RNS No 8732n
AVOCET MINING PLC
9th April 1998
Not for release, publication or distribution in or into the
United States, Canada, Thailand, Australia, Malaysia, Belgium
or Hong Kong
AVOCET MINING PLC
("Avocet" or the "Company")
PROPOSED 5 FOR 6 RIGHTS ISSUE AT 60P PER SHARE
UNDERWRITTEN BY
THE LIVERPOOL LIMITED PARTNERSHIP ("LIVERPOOL") AND
WESTGATE INTERNATIONAL L.P. ("WESTGATE")
AND
APT REPURCHASE ARRANGEMENTS
The following are extracts from a letter by the Chairman of
Avocet contained in a prospectus which will be published
later today, and will be sent, together with a notice
convening an extraordinary general meeting of the Company
and a form of proxy, to the shareholders of Avocet (other
than certain overseas shareholders).
Introduction
Further to the announcement on 5 March 1998, the Board of
Avocet announced today a proposed Rights Issue to raise
approximately #17.0 million, net of expenses, by way of a 5
for 6 Rights Issue of up to 29,787,606 new Ordinary Shares
at 60 pence each. The Rights Issue has been underwritten
in full by Liverpool, a subsidiary of Elliott Associates,
L.P. ("Elliott") and Westgate, who act in concert and
together own 18.7 per cent. of the Ordinary Shares.
Avocet is also entering into the APT Repurchase Arrangements
under which the Company will repurchase 30,000 mtu of APT
from Westgate and Liverpool for a total cash consideration
of US$2.0 million (#1.2 million).
Reasons for the Rights Issue
As a consequence of lower gold recoveries at the Penjom gold
mine and a continuation of the depressed world tungsten
price, cash flow has been lower than anticipated and the
Company needs further funds to support its working capital
requirements.
Liverpool and Westgate have agreed to underwrite the Rights
Issue to raise approximately #17.0 million, net of expenses,
at a price of 60 pence per new Ordinary Share. In the
announcement, on 5 March 1998, the Issue Price proposed was
75 pence. However, Avocet's middle market price of Ordinary
Shares at the close of business on 8 April 1998 was 58.5
pence and the Issue Price has been set by reference to this
price. In order to provide short term finance for the
Company, Westgate has agreed to provide unsecured bridging
loans of up to US$5 million (#3.0 million) on normal
commercial terms. All such loans will be repaid upon
receipt of the Rights Issue proceeds.
City Code
Liverpool and Westgate together currently hold 6,682,466
Ordinary Shares, representing approximately 18.7 per cent.
of the issued share capital of the Company. In addition
they together hold 1,060,000 options to subscribe for
Ordinary Shares, at #2.25 exercisable until 2 October 1998,
representing a further 2.9 per cent. of the issued share
capital of the Company.
Liverpool and Westgate have irrevocably agreed to apply in
full for their respective entitlements to Rights Shares and
to subscribe for any of the Rights Shares not taken up by
Qualifying Shareholders or their nominees. The total
percentage of Rights Shares to be acquired by Liverpool and
Westgate pursuant to the Underwriting Agreement will depend
on the number of valid applications made by Qualifying
Shareholders (other than Liverpool, Westgate and Patrick
Branigan) under the Rights Issue. Liverpool's obligations
under the Underwriting Agreement are guaranteed by Elliott.
Upon completion of the Rights Issue but prior to the
exercise of their share options, Liverpool's and Westgate's
combined interests in the Company will amount to not less
than 12,251,187 Ordinary Shares, representing 18.7 per cent
of the Enlarged Issued Share Capital of the Company
(assuming the Rights Issue is taken up pro rata to existing
holdings by all Qualifying Shareholders including Liverpool
and Westgate) and not more than 36,453,406 Ordinary Shares,
representing 55.6 per cent. of the Enlarged Issued Share
Capital of the Company (assuming no Qualifying Shareholders
other than Liverpool, Westgate and Patrick Branigan (a
Director) take up their rights). In addition if Liverpool
or Westgate exercised their share options, their combined
interests in the company could represent not less than
21.6 per cent. of the Enlarged Issued Share Capital
(assuming the Rights Issue is taken up pro rata to existing
holdings by all Qualifying Shareholders including Liverpool
and Westgate) and not more than 58.5 per cent. of the
Enlarged Issued Share Capital (assuming no Qualifying
Shareholders other than Liverpool, Westgate and Patrick
Branigan (a Director) take up their rights).
Under Rule 9 of the City Code, any person or group of
persons acting in concert who acquire 30 per cent. or more
of the voting rights of a public company will be required by
the Panel to make a general offer to the other shareholders
of that company for the remaining shares unless dispensation
from doing so is granted by the Panel.
The Panel has agreed, subject to a resolution being passed
on a poll of the Independent Shareholders at the
Extraordinary General Meeting, to waive any obligation of
Liverpool (or Elliott as Liverpool's guarantor under the
Underwriting Agreement) and/or Westgate to make a general
offer under Rule 9 of the City Code which might result from
Liverpool (or Elliott) and/or Westgate acquiring Rights
Shares under the Underwriting Agreement or from Liverpool
and/or Westgate exercising their share options following
completion of the Rights Issue. Due to Liverpool's and
Westgate's interest in the passing of this resolution, they
will be precluded from voting on it.
Rule 9 of the City Code also provides that, where a person
(or persons acting in concert with such persons) holding
shares carrying not less than 30 per cent. but not exceeding
50 per cent of a company's voting rights acquires in any
period of 12 months additional shares carrying more than 1
per cent of the voting rights of that company, such person
will be required to make a general offer to the other
shareholders of the company for the remaining shares.
Accordingly, if, on completion of the Rights Issue,
Liverpool (or Elliott) and Westgate, together with any
persons acting in concert with them, hold shares carrying
more than 30 per cent., but not exceeding 50 per cent., of
the voting rights of the Company, Liverpool (or Elliott) and
Westgate would be required to make a general offer to the
other shareholders if either Liverpool (or Elliott) and/or
Westgate (or any persons acting in concert with them)
purported to increase their holding of Ordinary Shares in
any 12 month period by more than 1 per cent., save for the
exercise of their share options.
Shareholders should note, however, that if, upon completion
of the Rights Issue, Liverpool's (or Elliott's) and
Westgate's shareholding carried in excess of 49 per cent. of
the voting rights of the Company, Liverpool (or Elliott) and
Westgate would be permitted under the City Code to increase
their shareholding in the Company without being obliged to
make a general offer under Rule 9 of the City Code for so
long as they continue to hold more than 49 per cent. of the
voting rights of the Company. However, the Panel may in
certain circumstances regard as given rise to an obligation
to make an offer the acquisition by either Liverpool,
Elliott or Westgate of shares sufficient to increase their
individual holdings to 30 per cent. or more if the voting
rights in the Company or, if each already holds 30 per cent.
or more, by more than 1 per cent. in any 12 month period.
Owing to the possibility of Liverpool (or Elliott) and
Westgate becoming "controlling shareholders" in terms of the
Listing Rules of the London Stock Exchange (if they become
able to exercise 30 per cent. or more of the voting rights
of the Company) Liverpool, Elliott and Westgate have entered
into a Relationship Deed with the Company to ensure that the
Board and the Company are able to act independently of
Liverpool, Westgate and Elliott and any of their associates
in such circumstances. The Relationship Deed will terminate
automatically upon Liverpool (or Elliott) and Westgate
ceasing to be a controlling shareholder, or the Ordinary
Shares ceasing to be listed on the London Stock Exchange.
Liverpool and Westgate intend to appoint a nominee director
to the Board in the near future, but there is currently no
arrangement in place for this.
In the event that Liverpool (or Elliott) and Westgate
should, in aggregate, acquire 30 per cent. or more of the
voting rights in the Company as a result of underwriting the
Rights Issue, Elliott, Liverpool and Westgate have
undertaken in the Relationship Deed that they will not do or
omit to do anything which would result in the company having
less than 25 per cent. of its Ordinary Shares in public
hands, in terms of paragraph 3.19 of the Listing Rules, or
such lower percentage as may be permitted by the London
Stock Exchange provided that nothing shall prevent Elliott,
Liverpool or Westgate from disposing of any of their
Ordinary Shares or from making a general offer for the
Ordinary Shares, or prevent any nominee director from voting
in relation to a board resolution concerning a third party
offer for the Ordinary Shares.
Liverpool and Westgate have been shareholders in Avocet
since April 1996. Their current and potential further
investments under the Rights Issue in Avocet represent an
investment of trading funds by them in the ordinary course
of business. As such, there is no intention on the part of
Liverpool or Westgate to exercise management control of
Avocet or to effect any significant change in the nature of
the Company's business. Liverpool and Westgate have
confirmed that the existing rights (including pension
rights) of the Company's management and employees would be
fully safeguarded following completion of the Rights Issue.
Information on Liverpool, Westgate and Elliott
Liverpool, Westgate and Elliott are limited partnerships
engaged in the business of trading financial instruments and
other investment activities, and have previously invested in
a number of mining companies. Liverpool and Westgate have
also bought and held tungsten stocks in the past including a
forward purchase of tungsten from Waller Metals for US$5.6
million (#3.4 million) in December 1996.
Liverpool and Westgate have supported the Company in a
number of recent fund-raising exercises, having first become
shareholders in the Company at the time of the Company's
placing and introduction to the Official List in April 1996.
Liverpool, a wholly owned subsidiary of Elliott, is a
Bermuda based investment fund, Westgate is a Cayman Islands
based investment fund and Elliott is a United State based
investment fund. Liverpool, Westgate and Elliott have
provided evidence to the Directors that their net assets are
significantly in excess of the current market capitalisation
of the Company.
APT Repurchase Arrangements
Pursuant to a contract between Waller Metals and Westgate,
Waller Metals supplied Westgate in January 1998 with
approximately 15,000 mtu of APT produced at Bishop at
US$67.00 per mtu. Waller Metals has also supplied
approximately 15,000 mtu of APT to Liverpool under a
contract on identical terms which was entered into at the
same time as the contract with Westgate.
It is now proposed that Waller Metals repurchases the APT
supplied to Liverpool and Westgate, under the terms of the
contracts described above at US$67.00 per mtu, with delivery
to be effected upon completion of the Rights Issue. The
aggregate consideration payable by Waller Metals under the
contract shall be US$2.0 million (#1.2 million) payable in
cash. The current Metal Bulletin price for US free market
APT is US$62-66 per stu (US$68.20-72.60 per mtu). However,
the Directors believe that the market price for APT of a
similar kind being sold pursuant to the APT Repurchase
Arrangements may be lower than the Metal Bulletin price
range.
In view of the fact that Liverpool and Westgate together own
approximately 18.7 per cent. of the Ordinary Shares, the APT
Repurchase Arrangements constitute a related party
transaction under of the Listing Rules of the London Stock
Exchange and hence requires approval by the Independent
Shareholders.
Each of Liverpool and Westgate has agreed to abstain, and
has undertaken to take all reasonable steps to ensure their
associates will abstain, from voting on the resolution to be
proposed at the Extraordinary General Meeting approving the
APT Repurchase Arrangements.
Use of Proceeds
The #17.0 million net proceeds of the Rights Issue will be
used as to US$11.2 million (#6.7 million) to reduce
borrowings (including the repayment of up to US$5 million
(#3.0 million) in respect of the Westgate bridging loans and
any interest owed under the terms of such loans), as to
US$5.6 million (#3.4 million) to reduce liabilities in the
tungsten business through the settlement of the supply
agreements with Liverpool and Westgate; as to US$2.0
million (#1.2 million) to fund the APT Repurchase
Arrangements and; as to the balance of #5.7 million, to
provide additional working capital for the Company.
Loss Estimate for the year ended 31 March 1998
It was announced on 5 March 1998 that the Directors
considered that the trading result for the year to 31 March
1998 would be likely to show a larger loss than the then
current market expectations suggested. This statement was
made taking into account what the Directors considered to be
the then market consensus forecast of a #0.5 million loss
before taxation. The actual reportable loss before taxation
will include: an increased depreciation charge on the assets
at the Penjom gold mine as a result of the lower gold
recoveries currently being anticipated; a write off of some
or all of the Company's assets in Peru, which currently have
a combined net book value in the Group's accounts of
approximately US$6.5 million (#3.9 million); a provision
against the loss associated with the Malaysian ringgit
currency hedge, which as at 31 March 1998 is expected by the
Directors to be US$2.3 million (#1.4 million); and the final
determination of any provisions or other accounting
adjustments, required in the gold and tungsten businesses.
It is anticipated that a preliminary announcement of the
trading result for the year to 31 March 1998 will be
published by August 1998.
Current Trading and Prospects
Gold
Owing to lower gold recovery at Penjom, gold production in
the year to 31 March 1998 was 66,000 ozs rather than the
70,000 - 75,000 ozs envisaged at the time of the interim
results announcement made on 15 December 1997.
As noted in the interim results, lower gold recoveries were
anticipated as a result of treating the carbonaceous ores.
The issues associated with the treatment of these ores have
persisted longer than the Directors had anticipated at the
time of the interim announcement and are currently being
addressed.
To tackle the problems associated with the treatment of preg-
robbing carbonaceous ores, the treatment plant at Penjom has
been, and is being, modified. The gravity circuit is being
expanded with the installation of In-Line Pressure Jigs and
an Intensive Leach Reactor. The Directors believe that this
modification, together with other operational changes will
be running in May 1998 and fully operational in July 1998,
and that this will increase total recovery of gold from
carbonaceous ores to at least 60 per cent. Test work, with
promising indications, continues on a range of options to
increase recovery further.
In the meantime, mining and treatment of oxide reserves is
taking place utilising the current carbon-in leach circuit
with high recovery. This has been possible by the discovery
on the Penjom property of further oxide and old tailing
reserves and resources giving a total of approximately
270,000 tones.
The Board considers that of particular significance to the
future of the mine is a new rich underground resource that
has been delineated by diamond drilling some 30m below and
to the south of the main pit bottom. Over the limited
strike length of 100m that has been tested so far, the Board
estimates this resource to contain 335,000 tones at 10.8 g/t
(115,000 ozs). The latest geological interpretation by the
Avocet Group is that this could form part of a Feeder Shear
System for the various Penjom gold occurrences and, as such,
may extend over a strike length of several kilometres. The
Board considers that the Penjom system may host a resource
similar in nature to the Raub mine 60km to the South. The
deep ore appears both competent and relatively clean,
favorable to both underground mining and high leach
recoveries.
Tungsten
The US and European tungsten prices weakened during the
first half of the Group's financial year and have remained
low mainly as a consequence of continuing sales from the ex-
Soviet stockpiles. However, the Directors believe that
there is circumstantial evidence to suggest that the outflow
of tungsten from the ex-Soviet stockpiles will diminish and
possibly cease during the course of 1998. Given the current
low level of mine production world-wide relative to
consumption, the Board believes that this reduced outflow of
tungsten will lead to a better market which would benefit
the Company's tungsten business. In the meantime, efforts
are being made to reduce costs.
The Regina mine in Peru and the Pine Creek mine in the USA
remain on care and maintenance. Regina has been granted
creditor protection by Indecopi, a government agency that
manages insolvency and creditor protection procedures in
Peru.
The Company is currently involved in discussions to dispose
of its 80 per cent. interest in Minera Malaga in order to
reduce future cash outflow. The Directors believe that the
mine is too small and the reserves insufficient to justify
at this time the continued expense and commitment of
management time.
Working Capital
There is no formal market or exchange which determines the
price of tungsten and the price therefore fluctuates
according to individual trades agreed between buyers and
sellers from time to time. The current European free market
APT mid-Metal Bulletin price is US$57/mtu and over the last
12 months it has moved within a range of between US$70/mtu
and US$56/mtu. The adequacy of the Group's working capital
is particularly sensitive to fluctuations in the tungsten
price. A fall in the tungsten price below its current level
could have an adverse impact on the period over which the
Group will have sufficient working capital. Conversely, a
rise in the tungsten price could extend the period over
which the Group has sufficient working capital.
Independently of the tungsten price, the adequacy of the
Group's working capital is also dependent upon the level of
gold recoveries that it can achieve from carbonaceous ores
at the modified Penjom plant. As explained under "Gold" in
the "Current Trading and Prospects" section above the
Directors believe that modifications to the existing plant
will be running in May 1998 and fully operational in July
1998, and that this will increase the recovery rate to at
least 60 per cent.. To the extent that this level of gold
recovery is not achieved the Group's adequacy of working
capital could be adversely affected, whilst the achievement
of higher recovery rates could have a beneficial effect.
Subject to the matters disclosed above, the Directors are of
the opinion that, taking into account existing bank and
other facilities and the net proceeds of the Rights Issue,
the Group has sufficient working capital available until
September 1999.
The Company is considering a number of actions which could
be taken in order to provide additional working capital in
the absence of a material rise in the tungsten price. These
would extend the period over which the working capital
available to the Group would be sufficient for its ongoing
requirements. These include the closure of the Regina mine,
further reductions in capital expenditure, the deferral of
gold exploration costs, and the possible renegotiation of
certain loan repayments. As stated under "Tungsten" under
"Current Trading and Prospects" above, the Board considers
that the Tungsten price may improve during the course of
1998. However, in the event that there is no material
improvement in the tungsten price or that gold recovery does
not exceed 60 per cent. the Directors consider that the
actions proposed in this paragraph would only be able to
extend the period over which the Group will have sufficient
working capital for its requirements into January 2000. In
such circumstances, the Company would seek to raise the
additional funds required by way of a further equity issue.
Shareholders should be aware that in the event that the
Rights Issue does not proceed for any reason the Company
will need to seek additional sources of working capital
urgently in order to continue to meet its ongoing commercial
and financial obligations and to enable it to continue
trading. Subject to the potentially short time constraints
imposed in such circumstances, alternative forms of finance
might include the restructuring of existing bank facilities,
the securing of additional bank facilities, asset disposals
and arrangements with creditors or other fund raising
measures.
General
A prospectus giving details of, inter alia, the Rights Issue
will be sent to shareholders of Avocet later today. The
prospectus will contain a notice convening an extraordinary
general meeting for 10.00 am on 30 April to give the
Directors authority to allot new Ordinary Shares; to
approve the Panel's waiver of any obligation on the part of
Liverpool (or Elliott) and/or Westgate to make a general
offer for the ordinary shares of the Company; and to
approve the APT Repurchase Arrangements.
Copies of the prospectus will be available during normal
business hours (Saturdays, Sundays and public holidays
excepted) from NatWest Markets Corporate Advisory Limited, 4
Great St. Helens, London EC3A 6HA.
Expected timetable of principal events 1998
Record Date 20 April
Latest time and date for receipt of forms of 10.00 am on 28
proxy for the Extraordinary General Meeting April
Extraordinary General Meeting 10.00 am on 30
April
Provisional Allotment Letters despatched 30 April
Dealings commence in the Rights Shares, nil 1 May
paid
Latest time and date for splitting 3.00 pm on 22
Provisional Allotment Letters, nil paid May
Latest time and date for acceptance and 3.00 pm on 27
payment in full or for registration of May
renunciation
Definitive certificates for the Rights Shares 8 June
to be despatched by
Enquiries
Avocet Mining PLC 0171 834 1811
Jocelyn Waller (Chief Executive)
NatWest Markets Corporate Advisory Limited 0171 665 4500
Luke Withnell
Andrew Noble
Walter Judd Public Relations 0171 236 4541
Charles Wyatt
Neither the Rights Shares nor the Provisional Allotment
Letters have been or will be registered under the United
States Securities Act of 1933, as amended ("the Securities
Act"), or under the securities laws of any state of the
United States, nor have they been and they are not being
registered in any province or territory of Canada or any
state, territory or possession of Australia, and neither may
be offered for subscription or purchase, sold, taken up,
renounced, transferred or delivered, directly or indirectly,
in or into the United States, Canada, or Australia or to, or
for the account or benefit of, U.S. persons (as defined in
Regulation S) ("U.S. persons") except, in relation to the
United States, in certain transactions exempt from the
registration requirements of the Securities Act.
This press release, for which the directors of Avocet are
solely responsible, has been approved solely for the
purposes of section 57 of the Financial Services Act 1986 by
Nat West Markets Corporate Advisory Limited ("NatWest
Markets"), which is regulated by The Securities and Futures
Authority Limited and which is acting exclusively for Avocet
in relation to the rights issue. NatWest Markets is not
acting for any other person and will not be responsible to
any other person for providing protections afforded to
customers of NatWest Markets or advising any such person on
the contents of this announcement or any matter referred to
herein.
END
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