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17 August 2009
Response to Dioro’s
8th Supplementary Target’s Statement
ASX200 gold producer, Avoca
Resources Limited (ASX:AVO) notes the release of Dioro
Exploration NL’s (ASX:DIO)
Eighth Supplementary Target’s Statement on 14th August 2009.
Avoca is surprised by the
recommendation from the Dioro board that its
shareholders not accept Avoca’s offer, given that the Dioro
board previously and unanimously recommended acceptance of Avoca's Offer
to the Dioro shareholders only two weeks ago (29
July) in a joint statement with Avoca.
Further, Avoca is concerned that
the Dioro board has not taken the opportunity to
provide its shareholders with its views as to the comparative virtues of Avoca’s
Offer and the proposed offer from Ramelius Resources
Limited (ASX:RMS).
Given the limited time remaining
for Dioro shareholders to decide whether to accept
Avoca’s Offer, which will close on Wednesday 19 August at 5pm (WST),
Avoca contends the Dioro board should have provided
comparative commentary on the Avoca and Ramelius offers by
considering the respective merits of those two companies, and their
assets. Instead, the Dioro board has let its
shareholders down by taking an incredibly short term view, and focussing solely
on current trading prices.
The Ramelius
bidder’s statement was released to ASX
on 13 August 2009 and contained no new material information to that which had
already been disclosed by Ramelius to the
market. Ramelius has since advised it will
issue a replacement bidder’s statement following its acknowledgement that
its original bidder’s statement was deficient in failing to recognise
(despite Avoca’s repeated public statements) that Avoca will not accept
the Ramelius offer in respect of its 24.42% holding,
and therefore that Ramelius will be unable to obtain
100% (or even 80%) of Dioro.
The Dioro
board has had adequate time to consider the merits of the Avoca Offer and the
proposed Ramelius offer. By not providing its
shareholders with any discussion on the merits (or otherwise) of each offer
well before the closing date of the Avoca Offer, Dioro
shareholders have been deprived of their directors considerations in assessing
the relative merits of each bidder and offer.
Avoca Chairman Robert Reynolds
said that he believed it was obvious to Avoca and many market commentators that
Ramelius shares were heavily overvalued.
The risk for a Dioro
shareholder in accepting Ramelius offer is one of
accepting illusory value that subsequently shrinks, Mr Reynolds said.
From the time Avoca first
announced its intention to make an offer for Dioro in
April, we made it clear that we were not interested in
a long, drawn out process. Avoca has increased its offer twice, extended
it five times, made the offer unconditional and had received a unanimous recommendation
from the Dioro board.
Our declaration last Tuesday that
our unconditional offer was final, and that we would not extend it beyond 19
August, simply reflected the fact that enough is enough.
Avoca believes its Offer is
far superior to the proposed Ramelius offer. An
outline of Avoca’s comparative analysis of the two offers is set out on
page four (Annexure A) for the benefit of all Dioro
shareholders. This analysis clearly shows that the
Avoca Offer provides Dioro shareholders with greater
tangible benefits now, and significantly improved benefits in the future.
Avoca believes that Dioro shareholders should ACCEPT AVOCA’S OFFER
before it is too late for reasons including the following:
?
Avoca’s Offer of 1 Avoca share for every 2.3 Dioro
shares provides Dioro shareholders with significant
value of 74.6 cents per share (based on the closing Avoca share price on 14
August 2009), which is an 89% premium to the Dioro
pre-bid announcement share price;
?
Avoca has a planned production profile from Higginsville of 160,000 to 200,000 ounces per
year for the next 8 years. In contrast, Ramelius
has announced a single-year planned production from its Wattle Dam underground
gold mine of only approximately 70,000 ounces, finishing in the third quarter
of 2010 (i.e. only one year). There are no JORC reserves at Wattle Dam
and there is no guidance from Ramelius that Wattle
Dam will extend beyond a single year of production;
?
Considerable uncertainty exists over Ramelius
planned production from its proposed Wattle Dam underground mine, which is yet
to commence ore development and stoping. It is Avoca's
view that Ramelius will have great difficulty mining
70,000oz at the grade described as the ore continuity at Wattle Dam appears
very poor;
?
As Avoca already has an interest in approximately 24% of Dioro’s issued share capital, and has no intention
of accepting Ramelius offer, it is not possible
for the Ramelius offer to provide Dioro
shareholders with CGT roll-over relief;
?
Avoca’s Offer is wholly unconditional and offers accelerated
payment terms. In contrast, the proposed Ramelius
offer is not yet open for acceptance, and remains conditional on
regulatory approvals;
?
Ramelius share
price and resultant market capitalisation of approximately $110 million (as at
14 August 2009) significantly overvalues the Wattle Dam asset based on
production guidance from Ramelius, and the low 118,000 ounce
resource base of Wattle Dam;
?
Avoca has greater financial capacity and balance sheet strength to
support Dioro and restore the value lost. Ramelius has a short life operation and uncertain future.
Avoca provides certainty of value, stability and a clear growth path for Dioro shareholders.
It is Avoca?s view that the Dioro
share price is where it is today because of the Avoca bid:
?
Prior to the announcement of Avoca’s Offer for Dioro,
the Dioro share price was 39.5 cents - and for the
six months before Avoca’s Offer, the Dioro VWAP
was 34.5 cents in a rising gold price environment;
?
It is also Avoca’s view that the Dioro
board cannot possibly recommend the inferior Ramelius
offer under any circumstances, given its overvalued scrip, short production
profile (1 year only), absence of any reserve base and very uncertain future. Dioro shareholders should not accept Ramelius
shares at any price.
Avoca’s
Managing Director, Mr Rohan Williams, said Avoca,
being Dioro's largest shareholder, is very much of
the view that the asset base of Ramelius, and
particularly the Wattle Dam underground gold mine, is not one that Dioro should become associated with.?
?As the major shareholder in Dioro, we believe that combining it and Ramelius
would be a major backward step.?
?By joining Avoca, Dioro shareholders can become part of an ASX
200 Company with the credentials, track record and growth prospects to become Australia’s
pre-eminent mid-tier gold producer.
For further enquiries, please
contact:
Avoca Resources: Rohan Williams 08
9226 0625
Purple
Communications: Warrick
Hazeldine 08 6314 6300 / 0417 944 616
ANNEXURE
A
Avoca’s reasons for stating
that its Offer is far superior to the proposed Ramelius
offer are based on solid facts, as outlined below.
Avoca is an ASX200
gold producer with a market capitalisation of A$451 million (as at 14 August
2009), and is forecast to produce 190,000oz of gold in the 2009/10 financial
year. Ramelius is a company in transition from an
open pit operation (which has ceased) to a proposed new underground mining
operation, which is yet to commence production. Ramelius
market capitalisation is A$107 million at 14 August 2009 (which is less that
25% of the size of Avoca) and in Avoca’s view is significantly
over-valued. Ramelius has an uncertain future given
that it has announced only one year of planned production from the Wattle Dam
underground mine, which has not yet commenced production. In comparison, Avoca
has a plus eight year planned mine life at its Trident operation, which is performing
strongly.
In evaluating each company’s
shares (as the consideration being offered to Dioro
shareholders), there is no comparison ? Avoca is (and
is regarded as) a quality company with a proven track record of delivering
results, is a significant gold producer, has a well defined future production
and earnings profile, and has a growth profile that is supported by a
substantial annual exploration program on its extensive tenement holdings. In
contrast, Ramelius is not yet in production from its
underground mine which, it has stated, will cease production in the 3rd
quarter of 2010 (i.e. only one year), has an uncertain future, no JORC
compliant reserves together with a small resource base and a small tenement
holding.
To further illustrate the significant
difference in the quality and longevity of Avoca and Ramelius,
a comparison of the valuation, production, reserves and resources, and mine
life metrics of the two companies is set out in the table below:
Statistic
|
Avoca
|
Ramelius
|
Avoca advantage
|
Market capitalisation
|
$451
million
|
$107
million
|
4.2
times
|
FY2009/10
forecast production
|
190,000 oz
|
43,000 oz
|
4.4
times
|
Mine
life
|
8 years
|
1 year
|
8.0
times
|
8 year planned production profile
|
+1.4
million oz
|
68,700 oz
|
20
times
|
Reserves
|
581,000 oz
|
Nil
|
Nm
|
Resources
|
1,448,000
oz
|
118,600 oz
|
12.2
times
|
Major Tenement holdings
|
Higginsville 2,700km2
|
Wattle Dam 215km2
|
12.6
times
|
Mill capacity
|
1.2M tpa
|
0.18M tpa
|
6.7
times
|
Market cap./resource
ounce
|
$311 /
ounce
|
$902 /
ounce
|
2.9
times
|
Notes: nm = not meaningful; tpa = tonnes per annum
Source: ASX
announcements
Hence, Avoca’s view that the
quality of its shares and its Offer for Dioro is far
superior to the Ramelius offer,
is clearly supported. If Dioro shareholders accept Ramelius shares, they will expose themselves to greater
risk and uncertainty than if they accept the Avoca Offer.
KEY QUESTIONS DIORO
SHAREHOLDERS SHOULD CONSIDER ARE:
1.
What will happen once production ceases at Ramelius
Wattle Dam underground mine in the 3rd quarter of 2010? What is the plan ?
2.
How will the present market value of the company be maintained
?
3.
What is the Ramelius share price likely to do
once production ceases ?
4.
How successful will the underground operations be with a mine plan that
is not even based on JORC reserves?
5.
Does Ramelius understand the Wattle Dam ore
body well enough in the absence of any JORC reserves?
Dioro’s
directors should be informing Dioro shareholders in
detail of the merits and risks of each offer. Dioro’s
directors should be evaluating each offer and providing answers to the
questions above for their shareholders. In Avoca’s view, and based on an
objective assessment of the operational statistics set out above, Dioro directors, in properly discharging their fiduciary
and statutory duties, could not possibly recommend Dioro
shareholders accept Ramelius shares for their Dioro shares given the consequence of exposure to the
significant risks inherent in owning over-valued Ramelius
shares.
Avoca
Background
Avoca is an ASX 200 gold mining
and exploration company based in Perth, Western Australia.
Avoca has grown rapidly since its listing in 2002, and its acquisition of the
Higginsville exploration project in 2004, located 130km south of Kalgoorlie.
Following the discovery of the
Trident underground gold mine at Higginsville in late 2004, and the subsequent
construction of the Higginsville Gold Project which included a new 1 million tonne per annum CIL treatment facility built on time and
under budget, it poured its first gold bar on 1
July 2008. The time taken from exploration project acquisition
to gold pour was four years. Presently, Trident is Western Australia’s
third largest underground gold mine and has recently commenced mining the thick
and high grade 1005 level, which has contributed to record gold production
levels. Avoca remains confident it will produce 190,000+ ounces of gold
in FY2010 at an operating cash cost of A$452 per ounce
(not including royalties).
Avoca has a highly credentialed
management team with considerable expertise in exploration, project development
and underground mining. Avoca’s managing director, Rohan Williams, has more than 15 years
experience in the region having worked as a geologist at the +15 million ounce
St Ives field immediately north of Higginsville, and the +6 million ounce
Norseman field immediately to the south.
The Avoca Board is confident that
its management team will continue to expand and develop the existing 1.45
million ounce Higginsville resource base into realising
its goal of a +10 year mine life for Higginsville.