European
Minerals Secures Cash & Assets in Lero Gold Takeover
http://www.resourceinvestor.com/pebble.asp?relidB075
By Jon A. Nones
18 Apr 2008 at 06:23 PM GMT-04:00
SEATTLE (ResourceInvestor.com) -- European Minerals
Corp. [TSX:EPM; AIM:EUM] announced on Friday plans to take over Lero Gold Corp.
[TSX-V:LER] in a stock transaction valued at about C$60 million. EPM investors
celebrated a $25 million Lero loan that will enable EPM to meet its first
interest payment on its debt financing for Varvarinskoye.
Under the agreement announced Friday, Lero shareholders will receive one common
share of European Minerals for each share of Lero, representing a value of
C$0.98 per share, a 9% premium based on Lero�s 20-day average. Once the deal
closes, European Minerals shareholders will own 81% of the combined company,
while Lero investors will hold 19%.
Lero also said it is raising C$40 million in a bought deal financing, which
will be used primarily to fund a $25-million loan to European Minerals. Canaccord
Adams is the sole underwriter and bookrunner in the transaction, and has the
option to increase the offering equal to proceeds of C$20 million.
EPM has US$61 million outstanding from debt financing for its Varvarinskoye
Project with Investec and Nedbank. The company is scheduled to make two debt
repayments this year, totalling $32 million, comprising $16 million at the end
of June and $16 million at the end of December.
In a research note on April 16, Canaccord Adams estimated quarterly outgoings
before debt repayment to be $24 million, which includes that cost of operating
Varvarinskoye at $15 million, administrative costs and interest charges at $3
million and the margin requirement on the company�s hedge book at $6 million
per quarter. (In December 2005, the company sold 443,000 ounces of gold forward
at a flat price of $574.25/oz.)
Prior to today�s deal, the company had available funds of just $32 million,
comprised of $25 million cash, $4 million as a result of successful litigation
and $3 million from four shipments of ore containing 3,300 ounces of gold. So
with further delays at Varvarinskoye, the company was in discussions with the
banks to push out the debt repayment schedule and to roll over the hedge
deliveries.
On March 31, the company announced that commercial production would be delayed
until the end of Q3 2008. EPM cited delays in the crusher achieving design
capacity, replacing undersized electric motors on the mill discharge pumps,
achieving design capacity through the high grade ball mill, a fire in the
cyclone cluster and unusually bad weather in February and March.
Varvarinskoye is expected to produce 149,000 ounces of gold and 26 million
pounds of copper annually in its first three years of production. Over the
17-year mine life, average annual production is expected to average 120,000
ounces gold and 13 million pounds of copper. At full production, the operation
could generate revenues of around $50 million per quarter.
Canaccord previously said securing the funding required to cover its cash
outflows for the remainder of this year, and for the remainder of this quarter
in particular, was the key hurdle for the company.
�Requirements for cash over the next three months likely to result in
fundraising,� said the investment firm. �We expect that the company will face a
cash squeeze in the current quarter and consider that it is likely to need to
raise of the order of US$30 million by the end of the quarter at the latest.�
However, the company just recently completed a private placement in December,
issuing a total of 17,496,875 common shares at a price of C$1.28 per share (62
pence per share) for aggregate gross proceeds of C$22,396,000 (�10,848,063). Lero�s
equity financing announced today will raise almost twice that at a lower price
per share.
In addition to much-needed cash, Lero brings to the table the Taldybulak Talas
gold copper deposit in Kyrgyzstan and Karchiga copper deposit in western
Kazakhstan. Lero expects to announce National Instrument 43-101 compliant
resource estimates for both properties by the end of April 2008.
Lero also brings in familiar management with Chairman Dr. Sergey Kurzin, who
originally found Varvarinskoye for European Minerals over a decade ago when EPM
was called Kazminco. Kurzin will join the board of European Minerals as Executive
Chairman.
�The benefits of the strategic fit between Lero and European Minerals is
something that I look forward to bringing to fruition for all shareholders,� he
said.
At the next meeting of shareholders following the closing of the acquisition,
the name of European Minerals will be changed to Orsu Metals Corporation. Shares
in European Minerals will continue to be listed on the TSX.
On the TSX Friday, shares in European Minerals rose 16 cents or 20% to 96
cents, before easing back to 91 cents. Lero fell 9 cents or 9.5% to 85 cents on
the TSX Venture Exchange.
Lero
Gold
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