JOINT NEWS RELEASE
Red Hill Energy Inc. and Prophecy Resource Corp.
Announce Business Combination,
Consolidating
Quality Advanced Projects to
Appeal to
International and Institutional
Investors
Red Hill also announces non-brokered
private placement
VANCOUVER, British Columbia -
January 21, 2010 - Red Hill Energy Ltd. (Red Hill) (TSX.V-RH) and
Prophecy Resource Corp., (Prophecy) (TSX. V - PCY, OTC - PCRYF, Frankfurt
- 3P1) are pleased to announce that their respective Boards of Directors
have unanimously approved a letter agreement dated January 20, 2009
("LOA") in respect of a friendly transaction to combine the
companies through an all share transaction (the "Proposed
Transaction"). The combined company is hereinafter referred to as
"new Prophecy".
Financial Terms of the Transaction
Per the LOA, Red Hill shareholders
will receive 0.92 of a new Prophecy common share for each Red Hill common
share held which represents a 26.8% premium to the shareholders of Red
Hill as at the close of market on January 20, 2010. All outstanding Red
Hill options and warrants will be exchanged for options and warrants of
new Prophecy on similar terms.
Highlights
of the Proposed Transaction
- The combined company will have control over NI-43-101
compliant Measured and Indicated mineral resources of 232 million
pounds of nickel, 1 billion tonnes of coal and 116 million pounds of
copper as well as inferred resources of 500 million tones of coal
and 593 million pounds of copper. New Prophecy will also hold
properties with significant exposure to vanadium and titanium. The
company offers diversified financial leverage to rising commodity
prices.
- Positive synergy in the combined management with expertise in
geology, engineering, marketing, and M&A.
- Broader appeal to international and institutional investors
with multiple advanced assets, greater stock liquidity and the
benefits of exposure to a broader range of commodities.
- Enhanced market capitalization and capacity to evaluate and
acquire other advanced stage and pre-production stage resource
opportunities internationally.
Arnold Armstrong, Chairman and Chief
Executive Officer of Red Hill Energy stated: "Prophecy has
demonstrated its vision of creating a quality company focused on
acquiring advanced mineral assets internationally. We are particularly
impressed with Prophecy's speed of conducting business and its ability to
bring quality projects and investors together under one name. I am
confident that Red Hill shareholders will reap the rewards by owning the
majority of the new Prophecy."
John Lee, Chairman and Chief
Executive Officer of Prophecy Resource stated: "I joined Prophecy in
October with the goal of amassing advanced assets, management talent, and
investors world wide. Our Lynn Lake Nickel project and the newly acquired
coal assets provide cornerstones from which Prophecy can now build its
legacy. Mr. Armstrong is a highly regarded businessman and I look forward
to working with him in his position with new Prophecy in taking our
venture to the next level".
Further Detail Regarding the
Transaction
It is contemplated that the Proposed
Transaction will be a business combination of Prophecy and Red Hill by
way of a plan of arrangement and will be structured in a way that will
result in the financial terms of the Proposed Transaction being met. The
parties have agreed to enter into a definitive agreement by February 28,
2010 and complete the Proposed Transaction by May 15, 2010.
As a result of the Proposed
Transaction, all existing warrants, options and other rights to acquire
common shares of Red Hill will be deemed to represent comparable
securities of Prophecy adjusted on the same share exchange ratio basis. The
agreed share exchange ratio is based upon an assessment of the recent
trading activity and assets of both Red Hill and Prophecy.
Completion of the Proposed
Transaction is conditional upon:
- Both the Red Hill shareholders and Prophecy Shareholders
having approved the Proposed Transaction;
- completion of legal and financial due diligence by each of
the parties;
- receipt of all necessary regulatory approvals, including the
approval of the TSX Venture Exchange (the "Exchange");
- certain other customary
conditions.
The LOA includes a commitment by
both parties to not conduct negotiations or solicit alternative
transactions. In certain circumstances, if the Proposed Transaction is
terminated by either party, a breakup fee of $500,000 is payable by the
terminating party.
On or before the date of execution
of the Definitive Agreement, the directors and officers of both Red Hill
and Prophecy shall have entered into a share lock-up agreement to vote in
favour of the Proposed Transaction;
Upon completion of the Proposed
Transaction the current Chairman and CEO of Prophecy, Mr. John Lee, will
remain the Chairman & CEO of the combined company which will retain
the name "Prophecy Resource Corp." The board of directors of
new Prophecy will consist of four nominees from Red Hill and three
nominees from Prophecy.
Pursuant to the LOA, Red Hill has
the right, prior to closing of the Proposed Transaction, to transfer to a
newly formed subsidiary ("NewCo") the following: (i) $1,000,000
cash, and (ii) all of Red Hill's non-Mongolian assets, namely, the Red
Lithium Property near Clayton Valley, Nevada and Thor Rare Earth Property
in Nevada, and distribute securities of NewCo to shareholders of Red Hill
as of a to-be-determined record date by way of spinoff or similar
mechanism. Red Hill is reviewing the merits of this proposed spinoff and
will update its shareholders in a later news release.
If the Proposed Transaction is
completed, and based upon the current issued capital of each company
including the private placement to be conducted by Red Hill as described
below, new Prophecy will have approximately 85,400,000 common shares issued
and outstanding, of which Red Hill shareholders will own approximately
65% and current Prophecy shareholders will own approximately 35%.
Red Hill will conduct a non-brokered
private placement consisting of up to 6,500,000 units at a price of $0.35
per unit for total proceeds of CDN $2,275,000. Each unit will be
comprised of one common share and one half of one share purchase warrant.
Each whole share purchase warrant entitles the holder to acquire one
additional common share for a period of two years at a price of $0.60. A
finder's fee of 7% of the proceeds placed is payable in cash on portions
of the private placement.
Proceeds of the placement will be
applied to Red Hill's coal operations and later for general working and
development capital for new Prophecy, as well as the $1 million transfer
to Newco if the spinout transaction is pursued.
Red Hill Energy Corporate Update
Red Hill announces the resignation
of Ranjeet Sundher from the board of directors of the Company. Mr.
Sundher will remain as an independent consultant of Red Hill until the
closing and then of new Prophecy to facilitate and oversee new Prophecy's
Mongolian coal operations. Mr. Paul McKenzie will be appointed as the
interim President and CFO of Red Hill. Red Hill wishes to acknowledge Mr.
Sundher's many contributions to Red Hill. Red Hill also wishes to
announce the termination of its investor relations agreement with Mau
Capital Management LLC, effective immediately.
Conference Call
A joint conference call at 9:00 am
(PST) January 26, 2010 will be held to discuss the Proposed Transaction. Details
of the conference call will follow in a subsequent news release.
Red Hill Energy's Key Assets
Red Hill controls 100% interests in
two key Mongolian coal districts. Combined, Red Hill has 504.5 million
tons of Measured, 524 million tons of Indicated and 475.9 million tons of
inferred thermal coal in Mongolia.
The Ulaan Ovoo Coal Project
The Ulaan Ovoo coal project is 100%
owned by Red Hill. The project is located within 10 km of the Russian border,
northern Mongolia and is 120km (75 miles) east of the Central Mongolian
Railroad which links the project to the vast coal markets of Russia and
Asia. The project contains 174.5 million tons Measured, 34.3 million tons
Indicated and 35.9 million tons of Inferred thermal coal. The coal is of
excellent low ash and sulfur quality at 5,204 KCAL/KG LB which is highly
desired regionally. The average seam thickness of the resource is 53.9
metres with a stripping ratio of 2.0:1 on the first 140 million tons. The
Mongolian government has granted the project a fully transferable 30 year
mining license that can be extended by an additional 40 years. The
project has met Mongolian environmental approvals as per the Mongolian
Ministry of Nature and the Environment which approved a Detailed
Environmental Impact Assessment (DEIA) and Environmental Protec tion Plan
(EPP) specifically for Ulaan Ovoo, an important pre-condition prior to
production. The central Russian transmission grid reaches within 25
kilometres to the north of the project. Several economic studies
including a Scoping Study conducted by Behre Dolbear (USA) Ltd. of
Denver, CO USA and a recently completed Pre-Feasibility Study conducted
by Minarco-MineConsult of Sydney, Australia demonstrate the economic potentials
of the project. These reports are available at www.sedar.com
The Chandgana Tal and Chandgana
Khavtai Coal Projects
The Chandgana Tal and Chandgana
Khavtai coal projects are both 100% owned by Red Hill. The projects share
the same Nyalga Basin coal seam and are both contiguous to Vale's
(formerly CVRD) largest Mongolian coal project. The Chandgana projects
contain a combined total of 819.7 million tons Measured and Indicated and
440 million tons of Inferred thermal coal. (Specifically: Chandgana Tal,
141. 3 million tons Measured, and Chandgana Khavtgai, 188.7 Measured,
489.7 Indicated and 440 Inferred) Both projects have extremely low
stripping ratios, 0.53:1 in the case of Chandgana Tal and 2.1:1 in the
case of Chandgana Khavtgai with respective average coal seam thicknesses
of 40 and 45.4 metres. The Nyalga Coal Basin is within 160 km's (100
miles) of the Central Mongolian Railroad, offering the project a direct
link to China, Russia as well as other Asian destinations. Both the
Chandgana's coal qualities are of desirable low ash, low sulfur content
with KCAL/K G LB averaging up to 4,358. Additional information is
available at www.redhillenergy.com and at www.sedar.com.
Red Hill Director Mel Klohn, a
Washington State Licensed Geologist, member of the SEG, SME, CIM and an
independent Qualified Person as defined by Canada's NI 43-10, has
reviewed and approved the information relevant to Red Hill Energy's coal
projects as summarized in this press release.
Prophecy Resource Corp's Key Assets
The Lynn Lake Nickel Project
Prophecy has entered into an
agreement to acquire the Lynn Lake Nickel Project in Manitoba, which the
previous owner reported contains a National Instrument 43-101 compliant
Measured and Indicated resource of 17 million tonnes with an average
grade of 0.62% Nickel and 0.31% Copper at a 0.4% nickel cut-off grade. Prophecy
has requisitioned its own technical report for the Lynn Lake property
which should be available shortly under its profile on www.sedar.com. The
Lynn Lake Nickel Camp, located in northern Manitoba, is the third largest
nickel producing region in Canada. Excellent exploration potential exists
as in 2008 a new nickel discovery was made one mile from the old workings
that featured an intercept of 18 meters of 1.5% nickel and 0.7% copper. Prophecy
has optioned or agreed to purchase six of the seven known gabbro plugs in
the Lynn Lake area and is now the dominant player in terms of land size
and resource base in this premier Lynn Lake nic kel district.
The
Okeover Project
The Okeover Property
(copper-molybdenum) consists of eleven contiguous legacy and cell mineral
claims located in the Vancouver Mining Division of southwestern British
Columbia, 25 kilometres north of Powell River and 145 kilometres
northwest of Vancouver. Collectively, the claims cover an area of
approximately 3,950 hectares. Prophecy has spent over $1 million on
Okeover and earned a 60% interest. In 2006, Dr. N.C. Carter, PhD, P.Eng,
completed a technical report on the Okeover Property pursuant to NI
43-101 that estimated an inferred mineral resource of 86.8 million tonnes
grading 0.31% copper and 0.014% MoS2 at a 0.20% copper cut-off grade. Less
than 10% of the property has been drilled and there is significant
potential to expand the resource. This report is available at www.sedar.com.
The Titan Project
On January 14, 2010, Prophecy
entered into an option agreement, subject to Exchange approval, to earn
an 80% interest in the Titan Vanadium-Titanium-Iron project located in
Ontario, Canada. The project is located in eastern Ontario and consists
of 1,052 contiguous hectares (2,600 acres). A total of 4,898 assay
intervals are recorded from 38 core holes drilled by previous owners on
the property. Drilling highlights reported by past operator included 142
meters of 0.27% vanadium (0.48% vanadium pentoxide) from hole RA-5-21 and
174 meters of 0.26% vanadium (0.46% vanadium pentoxide) from hole
RA-5-10. The mineralization started from surface to an open vertical
depth of 500 meters. The complete horizontal and vertical extent of the
deposit is still to be determined.
For additional information on the
Titan project, please refer to January 14, 2010 Prophecy news release or www.prophecyresource.com
The information concerning the
current mineral properties controlled by Prophecy, as described in this
news release, has been reviewed and approved by Bill Morton, PGeo, a
director of Prophecy and a qualified person under National Instrument
43-101
Prophecy Resource Corp.
John Lee - Chairman and CEO
For further information:
John Lee
Telephone 1.800.851-1528
Email: john@prophecyresource.com
www.prophecyresource.com
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Red Hill Energy Inc.
G. Arnold Armstrong - Chairman and CEO
For further information:
Paul McKenzie (President):
Telephone 604.642.COAL (2625)
Email: info@redhillenergy.com
www.redhillenergy.com
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This news release includes certain
statements that may be deemed "forward-looking statements". All
statements in this release, other than statements of historical facts,
including, without limitation, statements regarding potential
mineralization, the estimation of mineral resources, the realization of
mineral resource estimates, interpretation of prior exploration and
potential exploration results, the timing and success of exploration
activities generally, the timing and results of future resource
estimates, permitting time lines, metal prices and currency exchange
rates, availability of capital, government regulation of exploration
operations, environmental risks, reclamation, title, and future plans and
objectives of the companies are forward-looking statements that involve
various risks and uncertainties. . Although Red Hill and Prophecy believe
the expectations expressed in such forward-looking statements are based
on reason able assumptions, such statements are not guarantees of future
performance and actual results or developments may differ materially from
those in the forward-looking statements. Forward-looking statements are
based on a number of material factors and assumptions. Factors that could
cause actual results to differ materially from those in forward-looking
statements include unsuccessful exploration results, changes in project
parameters as plans continue to be refined, results of future resource
estimates, future metal prices, availability of capital and financing on
acceptable terms, general economic, market or business conditions, risks
associated with operating in foreign jurisdictions, uninsured risks,
regulatory changes, defects in title, availability of personnel,
materials and equipment on a timely basis, accidents or equipment
breakdowns, delays in receiving government approvals, unanticipated
environmental impacts on operations and costs to remedy same, and other
explo ration or other risks detailed herein and from time to time in the
filings made by the companies with securities regulators. Readers are
cautioned that mineral resources that are not mineral reserves do not
have demonstrated economic viability. Mineral exploration and development
of mines is an inherently risky business. Accordingly the actual events
may differ materially from those projected in the forward-looking
statements. For more information on Red Hill and Prophecy and the risks
and challenges of their businesses, investors should review their annual
filings that are available at www.sedra.com
"Neither
The TSX Venture Exchange nor its Regulation Services Provider (as that
term is defined in the policies of the TSX Venture Exchange) accepts
responsibility for the adequacy or accuracy of this release."
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