Thought that I'd pass this along...
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Indochina Goldfields Ltd - News Release
Background to Kazakstan mine acquisition
Indochina Goldfields Ltd ING
Shares issued 62,944,618 Dec 20 close $16.00
Mon 23 Dec 96 News Release
Mr Gordon Toll reports
On December 13 1996 Bakyrchik Gold PLC and Central Asian Mining, its wholly
owned subsidiary, entered into a conditional agreement with the government
of Kazakstan and a separate financing agreement with Indochina Goldfields,
Bakyrchik's 26.3% shareholder. These agreements will, if approved by
Bakyrchik's shareholders, result in Bakyrchik increasing its interest in
the Bakyrchik mining joint venture from 40% to 85%, and result in the
transfer to Indochina Goldfields of a direct 15% interest in the BMJV upon
completion of certain registration formalities. Following the acquisition,
Indochina Goldfields will contribute its pro rata share of operating and
capital costs.
Total consideration for acquisition of the government's 60% interest in the
BMJV is US$60 million in cash payable in four equal installments, plus a
bonus of US$5 million in cash. The non-refundable US$5 million bonus and
the initial purchase price installment of US$15 million were paid to the
government of Kazakstan by Indochina Goldfields at signing on December 13
1996. Subject to shareholder approval, payment of the remaining US$45
million will be paid by Bakyrchik in three equal installments at periods of
6, 12 and 16 months, subject to full implementation of the acquisition
agreement. All conditions other than shareholder approval may, at the sole
discretion of the company, be waived prior to completion.
THE BAKYRCHIK MINING JOINT VENTURE
The BMJV was established to develop and operate the Bakyrchik mine in
northeast Kazakstan. Under the original joint venture agreement, the
company held 40% but was responsible for 100% of the financing, which was
to be recovered through a 75% share of profits. Following recoupment of
capital invested, the company's share of profits was to be reduced to 40%
and it would relinquish operational and management control.
The board of Bakyrchik strongly believes that it is in the best interests
of Bakyrchik Gold for the BMJV to acquire ownership and control of the
infrastructure and assets of the mine and for the company to increase its
interest in the BMJV to 85% as these will result in securing long term
control and gaining substantial economic benefits.
THE BAKYRCHIK MINE
The current underground mine at Bakyrchik accesses numerous gold bearing
zones near the centre of a 17km long mineralized shear system. Western
Services Engineering, an independent geological consultancy, calculated the
in situ geological resource as of April 1 1996 to be:
tonnes grade ounces
(millions)(g/t) gold
(millions)
Sulphide resource 43.0 7.37 10.2
Oxide resource 4.3 2.60 0.3
Total resource 47.3 6.94 10.5
This estimate was based on data derived from Soviet drilling conducted
between 1954 and 1991. Earlier this year, a drilling program designed to
confirm the accuracy of the old data was conducted using Western equipment
and crews. The drilling included 29,000m of surface and underground diamond
drilling and was completed in August.
Preliminary results indicate that the total contained gold, as estimated
from the old data (as reported above), is understated by at least 8%.
Further, the April 1996 estimate was based on only a portion of the
original Soviet drilling. Working co-operatively with local government
agencies, Bakyrchik recently obtained additional data from hundreds of
drill holes. These data were not previously available and were not included
in the April 1996 resource estimate. The information will add to the
company's geological database and will be included in future resource
estimates.
In addition, exploration potential exists both down dip and along the
strike of the main shear zone as well as in parallel and intersecting
structures. The 10.5 million ounce resource estimate is based on drilling
to a maximum depth of 900m. Recent deep drilling intersected mineralization
at a depth of 1100m, approximately 200m below the deepest hole drilled
before. Of the three deep holes attempted, one failed to reach the ore
horizon, one intersected what is believed to be the margin of the target
gold rich zone, and one intersected 9m of mineralization assaying 18 g/t
gold. Further drilling will be necessary to verify continuity and grade.
The company believes these results indicate that gold mineralization
extends well below the lowest level assumed in the April 1996 resource
estimate.
FEASIBILITY STUDY
Bakyrchik is studying a number of alternatives for developing the project.
Minproc Engineers of Perth, Australia, is working on a definitive
feasibility study in which all aspects of the project will be engineered to
a level sufficient to support financing decisions. Two production levels
are being evaluated: 250,000 ounces per year; and 100,000 ounces per year.
The latter, which would require an annual mine production of about 400,000
tonnes, is considered to be the maximum practicable without further
substantial investment in surface infrastructure such as electrical power
distribution. Either production level is seen as the first phase in a
multi-phased development.
When specifying the assumptions for the feasibility study, the company has
been careful to choose mining methods and process technologies that have
been thoroughly proven in production environments elsewhere in the world.
For example, the mining method will be undercut drift and fill using a
paste fill. Undercut drift and fill is already in common use in Kazakstan.
Paste fill, although relatively new, is widely used in the US and Canada.
Studies have shown that the method will be substantially more productive
than that previously used at the mine, and that the method will be able to
support the production rates anticipated.
The DFS incorporates circulating fluid bed reactor technology to pre-treat
the whole ore system prior to conventional carbon in leach gold extraction.
All elements of this process have been proven in large commercial plants.
There are five CFB reactors pre-treating refractory whole ore streams at
operating gold mines and several more pre-treating refractory gold
concentrates. Bakyrchik ores have been thoroughly tested in a pilot size
CFB reactor at the research facilities of Lurgi Energie GmbH in Frankfurt,
Germany where gold recoveries of between 88% and 90% were consistently
obtained.
The DFS provides for all gas, liquid and solid streams for the CFB reactor
and CIL plant to pass through a series of treatments to capture and
immobilize arsenic and sulphur. All process streams and emissions will meet
international and Kazakstani environmental standards.
Additionally, Bakyrchik is examining the long term potential of the
property. The main underground ore handling systems were designed for
production rates of over 2 million tonnes per year. Because of this, and
the significant opportunity for further nearby exploration success, the
company is conducting a preliminary feasibility study for a production rate
of over 750,000 ounces per year.
RESEARCH AND DEVELOPMENT
In addition to the industry proven CFB/CIL configuration, Bakyrchik is
working on an innovative approach that hydrometallurgically removes the
arsenic and sulphur from the whole ore stream before it enters a CFB
reactor. Preliminary indications are that this may be a cheaper approach to
meeting the environmental requirements of the total process. At laboratory
scale, gold recoveries have consistently been over 96%. Continuous
micro-pilot operation has yielded the same outstanding results. Plans for a
demonstration size pilot plant are well advanced. This technology could
have a significant impact on the cost of subsequent production expansions.
NEW EXPLORATION AND MINING LICENCES
Pursuant to the acquisition agreement, the company will obtain revised
mining licences allowing unlimited extensions of the right to mine until
exhaustion of the reserves and resources as well as the right to conduct
its operations in accordance with best international mining practices. This
includes the right to use ecologically appropriate technology, including
the use of Lurgi AG circulating fluid-bed process technology in the
treatment of refractory gold ores.
THE ACQUISITION
The acquisition agreement maintains the major tax and commercial benefits
provided under the original 1992 contract while bringing them into
compliance with current Kazakstani law. Full implementation of the
acquisition agreement, including finalization of the sub-soil use agreement
(the principal terms of which have already been agreed), will add valuable
new benefits including purchase of the government's entire 60% interest in
BMJV; and unrestricted right to export refined gold and dore; new renewal
clauses to the mining rights, allowing ownership and control to extend for
the life of the deposit; full title to physical assets for BMJV, which were
previously under lease; an option to have a five year profits tax holiday,
with the following five years at 12.5%, and thereafter at a maximum rate of
25%, calculated under the taxation rules which prevailed when the original
agreement was signed in 1992; no withholding tax on dividends; and
exemption from import duties and VAT on imports.
THE CONSIDERATION
The consideration of US$60 million plus a US$5 million bonus for the
purchase of the government's entire 60% interest in BMJV and the transfer
of all of the government's rights in the property complex is to be
satisfied in cash as follows: US$5 million non-refundable bonus, paid by
Indochina Goldfields, on signing of the acquisition agreement on December
13 1996; US$60 million to be paid in four equal installment payments over
16 months with the initial installment paid by Indochina Goldfields on
December 13 1996; and three further installments of US$15 million each,
payable by Bakyrchik if approved by shareholders, at periods of
approximately 6, 12 and 16 months, subject to full implementation of the
terms of the acquisition agreement.
In addition, the company will pay a royalty equal to 5% of the net profits
of BMJV to the government of Kazakstan after all costs of investment and
capital expenditure have been recovered from profits.
INVESTMENT PROGRAM
Bakyrchik and BMJV have committed to the government that they will carry
out and complete a bankable feasibility study and that, subject to
finalization of an investment program, over a 10 year period an amount of
not less than US$150,000,000 shall be invested in the mine.
ARRANGEMENTS WITH INDOCHINA GOLDFIELDS
Negotiations on the acquisition were prolonged over a number of months by
Bakyrchik's insistence on the inclusion of certain key points in the
agreements. Most recently, this left the government with no alternative but
to impose a very short time frame within which the Company could complete
the transaction.
After consideration of the available financing alternatives, the board
concluded that the interests of the company were best served by negotiating
an arrangement with Indochina Goldfields whereby Indochina Goldfields would
earn a 15% share in the BMJV in return for making the first payments
totalling US$20 million to the government of Kazakstan and providing
Bakyrchik with a working capital loan.
Indochina Goldfields paid the US$5 million bonus and the initial payment of
US$15 million due on 13 December 1996 under the acquisition agreement.
Provided that the Bakyrchik shareholders approve the acquisition agreement
and the funding agreement, in consideration of Indochina Goldfields having
made these payments, Bakyrchik will transfer to Indochina a 15% interest in
the BMJV as soon as permitted. Indochina Goldfields will provide the
company with a 12 month working capital loan facility of US$20 million, at
an interest rate of 8.5% secured on either shares in CAML or in BMJV.
In the unlikely event that the Bakyrchik's shareholders do not approve the
acquisition agreement but do approve the provision of secured financing by
Indochina Goldfields, CAML will proceed with acquisition of the government
of Kazakstan's 60% interest in BMJV acting as nominee for Indochina
Goldfields. In such circumstances, Bakyrchik will have no liability for the
US$20 million already paid or for the further consideration of US$45
million, and Indochina Goldfields will provide an indemnity for any
liability that might be incurred in acting as its nominee. In this event
the secured working capital facility will be US$15 million and this will be
secured by shares in CAML or in BMJV. Additionally, Indochina Goldfields
has agreed that, in such circumstances, Bakyrchik will maintain management
and operational control of the BMJV.
All of the arrangements with Indochina Goldfields are subject to
shareholder approval.
In order for these arrangements to be implemented, and thus for Bakyrchik
to have the opportunity to enter into the agreements, Bakyrchik and
Indochina Goldfields had to enter into a fallback agreement to apply in the
event that the relevant resolutions are not passed. In such event, the
nominee and indemnity arrangements would apply in respect of the 60%
interest and Bakyrchik would maintain management and operational control of
the BMJV. However, the working capital loan facility would be restricted to
US$5 million, which has already been drawn down, and would be unsecured.
This fallback agreement with Indochina Goldfields was deemed to be a
related party transaction under the listing rules of the London Stock
Exchange and, under normal circumstances, would be conditional on
shareholder approval. Given the importance to Bakyrchik of being able to
enter into the acquisition agreement and funding agreement within the time
frame set by the government of Kazakstan, the London Stock Exchange,
exceptionally, granted a derogation to enable the fallback arrangements to
be non conditional on shareholder approval. Full details of these
arrangements and the reasons for them will be provided in the circular to
be sent to shareholders.
Indochina Goldfields has confirmed that it fully supports the acquisition,
will vote in favour of it to the extent it is permitted to do so under the
related party rules, and, regardless of whether it is permitted to vote,
will encourage other shareholders to vote in favour of the resolutions.
FUTURE FINANCING
The company will still need to raise substantial funds in order to
implement the investment program for the development of the Bakyrchik mine
and to satisfy the remaining consideration.
FINANCIAL INFORMATION ON THE BMJV
The results and net assets of BMJV are already fully consolidated on the
basis that the company exercises dominant influence through majority board
voting rights and a 75% interest in the net revenues of the BMJV. For the
year to March 31 1996, the company reported a loss of US$52.9 million after
an exceptional charge of US$29.0 million and, as of that date, had net
assets of US$28.9 million, including cash of US$16.0 million.
CIRCULAR TO SHAREHOLDERS
Further details will be sent to shareholders in due course along with
details of the extraordinary general meeting of the company at which
approval for the acquisition and associated arrangements will be sought.
(c) Copyright 1996 Canjex Publishing Ltd. canada-stockwatch.com
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Anyone have any input or insights on this recent development? |
