Mr Clive Newall and Mr Michael Philpot report
First Quantum and Ballater have entered into a letter of agreement whereby First
Quantum proposes to acquire the shares of Ballater pursuant to a plan of
arrangement.
Under the proposed terms of the arrangement, each shareholder of Ballater will be
entitled to receive one common share of First Quantum for every 2.75 of Ballater.
All unexercised options and unexercised warrants as well as other convertible
securities of Ballater would be converted into options, warrants and convertible
securities of First Quantum on the same share exchange ratio with corresponding
changes to the exercise price. The share ratio was determined by a special
committee of each company's board of directors in consultation with each
company's respective financial adviser, with CIBC Wood Gundy Securities acting as
financial adviser to First Quantum and Goepel Shields & Partners acting as financial
adviser to Ballater.
The acquisition is subject to completion of due diligence, receipt of fairness opinions,
completion of definitive documentation and shareholder, regulatory and court
approvals and is expected to be completed within 60 days.
The combination of First Quantum and Ballater will create a larger, more diversified
corporate entity with an expanded asset and property base and strengthened
balance sheet. The arrangement will reflect the commonality of focus of the two
companies in the same region of Africa and allows them to capitalize on the
privatization of world class assets in the Democratic Republic of Congo where the
two companies have established a joint venture. The strengths of the combined
management team and the directors of the two companies and a greater critical
mass will provide a unique opportunity for the new company to pursue larger project
acquisitions, attract new institutional investors and to supplement the existing
management and board of directors with high calibre candidates.
Earlier this month, First Quantum and Ballater announced that proposals by
International Quantum Resources, owned 70% by First Quantum and 30% by
Ballater, to acquire 51% interests in two large tailings dumps, the Luilu
hydrometallurgical tailings and Kingamyambo sulphide tailings, in the DRC had
received acceptance by La Generale Des Carrieres et des Mines. In addition to
these two near term cash flow projects, IQR has also entered into an agreement to
acquire 14% of Anvil Mining NL, an Australian public company listed on the
Australian Stock Exchange. Anvil's prime asset is the Dikulushi project in the DRC,
which consists of a very high grade, near surface, copper/silver deposit containing
176,000 tonnes of copper and 480 tonnes of silver, and a licence area covering
12,945 square kilometres of highly prospective ground. Anvil is currently undertaking
a confirmation drilling program the results of which shall be incorporated into a
planned feasibility study. IQR will also be granted a first right of refusal to enter into
a joint venture with Anvil on the Dikulushi project for 12 months from the date of
closing.
First Quantum is developing a substantial base of mining and exploration assets in
south-central Africa. Its 100% owned Bwana Mkubwa copper project in Zambia is
currently under construction with the first copper cathode production from the
10,000 tonne per year facility expected in the first quarter of 1998. The plant will
also produce 100,000 tonnes of sulphuric acid annually, of which 60,000 tonnes of
acid will be available for external sale or use in the company's other projects in the
DRC. Sulphuric acid is in demand regionally, and will be sold to further augment
revenues and significantly enhance the economics of the BMCP. First Quantum is
bidding, preparing bids for, or in negotiation on a number of other assets in the
copper belt, which runs through the DRC and Zambia. First Quantum is also
participating in three gold exploration joint ventures with Reunion Mining PLC in
Niger, Botswana and Guinea. In order to finance development at the BMCP and
costs associated with bids for new projects, First Quantum recently arranged two
credit facilities: a corporate facility for US$12,000,000 with CIBC Wood Gundy
Capital (a division of Canadian Imperial Bank of Commerce), and a project loan for
US$19,069,026 with Investee Bank Limited of South Africa.
Ballater is focused on the exploration, development and mining of quality
gold/copper projects in central and southeastern African countries. Ballater owns a
95% interest in the Connemara heap-leach gold mine in Zimbabwe which has been
upgraded to produce approximately 26,000 ounces per year, as well as two other
gold exploration projects in Zimbabwe, four gold/copper projects in Zambia, and one
gold project in Tanzania. To date in 1997, the Connemara mine has operating cash
costs of $238 per ounce of gold, and with the upgrade to 750,000 tonnes per year,
cash costs are projected to drop to $192 per ounce. The Connemara mine has a
five-year mine life with the potential to significantly expand both oxide and sulphide
resources. Gerald Metals, Inc of Stamford, Connecticut and Investee have recently
provided Ballater with loan facilities totalling US$3,750,000 which are repayable by
an agreed schedule of gold deliveries from the Connemara mine.
Upon the completion of the arrangement, the combined company will have
approximately 20.1 million shares outstanding. After completion of the BMCP and
the upgrade of the Connemara mine, the combined company will have annual
production of 22,000,000 pounds of copper and 26,000 ounces of gold at an
operating cash cost of approximately $0.33 per pound and $192 per ounce,
respectively.
First Quantum has retained CIBC Wood Gundy to lead a syndicate which also
includes Goepel Shields and Newcrest Capital as agents for a best efforts private
placement of up to 6,000,000 special warrants at $4.25 for total proceeds of up to
$25,500,000. Each special warrant shall be converted into one unit of First Quantum.
Each unit will consist of one share and a half warrant. Each whole warrant will
entitle the holder to purchase one additional share of First Quantum for 12 months at
$5.00. A commission in cash will be payable to the agents from the proceeds of the
offering.
First Quantum has agreed to file a prospectus in Ontario, BC, Quebec and such
other jurisdictions as may be agreed between the agents and First Quantum in order
to qualify the distribution of the units to be issued to the subscribers upon exercise of
the special warrants. If a receipt for the final prospectus is not received within 120
days of closing, each special warrant shall be convertible into 1.1 units of First
Quantum.
The proceeds of the private placement will be used to expand the reserve base at
the Connemara mine, repay short term credit facilities, bid for additional assets in
the copper belt region of Zambia and the DRC, finance exploration of the
companies' highly prospective properties and for general working capital. |
