoming unconditional, the Debt Financing Agreement becoming
unconditional (including in respect of the availability of funds to Traxys from its lenders), the consent of the existing
Lynx Group lenders to the existing debt facilities becoming unconditional, applicable regulatory approvals being obtained
(and associated costs being paid) and Readmission. 
 
There can be no assurance that the conditions to completion of the Acquisition will be satisfied or waived, if applicable)
by 15 December 2017 (which is the long stop date specified in the Acquisition Agreement), or that the parties would agree
to extend this long stop date, if necessary. If any applicable conditions are not satisfied (or waived) by the agreed long
stop date, the Acquisition will not complete. If the Acquisition does not complete, the Company would nonetheless be
obliged to pay certain costs (including due diligence and advisory fees) incurred in connection with the Acquisition,
Placing, Admission and Readmission. 
 
The Placing is not conditional upon completion of the Acquisition and an investment in Placing Shares may represent only an
investment in the existing Group and could give rise to a significant dilution for Existing Shareholders without the
benefit of the Acquisition 
 
As the Placing is not conditional upon completion of the Acquisition, the purchase of Placing Shares may simply be an
investment in the Company and the Group, and not the Enlarged Group. In particular, the Acquisition may not complete if any
of the Acquisition Conditions are not satisfied. Accordingly, in the event the Acquisition is not completed, purchasers of
Placing Shares are investing in the Company and the Group on a stand-alone basis, without the business of the Lynx Group,
and existing Shareholders would experience significant dilution. 
 
In the event that the Acquisition does not complete following completion of the Placing, the Directors intend to use the
funds raised to satisfy the costs of the transaction and to seek other suitable acquisition opportunities. In the event
that the Placing proceeds, but the Acquisition does not take place, the Directors intend to use the funds raised by the
Company to satisfy the costs of the transaction and to seek other suitable acquisition opportunities. The Company may apply
the Placing Proceeds for another acquisition of a company or mineral licence by the Enlarged Group, provided that where
such transaction would constitute a Class 1 transaction within the meaning of and applying the requirements of Chapter 10
of the Listing Rules (as if Chapter 10 of the Listing Rules applied to the Company), it will only do so where it has sought
and received shareholder approval and complied with the provisions of Listing Rule 10.5.1 as if they applied to the
Company. If no other acquisition opportunity can be found on acceptable terms by the time of the Company's 2018 annual
general meeting, and unless the Shareholders resolve otherwise it will take steps to return such sums to Shareholders as a
whole and not just Placees. In the event that the Placing proceeds, but the Acquisition does not take place, it will not
affect the Selling Shareholder Placing and the Selling Shareholder will be entitled to retain all sums paid to it. Such a
return could carry financial costs for certain Shareholders such as taxes, withholdings, transaction or advisor costs, will
incur costs on the part of the Company and would be subject to applicable securities laws. 
 
RISKS RELATING TO THE PLACING AND ACQUISITION 
 
The Placing and Acquisition are subject to a number of conditions that may not be satisfied or, where applicable, waived 
 
The implementation of the Placing and Admission is subject to the satisfaction (or waiver, where applicable) of a number of
conditions, including the passing of the Resolutions, approval by the Kazakh government for the issue of the Company
Placing Shares and the Consideration Shares, each of the new debt facility agreements not being terminated prior to
Admission, no event having arisen at any time prior to Admission which gives any party a right to terminate the Acquisition
Agreement and there not having occurred any material adverse change in relation to the Group or the Lynx Group. 
 
There is no guarantee that these (or any other) conditions of the Placing Agreement will be satisfied (or waived, if
applicable), in which case the Placing and the Admission will not be completed. 
 
The implementation of the Acquisition and the Readmission is subject to the satisfaction (or waiver, where applicable) of a
number of conditions, including receipt of applicable regulatory approvals, the Placing Agreement having become
unconditional and the passing of the Resolutions at the Extraordinary General Meeting. 
 
There is no guarantee that these (or any other) conditions of the Acquisition Agreement will be satisfied (or waived, if
applicable), in which case the Acquisition and the Readmission will not be completed. The conditions are summarised in more
detail in section 19 of this announcement. 
 
If completion of the Company Placing and/or the Acquisition does not occur, the Company would nonetheless be obliged to pay
certain costs (including due diligence and advisory fees) incurred in connection with the Proposals. In anticipation of the
Company Placing and Completion, the Company will also have invested significant time and resources (including that of the
Directors) and may have, in the meantime, not been able to capitalise on other transaction opportunities. 
 
The Republic of Macedonia may assert that certain provisions of the Minerals Law apply to the Acquisition 
 
The Minerals Law establishes regulatory formalities which have to be obtained when selling and purchasing an exploitation
concession and/or selling shares in companies owning exploitation concessions in Macedonia. One such formality includes
obtaining the approval of the Ministry of the Economy and paying a fee of 7% of the value of the exploitation concession on
the direct transfer of the concession or a change of control of the holder of the exploitation concession. The Sellers and
the Company have separately received legal advice that these provisions do not apply, and any such fee would not be
payable, in respect of indirect changes of control in companies owning exploitation concessions, such as is the case in the
context of the proposed Acquisition. However, the Company is not aware of any prior comparable transactions that involved
an indirect change of control of an exploitation concession holder since the Minerals Law was enacted in 2012, and no
contractual protections have been provided by the Sellers in this regard. While the Company's position is that this
approval (and related fee) is not applicable in the context of the Acquisition, there is a risk that the Republic Of
Macedonia may take a different position. If the approval of the Republic of Macedonia were to be required for the
Acquisition pursuant to the Minerals Law, there can be no guarantee that such approval would be obtained in a timely
fashion, on acceptable terms or at all. While the basis for determining the value of the exploitation concession required
to calculate such fee is not prescribed in detail in the Minerals Law, the Directors believe it would be material in the
context of the Transaction and have provided within the aggregate costs of the transaction for what the Company believes is
a reasonable estimate of the fee would be borne by the Enlarged Group, if it were to be payable. Further, there can be no
assurance that any approval would be obtained before 15 December 2017, being the long stop date under the Acquisition
Agreement or that any fee borne by the Enlarged Group would be within the estimate provided for by the Company. The Company
would not have a contractual right to terminate the Acquisition Agreement by reason of any fee payable exceeding its
current estimate. 
 
Existing Shareholders could experience significant dilution as a result of the Proposals 
 
Following completion of the Company Placing and Acquisition, the Existing Shareholders will experience significant dilution
as a result of the issue of the Company Placing Shares and (if relevant) the Consideration Shares. As a consequence, voting
power which can be exercised and the influence which may be exerted by the Existing Shareholders in respect of the Group or
of the Enlarged Group (provided Completion occurs) will be significantly reduced. 
 
There can be no assurance that the Group will realise the anticipated benefits of the Acquisition 
 
If Completion occurs, the Group may not realise the anticipated benefits from the Acquisition or may encounter difficulties
in achieving the anticipated benefits. The Group is subject to all of the risks set forth in this "Risk Factors" section
which may impact the Group's ability to realise the benefits its Directors believe will result from the Acquisition. In
addition, if the future financial performance and cash flows generated by the Group are not in line with the Directors'
expectations, it may significantly affect the financial performance of the Group. This could reduce the potential benefits
arising from the Acquisition, adversely affect the market price of the Ordinary Shares, or have a material adverse effect
on the Group's business, financial condition, operating results and prospects including its ability to pay a dividend. 
 
The due diligence carried out in respect of the Lynx Group may not have revealed all relevant facts or uncovered
significant liabilities 
 
While the Company conducted certain due diligence in respect of the Acquisition with the objective of identifying any
material issues that may affect its decision to proceed with the Acquisition, there can be no assurance that all such
issues have been identified. The Company also used information revealed during the due diligence process to formulate its
business and operational planning. During the due diligence process, the Company is only able to rely on the information
that was made available to it. Any information that was provided or obtained from available sources may not have been
accurate at the time of delivery and/or remained accurate during the due diligence process and in the run-up to the
Acquisition. More broadly, there can be no assurance that the due diligence undertaken was adequate or accurate or revealed
all relevant facts or uncovered all significant liabilities. If the due diligence investigation failed to identify key
information in respect of the Lynx Group, or if the Company considered certain material risks to be commercially
acceptable, the Company may be forced to write-down or write-off assets in respect of the Lynx Group, which may have a
material adverse effect on the Enlarged Group's business, financial condition or results of operations. In addition,
following the Acquisition, the Company may be subject to significant, previously undisclosed liabilities in respect of the
Lynx Group that were not known or identified during due diligence and which could have a material adverse effect on the
Group's business, financial condition and results of operations including its ability to pay a dividend. 
 
Foreign exchange risk arises as a result of the proceeds of the Company Placing being in pounds sterling and the
consideration payable under the Acquisition Agreement being in US dollars. 
 
The proceeds raised by the Group pursuant to the Company Placing will be in pounds sterling, but the payment to the Sellers
pursuant to the Acquisition will be made in US dollars. There could be a period of several weeks between Admission and the
payment to the Sellers pursuant to the Acquisition, during which time the Group will therefore be exposed to the risk of a
significant appreciation in the US dollar against the pound sterling. The Group has entered into currency hedge
arrangements in respect of the majority of the anticipated net proceeds of the Company Placing in order to limit its total
exposure to adverse currency movements in respect of the Acquisition, although there is no guarantee that such measures
will be implemented or be fully effective. The Group will incur additional costs if hedging is secured for this exchange
rate risk. Should the US dollar appreciate against the pound sterling and such hedging measures are not implemented or
fully effective, the cost of the Acquisition for the Group will increase which could have a material adverse effect on the
returns the Group is able to make to its Shareholders and the Group's financial condition. 
 
Acquisition and integration costs may be greater than anticipated 
 
The Company expects to incur a number of costs in relation to the Acquisition, including integration and post-completion
costs in order to successfully combine the operations of the Group and the Lynx Group, assuming the Acquisition completes.
The actual costs of the acquisition and integration process may exceed those estimated and there may be further additional
and unforeseen expenses incurred in connection with the Acquisition. In addition, the Group will incur legal, accounting,
financial adviser and transaction fees and other costs relating to the Acquisition, some of which are payable whether or
not the Acquisition reaches Completion. Although the Directors believe that the integration and Acquisition costs will be
more than offset by the realisation of the benefits resulting from the Acquisition, this net benefit may not be achieved in
the short-term or at all, particularly if the Acquisition is delayed or does not complete. These factors could materially
adversely affect the business, financial conditions, results of operations and prospects of the Group including its ability
to pay a dividend. 
 
The Group will not have full recourse to the Sellers against all potential liabilities in connection with the Acquisition,
whether identified or unidentified 
 
Under the terms of the Acquisition Agreement, the Sellers will provide the Group with certain limited indemnities,
covenants and warranties in relation to the Lynx Group. However, these indemnities, covenants and warranties may not cover
all potential liabilities associated with the Lynx Group, whether identified or unidentified, and they are in certain
circumstances limited in scope, duration and/or amount. In particular, the warranties and indemnities are largely limited
to matters arising after the Sellers acquired the SASA Mine in November 2015, and therefore the Group will have minimal
protection in relation to matters arising prior to this. The Group may not have full recourse against, or otherwise recover
in full from, the Sellers in respect of all losses which it may suffer in respect of a breach of those covenants and
warranties, or in respect of the subject matter of any of the indemnities, or otherwise in respect of the Acquisition. In
addition, the Group will be dependent on the ongoing solvency of the Sellers to the extent it seeks to recover amounts in
respect of claims brought under such indemnities, covenants and warranties. The warranties, covenants and indemnities
provided by the Sellers do not cover all issues identified by the Group, nor do they cover all fees and costs that may be
payable by the Lynx Group in connection with the Acquisition, which may be material. To the extent the Group suffers any
losses and is unable to recover such losses from the Sellers it could have a material adverse effect on the Group's
business, results of operation, financial condition and ability to pay a dividend. 
 
The Sellers are special purpose vehicles 
 
The Sellers are special purpose vehicles. Although the Acquisition Agreement provides for certain remedies and contractual
protections in favour of the Group, and a guarantee from an affiliate of one of the Sellers, in practice the Group may not
have successful recourse against the Sellers or their guarantor under the Acquisition Agreement as the entities may not own
any other assets and may be wound up in due course following Completion prior to the expiry of the period in which such
claims can be made by the Group. 
 
The integration process may result in disruption 
 
Until Completion, the Group and the Lynx Group will continue to operate as two separate and independent businesses. The
integration process for these two businesses will only begin following Completion and the success of the Enlarged Group
will depend, in part, on the effectiveness of this integration process. The Company does not plan to hire separate
integration specialists to manage this process and it will be a time consuming process that will demand a significant
amount of involvement on the part of the Directors and senior management of the Company, which may divert focus and
resources from the day-to-day management of the Group's business. 
 
In particular, while the Company will enter into the Transitional Services Agreement to ensure certain transitional
arrangements are in place following Completion, there can be no assurance that the mining operations at the SASA Mine will
continue without disruption. A large number of operational responsibilities and knowledge are concentrated in the Lynx
Group management team, all of whom will not be retained on Completion, and the Company will only be provided limited access
to certain key individuals for a period of three months following Completion pursuant to the terms of the Transitional
Services Agreement. Whilst there is significant mining experience among the Company's senior management team, there is
limited underground mining experience. Moreover, whilst the SASA Mine is a standalone asset and it is assumed that it will
largely continue to operate as it has done prior to Completion, there are a number of key SASA operational activities that
are controlled directly by Orion and the Lynx Group and the change of control on Completion may lead to business
disruptions. 
 
There is also limited capability and experience at Lynx for the preparation of financial information in accordance with
IFRS and the information required to support public company processes and disclosures. This, coupled with the fact that the
existing Lynx Group monthly financial reporting timetable is not aligned with the Company's reporting requirements, could
cause delays during the half year and year end financial reporting process of the Enlarged Group. Additionally, many
aspects of the Lynx Group and the SASA Mine internal controls and processes are not formally documented and improvements
will need to be made in order to align these with the practices generally observed by listed companies in the UK. These
include (but are not limited to) the implementation of formal risk management procedures, IT policies, formal KPI reporting
and re- forecasting processes. 
 
As a result, the integration process may result in the disruption of ongoing business that may adversely affect the
Enlarged Group's ability to achieve the anticipated advantages of the Acquisition. Moreover, some of the potential
challenges in combining the businesses may not become known until after Completion. 
 
Management's attention may be diverted from the business of the Enlarged Group by the Acquisition 
 
The Acquisition has required, and will continue to require, substantial amounts of time from the Group's and the Lynx
Group's management teams, which could adversely affect their ability to operate the respective businesses. The Enlarged
Group's management team will also be required, following Completion, to devote significant attention and resources to
integrating the businesses. There is a risk that the challenges associated with managing the Acquisition will result in
management distraction and that consequently the underlying businesses will not perform in line with expectations. 
 
The loss of one or more members of the Enlarged Group's key employees following the Acquisition could adversely affect the
Enlarged Group's business, prospects, financial condition and results of operation 
 
The performance of the Enlarged Group's management and other key employees, taken together, is critical to the success of
the Enlarged Group and, while plans are, or will be put in place, for the retention of management and other key employees,
there can be no assurance that the Acquisition will not result in the departure of management and/or other key employees
from the Enlarged Group. Such departures may take place either before Completion or during the Enlarged Group's integration
process following Completion. Failure of the Enlarged Group to maintain or put in place plans or arrangements or otherwise
to incentivise employees appropriately could result in the departure of management and/or other key employees. The
departure of a significant number of management or other key employees could adversely affect both the Enlarged Group's
ability to conduct its businesses (through an inability to execute business operations and strategies effectively) and the
value of those businesses, which could have a material adverse effect on the Enlarged Group's business, financial
condition, results of operations and prospects. 
 
Borrowing and interest rate risk 
 
The Acquisition will result in the raising of debt finance, which will significantly increase the overall levels of
borrowing in the Enlarged Group. The Enlarged Group's borrowing costs are likely to increase as a result of this additional
debt and may also increase further due to increases in interest rates as set by the lending institutions. The Enlarged
Group's indebtedness will impose financial and other restrictive covenants that limit the ability of the Enlarged Group to,
among other things, borrow additional funds and dispose of assets, and the failure, in the longer term, to comply with such
restrictions may result in an event of default, which, if not cured or waived, could have a material adverse effect on the
Enlarged Group. The Enlarged Group's leverage may hinder the Enlarged Group's ability to adjust rapidly, if required, to
changing market conditions and could make the Enlarged Group more vulnerable in the event of a downturn in economic
conditions or its business. 
 
Taxation 
 
Any change in the Company's tax status, the tax consequences of the Acquisition, or in taxation legislation in the UK or in
any jurisdiction in which the Enlarged Group operates (as described more fully in the "Risks generally relating to the
countries in which the Group operates" section) could affect the Group's profitability and ability to maintain returns to
shareholders. 
 
RISKS SPECIFIC TO THE GROUP IN MACEDONIA 
 
The following risk factors will be relevant to the Group if Completion occurs. 
 
Political Instability 
 
Macedonia has been involved in political turmoil in recent years, cumulating in anti-government protests in 2015, 2016 and
2017. An early election was held in December 2016, as part of an EU-mediated multiparty agreement, in order to break a
year-long parliamentary deadlock and maintain the country on a path towards formal EU accession talks. However, the
election produced an indecisive election result and on 2 March 2017 President Gjorge Ivanov's decided to block the
opposition Social Democratic Union (SDSM) leader, Mr Zoran Zaev, from forming a government. On 31 May 2017 Mr Zoran Zaev
(with the President's consent) formed a coalition between his own party, the Democratic Union for Integration and the
"Alliance for the Albanians" coalition in order to serve as the official government. There may be ongoing political
uncertainty during the new coalition government's tenure which could lead to material adverse consequences for the Group's
operations in Macedonia. 
 
Construction of a new tailings' storage facility may be delayed 
 
A new tailings' storage facility is currently being built at the SASA Mine ("TSF 4") which will be required for the
operation of the SASA Mine once the existing tailings facility reaches its maximum storage capacity, which is expected to
occur around October 2018. Construction of TSF 4 could be delayed for a number of reasons, including delays in obtaining
the necessary permits and consents. Any such delay could have a material impact on the operations and profits of the Lynx
Group and, following Completion, the Enlarged Group. 
 
River Diversion Tunnel 
 
The SASA Mine is undertaking a structural integrity assessment for the two kilometre long tunnel that diverts the Kamenica
river around and underneath the existing tailings facility, to advise on any potential requirements for additional support
or remediation. The findings of this study could result in additional costs for the remediation of this infrastructure and
consequently could have a material impact on the operations and profits of the Lynx Group and, following Completion, the
Enlarged Group. 
 
Environmental Permits 
 
The Macedonian environmental inspectorate has found that Rudnik SASA DOOEL's discharge waters have occasionally exceeded
the limits prescribed in its A-integrated Permit. Rudnik SASA DOOEL has submitted an application to amend the permitted
limits for discharge waters under the A-integrated Permit as the permitted limits are stricter than those permitted under
Macedonian environmental law. This application is currently pending before the Macedonian Ministry of Environment and
Physical Planning ("MOEPP"). If MOEPP refuses to grant the amendment to the A-integrated Permit requested by Rudnik SASA
DOOEL, it would continue to be bound by the current limits in the A-integrated Permit. If that is the case and there are
further instances of the discharge waters exceeding the prescribed limits, such breach could have a negative effect on the
ongoing operations of Rudnik SASA DOOEL and the Enlarged Group following Completion. 
 
During a recent control environmental inspection, the Environmental Inspectorate determined that Rudnik SASA DOOEL needs to
construct certain settlement ponds on Horizon 830 within 90 days of obtaining the construction permits. If the discharge
limits are not met following construction of the settlement ponds, the company may need to treat chemically the waters to
achieve compliance, or pump the water back to the tailings storage facility. Either of these options would impose
additional costs on the Lynx Group and, following acquisition, the Enlarged Group. 
 
Taxation 
 
Rudnik SASA DOOEL is currently the subject of a routine annual tax inspection by the Macedonian tax authorities. Any
negative findings in this inspection could have a material adverse effect on the profits and operations of the Lynx Group
and, following Completion, the Enlarged Group. 
 
Rudnik SASA DOOEL has also filed a request to obtain a withholding tax exemption in line with existing double taxation
treaties in respect of all payments to its existing lenders (being Investec and Société Générale) executed in 2016. In
addition, Rudnik SASA DOOEL has requested the authority's opinion in respect of the tax treatment of the silver stream
arrangements in order to confirm whether the relevant transactions are tax- neutral. If an adverse ruling is made in
relation to either of these requests it could have a material adverse effect on the Lynx Group and, following Completion,
the Enlarged Group. 
 
The Lynx Group is currently appealing a tax ruling alleging improper tax practices with respect to historic shareholder
loans. Although the Company has been advised that this would be unlikely, there can be no guarantee that the authorities
will not initiate a criminal investigation with respect to these allegations, which (if sustained) could have material
adverse consequences for the Group's business. Further information on this dispute is set out in paragraph 28.5 of this
announcement. 
 
Privatisation Procedure 
 
Rudnik SASA DOOEL has applied for privatisation of certain plots of land which, if successful, would enable it to acquire
full ownership over the land concerned. The application is still pending. If the application is refused, Rudnik SASA DOOEL
could continue to use the land but it would need to enter into a lease agreement or purchase the land from the Macedonian
government. This could lead to the Lynx Group incurring material costs and consequently could have a material impact on the
operations and profits of the Lynx Group and, following Completion, the Enlarged Group. 
 
Legalisation Procedure 
 
Due to recent changes in Macedonian law, Rudnik SASA DOOEL was required to retrospectively apply for the legalisation of
certain constructions, ranging from sewage networks to various electrical cables. The procedure is ongoing. While the
Directors believe that all relevant documentation has been submitted and that the procedure will be completed during 2018,
there can be no assurance this will be the case. If the legalisation procedure is not successful, the relevant
constructions may be required to be dismantled or removed. This could result in significant costs for Lynx Group and
consequently could have a material impact on the operations and profits of the Lynx Group and, following Completion, the
Enlarged Group. 
 
Liability for Historic Pollution 
 
There are certain historic events of pollution arising from acid rock drainage and waste rock dumps that occurred prior to
Rudnik SASA DOOEL's acquisition of the SASA Mine in 2005. Whilst the Company has been advised that Rudnik SASA DOOEL should
not legally be held liable for these historic events of environmental pollution, there is a risk that it could be held
liable to the extent that the environmental damage is enhanced, maintained or continued by the activities undertaken
pursuant to the current operation of the SASA Mine. In addition, there is a remote risk that, upon expiry of the
concession, Rudnik SASA DOOEL could be required to rehabilitate areas affected by historic pollution to the extent that
they are located within the concession exploration area or other land used for the operation of the SASA Mine. If Rudnik
SASA DOOEL is held liable for the aggravation or continuation of historic pollution or is required to rehabilitate land
affected by such pollution in the future, this could have a material adverse effect on the prospects of the Enlarged
Group. 
 
RISKS SPECIFIC TO THE GROUP IN KAZAKHSTAN 
 
Liability for Kazakhstan subsidiaries 
 
Under Kazakh law, the Group may be severally liable for the obligations of its Kazakh subsidiaries, if the Group has the
ability to make decisions for such Kazakh subsidiaries or as a result of its ownership interest or the terms of a binding
contract: (i) the Kazakh subsidiaries concluded the transaction giving rise to the obligations pursuant to the Group's
mandatory instructions; and (ii) the Kazakh subsidiaries become bankrupt due to the Group's fault. The Directors do not
believe that members of the Group should be liable for the liabilities of their subsidiaries but it is a risk that applies
to Kazakh companies, which if a Group member were to become bankrupt could result in the Group being liable for the
liabilities of such insolvent company. As a result, there could be a material adverse effect on the Group's business,
results of operations and financial condition and the price of the Shares. 
 
Leaching Operations 
 
The nature of in-situ leaching means that there are varying grades and flows of copper bearing solution from the dumps.
Should the flow and/or grade drop, this could lead to a reduction in copper cathode produced. During 2017, operations have
begun on the Western Dumps where the Company did not previously have operational leaching experience. An interruption to
the project's water supply could have an adverse impact on leaching operations. Any interruptions or disruptions of
leaching operations could have a material adverse effect on the Group's operations in Kazakhstan. 
 
Kounrad SX-EW Operations 
 
The Kounrad SX-EW operations have a number of critical supplies, particularly reagents and electricity, and the loss of any
one may have a significant adverse impact on the production of copper cathode, which could have a material adverse effect
on the Group's operations in Kazakhstan. 
 
The SX operations of the Kounrad facility in particular have a significant risk of fire due to the materials used in the
extraction of copper, and there can be no assurance that any fire detection or prevention systems will be effective. Any
such fire could severely disrupt the Group's operations and therefore materially and adversely affect its financial
position and prospects. 
 
The Subsoil Law 
 
The Subsoil Law establishes regulatory formalities which have to be obtained when selling and purchasing the subsoil use
rights and/or selling shares in companies owning or directly or indirectly controlling subsoil use companies in Kazakhstan.
One of such formalities includes the state waiver of the statutory pre-emptive right, which before January 2015 was
applicable to any subsoil use contract, however, today applies only to subsoil use contracts concluded in respect of
deposits or subsoil use plots of strategic importance. There is a possibility that transactions which the Group has entered
into in the past, and for which waivers have not been obtained, may be deemed to have required such a waiver. Whilst the
Directors are of the view that the risk to the Group from the waiver under the Previous Subsoil Law being triggered is low
given the stage of development of the assets at that time, and the subsequent granting of such waiver in respect of the
Placing and Admission, any breach may have a material adverse impact on the Group's interest. 
 
Since adoption in 2010, the Subsoil Law has undergone a number of amendments. In 2015, the concept of new subsoil use code
was introduced (the "Subsoil Code") to supersede the Subsoil Law and related regulations. The draft Subsoil Code has been
developed by the Ministry for Investments and Development of the Republic of Kazakhstan, involving experts from the
KazEnergy Association, Kazakhstan Petroleum Lawyers' Association (KPLA), Association of Mining and Mining-and-Metallurgical
Enterprises (AMME) and employees of the profile ministries and is expected to be enacted in early 2018. The latest draft of
the Subsoil Code contains a number of substantial regulatory changes including the introduction of a licensing regime which
would entail that new subsoil use rights in respect of minerals will be granted on the basis of licences rather than
subsoil use contracts. At the same time, the transitional provisions of the draft Subsoil Code provide that contracts and
licences executed before the introduction of the Subsoil Code would remain valid. If, by the time of enactment of the
Subsoil Code, this part of the transitional provisions is excluded, the future status of the Company's existing subsoil
contract and licence in respect of Kounrad and Shuak will be unknown. A change in subsoil use legislation affecting the
Company's current subsoil use right may have a material adverse impact on the Group's finances and results of operations. 
 
The Kazakhstan government has the right to initiate reviews of subsoil use contract terms and to unilaterally terminate
subsoil use contracts in respect of deposits of "strategic importance". A list of 361 deposits of strategic importance and
criteria for designation of deposits as strategic were approved by Kazakhstan Government decree in October 2011, replacing
the previously effective list comprised of 231 deposits. Although the Kounrad mine in Kazakhstan was not included on this
list, the Kazakhstan Government is entitled to amend this list and the criteria at any time. 
 
Shuak Subsoil Use Agreement 
 
In November 2016, the Company entered a framework agreement to acquire an 80 per cent. effective interest in the subsoil
use contract for the Shuak gold and copper exploration property, with 20 per cent. being held by local partners. The
transfer of this subsoil use contract to an entity wholly held by Shuak BV was completed in August 2017. The consideration
for this acquisition is an investment in exploration activities of US$2 million over five years, subject to continued
positive results from exploration activities and the general economic outlook for commodity prices. 
 
The previous holder of the Shuak subsoil use contract could not achieve full compliance with its contractual and regulatory
obligations. Pursuant to Kazakhstan subsoil use legislation, after transfer of the subsoil use right in respect of the
Shuak gold and copper exploration property to Shuak BV's subsidiary, the Kazakhstan authorities will retain full discretion
to terminate the Shuak subsoil use contract for breaches committed by the previous holder of the contract. Should this
occur, this may adversely affect the Enlarged Group in Kazakhstan. 
 
Fluctuations in the Kazakhstan Tenge 
 
In 2015 there was an 85 per cent. devaluation of the Kazakhstan Tenge against the US Dollar. The immediate impact for the
Company was positive as the Group's income in Kazakhstan through the export of copper cathode is generated in US Dollars.
The Group manages its exposure to foreign currency exchange risk associated with material commercial transactions and
working capital requirements by maintaining controlled amounts of cash in the required currencies. The Group does not hedge
foreign exchange risk. Further fluctuations in the Tenge may result in foreign exchange losses that have a material adverse
impact on the Group's operations in Kazakhstan. 
 
Tax Law 
 
Having adopted the current Tax Code in 2008, the Kazakhstan Government has been developing the new Tax Code to supersede
the current one (the "New Tax Code"). Upon a statement made by the President of the Republic of Kazakhstan, the new Tax
Code must be developed by the end of 2017. The New Tax Code is being developed under time constraints without extensive
discussion with businesses, including subsoil users. Given that the Company's business in Kazakhstan does not enjoy tax
stability exemptions, there is no assurance that the New Tax Code will not introduce a tax burden adversely affecting the
Group's business, financial condition and results of operations in Kazakhstan. 
 
The President of Kazakhstan, Nursultan Nazarbayev, has been in office since 1991 and should he leave office without a
smooth transfer to his successor, the political and macroeconomic situation in Kazakhstan could become unstable 
 
Kazakhstan's President, Nursultan Nazarbayev, has been in office since Kazakhstan became an independent sovereign state in
1991. Under President Nazarbayev's leadership, the foundations of a market economy have taken hold, including privatisation
of state assets, liberalisation of capital controls, tax reforms and pension system development. Should President
Nazarbayev fail to complete his current term of office for whatever reason or should a new president be elected,
Kazakhstan's political situation and economy could become unstable and the investment climate in Kazakhstan could
deteriorate. For example, a new government could adopt taxation or subsoil use regimes that would be less favourable to
mining companies. Changes to Kazakhstan's property, tax or mining regulatory regimes, or other changes that affect the
investment climate in Kazakhstan, could negatively affect the Group's business, financial condition and results of
operations. 
 
The Group's export sales in Kazakhstan are subject to domestic transfer pricing regulations 
 
Generally, all cross-border and certain other transactions in Kazakhstan are subject to the domestic transfer pricing
regulations, which state that transaction prices for tax purposes are to be determined based on market prices. There are
special procedures in Kazakh tax regulations to determine the applicable market price for a given transaction. Where the
prices of the Group's exports in Kazakhstan deviate from the applicable market prices, the Kazakh tax authorities are
entitled to make tax adjustments and assessments to corporate income tax and any other taxes affected, as well as assess
fines and late payment interest if such adjustments lead to an increase in tax payments by an entity. Audits of transfer
pricing issues are routinely carried out by the tax authorities in respect of exporters of oil, gas and minerals.
Kazakhstan's tax laws are not always clearly expressed, have not always been applied in a consistent manner and continue to
evolve. The uncertainty of application and evolution of tax laws creates a risk of additional and substantial payments of
tax by the Group, which could have a material adverse effect on the Group's business, results of operations and financial
condition and the price of the Shares. 
 
In certain circumstances, the Kazakh tax authorities have conducted tax audits and raised additional tax assessments within
the statute of limitation for five years after the end of the relevant tax period. 
 
RISKS SPECIFIC TO THE GROUP IN CHILE 
 
Status of the Copper Bay Project 
 
Although the definitive feasibility study undertaken in 2016 in respect of Copper Bay illustrated that the project would
have potentially significant value, the Company is unlikely to progress a development of Copper Bay and the Board has now
decided to seek to sell the Group's interest in the project. Ultimately, there can be no certainty that the Group will be
able to sell its interests in the project on acceptable terms or at all or that significant value will otherwise be
realised in relation to the Group's investment in Copper Bay. 
 
RISKS RELATING TO THE OPERATIONS OF THE GROUP 
 
Exploration, development and operating risks 
 
The exploration for and development of mineral deposits is speculative and involves significant risks which even a
combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body may
result in substantial rewards, few properties that are explored are ultimately developed into producing mines. Once a
mineral deposit is discovered it can take several years to determine whether Mineral Resources or Ore Reserves exist.
During this time the economic viability of production may change. 
 
Substantial expenditure may be required to locate and establish mineral resources or ore reserves through drilling,
metallurgical and other testing techniques, to develop metallurgical processes to extract metal from the ore and to
construct mining and processing facilities at a particular site. It is impossible to ensure that the exploration or
development programmes planned by the Group will result in a profitable commercial mining operation. Whether a mineral
deposit will be commercially viable depends on a number of factors, some of which are: (i) the particular attributes of the
deposit, such as size, grade and proximity to infrastructure; (ii) metal prices, which are highly cyclical; and (iii)
government regulations, including regulations relating to prices, taxes, royalties, land use, importing and exporting of
minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the
combination of these factors may result in the Company not receiving an adequate return on invested capital. 
 
Mineral Resource and Ore Reserve estimates 
 
The Group's reported Mineral Resources are only estimates, which are based on a range of assumptions. In addition, Mineral
Resource estimates are based on limited sampling and consequently are uncertain because the samples may not be
representative. There are numerous uncertainties inherent in estimating Mineral Resources and Ore Reserves, including
factors beyond the control of the Group and, following the Acquisition, the Enlarged Group. The estimation of Mineral
Resources and Ore Reserves is a subjective process and the accuracy of any such estimates is a function of the quality of
available data and of engineering and geological interpretation and judgment. Results of drilling, metallurgical testing,
production, evaluation of mine plans and exploration activities subsequent to the date of any estimate may justify revision
(up or down) of such estimates. There is no assurance that Mineral Resources can be economically mined. Those portions of
the Mineral Resources that have not been converted to Ore Reserves do not have demonstrated economic viability. A Mineral
Resource is not the equivalent of a commercially mineable ore body or an Ore Reserve. Lower market prices, increased
production costs, reduced recovery rates and other factors may render the Group's (and following the Acquisition, the
Enlarged Group) Ore Reserves uneconomic to exploit and may result in revision of its Ore Reserve estimates from time to
time. Ore Reserve data are not indicative of future results of operations. If in the future, the Group's actual Mineral
Resources and Ore Reserves prove to be less than the current estimates, other than as a result of depletion through
production, or if the Group fails to develop its resource base through the upgrading of Inferred Mineral Resources to
Indicated or Measured Resources, or by realisation of identified new mineralised potential, the Group's results of
operations and financial condition may be materially and adversely affected. The Company and the Directors cannot give any
assurance that the estimated Ore Reserves will be recovered as the Group proceeds through production or that they will be
recovered at the volume, grade and rates estimated. 
 
Dependence on key personnel 
 
The success of the Enlarged Group, in common with other businesses of a similar size, will be highly dependent on the
expertise and experience of its Directors and senior management. The loss of any key personnel could harm the business or
cause delay in the plans of the Enlarged Group whilst management time is directed at finding suitable replacements. The
future success of the Enlarged Group is in part dependent upon its ability to identify, attract, motivate and retain staff
with the requisite expertise and experience. Although the Group and the Lynx Group enter into employment arrangements with
its key personnel to secure their services, the Group nor the Lynx Group cannot guarantee the retention of such key
personnel. Should key personnel leave, the Group's business, prospects, financial condition or results of operations may be
materially adversely affected. 
 
Reliance on third parties 
 
The Enlarged Group will be reliant on third party service providers, including Fusion management pursuant to the
Transitional Services Agreement and the Sellers pursuant to the terms of a transitional services agreement, and suppliers
to provide equipment, infrastructure and raw materials required for the Enlarged Group's business and operations and there
can be no assurance that such parties will be able to provide such services in the time scale and at the cost anticipated
by the Company. 
 
Mining Risks 
 
The business of mining and mineral processing involves a number of risks and hazards, including industrial accidents,
labour disputes, community conflicts, activist campaigns, unusual or unexpected geological conditions, equipment failure,
changes in the regulatory environment, environmental hazards, and weather and other natural phenomena such as earthquakes
and floods. The Enlarged Group may experience material mine or plant shutdowns or periods of reduced production as a result
of any of the above factors. Such occurrences could result in material damage to, or the destruction of, mineral properties
or production facilities, human exposure to pollution, personal injury or death, environmental and natural resource damage,
delays in mining, monetary losses and possible legal liability, and may result in actual production differing, potentially
materially, from estimates of production, including those contained in this announcement, whether expressly or by
implication. There can be no assurance that the realisation of operating risks and the costs associated with them will not
materially adversely affect the results of operations or financial conditions of the Enlarged Group. 
 
Commodity pricing 
 
The profitability of the Enlarged Group's operations will be dependent upon the market price of copper, zinc and lead.
Metal prices fluctuate widely and are affected by numerous factors beyond the control of the Company. The level of interest
rates, the rate of inflation, the world supply of mineral commodities and the stability of exchange rates can all cause
significant fluctuations in prices. Such external economic factors are in turn influenced by changes in international
investment patterns, monetary systems and political developments. The price of mineral commodities has fluctuated widely in
recent years, and future price declines could cause commercial production to be impracticable, thereby having a material
adverse effect on the Company's business, financial condition and results of operations. A significant or sustained
downturn in copper, zinc and lead prices would adversely affect the Enlarged Group's available cash and liquidity and could
have a material adverse effect on its business, results of operations and financial condition of the Enlarged Group in the
longer term. Furthermore, reserve estimates and feasibility studies using significant lower commodity prices could result
in material write-downs of the Enlarged Group's investment in its assets and increased amortisation, reclamation and
closure charges. In addition to adversely 

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