Avesoro Announces Receipt of Non-Binding Acquisition Proposal from Controlling Shareholder and Operational and Financial Update
August 20, 2019Back
20 August 2019
Avesoro Resources Inc.
Avesoro Announces Receipt of Non-Binding Acquisition Proposal from Controlling Shareholder and Operational and Financial Update
Avesoro Resources Inc (the “Company” or “Avesoro”) announces that it has received a non-binding expression of interest from its controlling shareholder, Avesoro Jersey Limited (“AJL”) to acquire all of the issued and outstanding shares of the Company not already owned by AJL. Avesoro also takes this opportunity to provide the following update on operations at its Youga Gold Mine in Burkina Faso (“Youga”), and New Liberty Gold Mine in Liberia (“New Liberty”) and the Company’s broader financial condition and financing requirements.
- Company in receipt of a non-binding expression of interest from AJL to acquire all of the issued and outstanding shares of the Company that it does not already own at a price of £1 per share. AJL currently holds approximately 72.9% of the Company’s common shares. AJL’s proposal is supported by holders of an additional 12.9% of the common shares.
- Company assessing the longer-term viability of mining operations at Youga in light of damage sustained to heavy mining equipment and the low grades currently being achieved.
- No access to ore at New Liberty anticipated until early September. Gold shipments in August to be less than 1,000 ounces from this mine.
- Production guidance suspended while operations are under review.
- As a result of operational issues financing requirement has increased by not less than US$10 million from previous estimates.
- Prior to receipt of the acquisition proposal from AJL, the Company has been negotiating a working capital facility with AJL in order to provide short term liquidity.
Receipt of Non-Binding Acquisition Proposal from Controlling Shareholder
The Company has received a non-binding expression of interest (the “Acquisition Proposal”) from AJL to acquire all of the shares of the Company that AJL does not already own at a price of £1 per Share (the “Proposal Price”). According to the Acquisition Proposal, AJL’s proposal is supported by holders of an additional 12.9% of the issued and outstanding shares of the Company pursuant to “hard” lock up agreements. The transaction would be structured as a court-approved plan of arrangement under the provisions of the Canada Business Corporations Act.
The board of directors of the Company has established a special committee (the “Special Committee”) comprised of all of the independent directors of the Company. The Special Committee has a mandate to conduct a detailed review and analysis of the Acquisition Proposal and to identify and consider alternatives that may be available to the Company, with a view to determining whether it is in the best interests of the Company to support the Acquisition Proposal and the transaction contemplated therein. The Special Committee has engaged independent legal counsel and is in the process of engaging independent financial advisors to assist with its review. In particular, the Special Committee plans to obtain an independent valuation that will be required under Canadian Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”). Investors are reminded that the Company is not subject to the UK City Code on Takeovers and Mergers.
Following the previously reported security incident, Avesoro has restarted the mill and mining operations at Youga. However, following a more detailed assessment of the damage incurred to property during the incident it has now been confirmed that a number of haul trucks, excavators and auxiliary equipment within the Heavy Mining Equipment (“HME”) fleet were vandalised beyond repair.
As a consequence, the mining fleet capacity has been substantially reduced in the short term.
Fortunately, no damage was sustained to the process plant or its associated facilities with the mining equipment being the focus of the incident.
As previously announced, Orkun Group Sarl (“Orkun”), the Company’s mining contractor has begun to ship additional HME comprising five excavators, 15 haul trucks and auxiliary equipment to Youga, which is expected to alleviate the situation to some extent.
However, as announced on June 10, 2019, the Company has experienced significant ore dilution at the Gassore pit at Youga, and following recent events, the Company is currently assessing the longer-term viability of ongoing mining operations at Youga and will make a further announcement in this regard in due course.
New Liberty Update
It was initially assessed that the heavy rain at New Liberty and resultant flooding of the main pit would result in ore mining being suspended for a period of ten days to allow adequate dewatering of the main pit.
As a result of further substantial rainfall and a reassessment of the situation, it is now anticipated that there could be no access to ore until early September depending on the amount of rainfall in the meantime. The mining fleet is continuing to focus on waste stripping operations during this time. Additionally, due to limited mill stockpiles, it is expected that gold shipments in August will be less than 1,000 ounces.
Gold production and cost guidance for the full year is currently under review. Previous guidance is suspended pending that review. Gold production for July and August is expected to be c.16,000 oz and it is therefore anticipated that full year guidance will be materially reduced from 180,000 – 200,000 koz range announced on June 10, 2019.
The Company announced on July 15, 2019 that its anticipated funding gap in H2 2019 would be US$10-15 million including the repayment of US$12.9 million of debt and interest provided by a related party lender falling due for repayment in 2019.
As a result of the operational difficulties faced at both operations, the Company now believes that the funding gap for the balance of the financial year has widened by not less than US$10 million. The cash requirement is under review and will depend on the revised production and cost guidance. The Company is currently relying on extended credit from suppliers at each of its mines but will require an injection of new capital in the near future in order to be able to satisfy its debts as they fall due.
As disclosed on 8 August 2019, a Letter of Support was provided to the directors of the Company dated August 7, 2019, by Mr. Murathan Günal, the principal of AJL. In that letter, Mr. Günal undertakes to continue to provide such support for a period of not less than twelve months from the date of the signing of the Company’s interim consolidated financial statements for the six months ended June 2019 to ensure that the Company can meet its liabilities as they fall due.
To that end, prior to the receipt of the Acquisition Proposal the Company has been in negotiations with AJL for the provision of a further working capital loan (the “New Facility”) in order to alleviate funding concerns and provide sufficient financing for the Company to continue its operations in the near-term.
The provision of the New Facility would be treated as a related party transaction pursuant to Rule 13 of the AIM Rules for Companies and pursuant to MI 61-101.
Negotiations with Banks
As announced on August 8, 2019, the Company is currently in default under the cross-default provisions of its loan documents with the Company’s lenders, Nedbank Limited and FirstRand Bank Limited (the “Lenders”) which allow the Lenders to accelerate payment of New Liberty’s bank loans before their final maturity date.
The Company has requested waivers of the Events of Default and remains in discussions with its Lenders. The Company remains confident that a waiver or suitable alternative remedy can be agreed with the Lenders.
In the event that the Lenders decide to accelerate the loan repayment, they can declare all outstanding principal amounts (US$71.6m) and accrued interest amounts as immediately payable in addition to their customary enforcement rights. The effect of the guarantees given by AJL and the non-executive Chairman requires their immediate, on demand payment of any amounts due under the loans.
Avesoro Resources Inc.
Geoff Eyre / Nick Smith
Tel: +44(0) 20 3405 9160
(IR / Financial PR)
Gordon Poole / Nick Hennis
Tel: +44(0) 20 3757 4980
(Nominated Adviser and Joint Broker)
Christopher Raggett / Scott Mathieson / Camille Gochez
Tel: +44(0) 20 7220 0500
Matthew Armitt / Detlir Elezi
Tel: +44(0) 20 3207 7800
Hannam & Partners
Rupert Fane / Andrew Chubb / Ernest Bell
Tel: +44(0) 20 7907 8500
About Avesoro Resources Inc.
Avesoro Resources is a West Africa focused gold producer and development company that operates two gold mines across West Africa and is listed on the Toronto Stock Exchange (“TSX”) and the AIM market operated by the London Stock Exchange (“AIM”). The Company’s assets include the New Liberty Gold Mine in Liberia (“New Liberty”) and the Youga Gold Mine in Burkina Faso (“Youga”).
For more information, please visit www.avesoro.com
Certain information communicated in this announcement was, prior to its publication, inside information for the purposes of Article 7 of Regulation 596/2014.
Forward Looking Statements
Certain information contained in this press release constitutes forward looking information or forward-looking statements within the meaning of applicable securities laws. This information or statements may relate to future events, facts, or circumstances or the Company’s future financial or operating performance or other future events or circumstances. All information other than historical fact is forward looking information and involves known and unknown risks, uncertainties and other factors which may cause the actual results or performance to be materially different from any future results, performance, events or circumstances expressed or implied by such forward-looking statements or information. Such statements can be identified by the use of words such as “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “would”, “project”, “should”, “believe”, “target”, “predict” and “potential”. No assurance can be given that this information will prove to be correct and such forward looking information included in this press release should not be unduly relied upon. Forward looking information and statements speak only as of the date of this press release.
Forward looking statements or information in this press release include statements regarding the Acquisition Proposal and the transactions contemplated thereby, the Company’s funding requirement increasing for H2 2019; statements regarding the timing and delivery of additional HME to Youga; and statements regarding the pit dewatering and timing of the mining of ore at New Liberty.
In making the forward looking information or statements contained in this press release, assumptions have been made regarding, among other things: general business, economic and mining industry conditions; interest rates and foreign exchange rates; the continuing accuracy of Mineral Resource and Reserve estimates; geological and metallurgical conditions (including with respect to the size, grade and recoverability of Mineral Resources and Reserves) and cost estimates on which the Mineral Resource and Reserve estimates are based; the supply and demand for commodities and precious and base metals and the level and volatility of the prices of gold; market competition; the ability of the Company to raise sufficient funds from capital markets and/or debt to meet its future obligations and planned activities and that unforeseen events do not impact the ability of the Company to use existing funds to fund future plans and projects as currently contemplated; the stability and predictability of the political environments and legal and regulatory frameworks including with respect to, among other things, the ability of the Company to obtain, maintain, renew and/or extend required permits, licences, authorizations and/or approvals from the appropriate regulatory authorities; that contractual counterparties perform as agreed; and the ability of the Company to continue to obtain and retain qualified staff (including employees and contractors) and equipment in a timely and cost-efficient manner to meet its demand.
Actual results could differ materially from those anticipated in the forward-looking information or statements contained in this press release as a result of risks and uncertainties (both foreseen and unforeseen) and should not be read as guarantees of future performance or results and will not necessarily be accurate indicators of whether or not such results will be achieved. These risks and uncertainties include customary completion risks for transactions similar to the Acquisition Proposal, and it is specifically noted that the Acquisition Proposal is a non-binding expression of interest and there is no guarantee that the Company will enter into binding agreements in respect of the Acquisition Proposal, or that it will be completed on the terms set out in this press release or at all. Other risks are those normally incidental to exploration and development of mineral projects and the conduct of mining operations (including exploration failure, cost overruns or increases, and operational difficulties resulting from plant or equipment failure, among others); the inability of the Company to obtain required financing when needed and/or on acceptable terms or at all; risks related to operating in West Africa, including potentially more limited infrastructure and/or less developed legal and regulatory regimes; health risks associated with the mining workforce in West Africa; risks related to the Company’s title to its mineral properties; the risk of adverse changes in commodity prices; the risk that the Company’s exploration for and development of mineral deposits may not be successful; the inability of the Company to obtain, maintain, renew and/or extend required licences, permits, authorizations and/or approvals from the appropriate regulatory authorities and other risks relating to the legal and regulatory frameworks in jurisdictions where the Company operates, including adverse or arbitrary changes in applicable laws or regulations or in their enforcement; competitive conditions in the mineral exploration and mining industry; risks related to obtaining insurance or adequate levels of insurance for the Company’s operations; that Mineral Resource and Reserve estimates are only estimates and actual metal produced may be less than estimated in a Mineral Resource or Reserve estimate; the risk that the Company will be unable to delineate additional Mineral Resources; risks related to environmental regulations and cost of compliance, as well as costs associated with possible breaches of such regulations; uncertainties in the interpretation of results from drilling; risks related to the tax residency of the Company; the possibility that future exploration, development or mining results will not be consistent with expectations; the risk of delays in construction resulting from, among others, the failure to obtain materials in a timely manner or on a delayed schedule; inflation pressures which may increase the cost of production or of consumables beyond what is estimated in studies and forecasts; changes in exchange and interest rates; risks related to the activities of artisanal miners, whose activities could delay or hinder exploration or mining operations; the risk that third parties to contracts may not perform as contracted or may breach their agreements; the risk that plant, equipment or labour may not be available at a reasonable cost or at all, or cease to be available or resign, or in the case of labour, may undertake strike or other labour actions; the inability to attract and retain key management and personnel; and the risk of political uncertainty, terrorism, civil strife, or war in the jurisdictions in which the Company operates, or in neighbouring jurisdictions which could impact on the Company’s exploration, development and operating activities.
Although the forward-looking statements contained in this press release are based upon what management believes are reasonable assumptions, the Company cannot provide assurance that actual results or performance will be consistent with these forward-looking statements. The forward looking information and statements included in this press release are expressly qualified by this cautionary statement and are made only as of the date of this press release. The Company does not undertake any obligation to publicly update or revise any forward looking information except as required by applicable securities laws.