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Tiomin to acquire Vaaldiam Resources
2010-01-18 10:37 ET - News Release
See News Release (C-TIO) Tiomin Resources Inc
Mr. Robert Jackson of Tiomin Resources reports
TIOMIN TO ACQUIRE DIAMOND PRODUCER VAALDIAM
Tiomin Resources Inc. and Vaaldiam Resources Ltd. have entered into a definitive arrangement agreement for Tiomin to acquire, via a plan of arrangement, all of the outstanding common shares of Vaaldiam in an all-share transaction on the basis of 0.80 Tiomin common share for each Vaaldiam common share. Following completion of the transaction, and subject to regulatory approvals, Vaaldiam will be a wholly owned subsidiary of Tiomin with Vaaldiam's existing shareholders owning approximately 30 per cent of Tiomin.
The resulting company will be a well-capitalized, Brazil-focused diamond producer with the following attributes:
Immediate production -- diamond and gold production to resume at the 100-per-cent-owned Duas Barras mine, which operated profitably prior to being placed on care and maintenance as a result of the global financial crisis;
Strong balance sheet -- Tiomin will have approximately $11.3-million in cash to finance exploration and development and settle Vaaldiam's outstanding liabilities;
Production growth -- Tiomin plans to grow Vaaldiam's production through the staged resumption of production at its two 100-per-cent-owned diamond mines and the expansion of resources through exploration and development of the mines' exploration properties.
Production is projected to be:
20,000 carats in 2010;
40,000 carats in 2011.
The anticipated development of the Brauna kimberlite project, which is currently conducting a bulk-sampling program, is expected to significantly add to this production in the coming years.
Advanced development pipeline
In addition to becoming South America's largest diamond producer, Tiomin will hold interests in three advanced-stage kimberlite deposits in Brazil and Canada and also own a large exploration database of kimberlite occurences in Brazil.
Experienced in-country teams
Tiomin will benefit from highly skilled and experienced in-country operational and exploration teams in Brazil and Canada, in addition to a strengthened management team with significant industry experience.
Copper-gold asset in Peru
Tiomin owns 49 per cent of the potentially world-class Pukaka copper-gold asset in Peru.
Overview of the combined company
The combination of Tiomin and Vaaldiam will create a leading diamond production, exploration and development company with a pro forma market capitalization of $20.7-million based on Tiomin's closing share price of three cents on Friday, Jan. 15, 2010. The company is projected to have the ability to materially finance the advanced-stage kimberlite exploration and development costs from internally generated cash flow, thereby reducing further dilution to its shareholders. The combined company will have strong management expertise and the financial capacity to realize the value potential of its exploration portfolio and to capitalize on future acquisition and consolidation opportunities.
Robert Jackson, Tiomin's president and chief executive officer, said: "This highly accretive transaction is a win for the shareholders of both companies. Diamond prices have largely returned to precrisis levels but the valuations of diamond producers have not. Vaaldiam has a good asset base in Brazil but suffered badly during the worldwide financial crisis. Tiomin has the cash to solve Vaaldiam's balance sheet issues and to quickly restart Vaadiam's cash-flowing operations. In our opinion, shareholders should support this transaction because it is good for them."
Ken Johnson, president and chief executive officer of Vaaldiam, commented: "The combination of Tiomin and Vaaldiam allows us to immediately restart production at our Duas Barras mine and take advantage of the strong rebound in rough diamond prices and the high gold price. In addition, we will continue to develop our Brauna kimberlite project which is in the bulk sampling and resource definition phase of development, and will work to expand the resources at our Chapada mine, in anticipation of production resuming at that mine in 2011. Our goal is to reposition our company as South America's largest diamond producer, marketing high-quality diamonds with a combined average sales value of over $275 (U.S.) per carat in addition to measured and sustainable production growth. This transaction refinances our operations which were forced to shut down as a result of the global financial crisis, and strengthens our management, operational and technical teams to clearly establish Tiomin as the leader in the South American diamond sector."
Private placement
In connection with the transaction, Tiomin and Vaaldiam have also entered into a subscription agreement, pursuant to which Tiomin acquired 20 million common shares of Vaaldiam, representing approximately 8 per cent of Vaaldiam's outstanding common shares, at a price of three cents per share in a private placement for total gross proceeds to Vaaldiam of $600,000. The proceeds of the private placement will be used for general working capital purposes pending completion of the transaction. When taken together with the common shares of Vaaldiam currently held by Tiomin, Tiomin will hold approximately 9 per cent of the issued and outstanding common shares of Vaaldiam.
Advisers and fairness opinions
Fraser Mackenzie Ltd. and Haywood Securities Ltd., both acting as financial advisers to the special committees of the board of directors of Vaaldiam and Tiomin respectively, have both provided opinions that, subject to certain assumptions and limitations set out therein, the proposed transaction is fair, from a financial point of view, to the Vaaldiam and Tiomin shareholders, respectively.
Stikeman Elliott LLP is acting as external legal counsel to Tiomin, and Fogler, Rubinoff LLP is acting as external legal counsel to Vaaldiam.
Board recommendations
The transaction has been approved by the boards of directors of Tiomin and Vaaldiam respectively, following the unanimous recommendations of their special committees which comprise independent directors from each company. The board of directors of Vaaldiam recommends that holders of Vaaldiam shares vote in favour of the transaction.
The definitive agreement includes a commitment by Vaaldiam not to solicit or initiate discussions concerning alternative transactions, including the sale of material assets. Vaaldiam has agreed to pay a break fee of $500,000 to Tiomin in certain circumstances and has granted Tiomin the right to match competing offers. Tiomin has also agreed to pay Vaaldiam a break fee of $500,000 in certain circumstances.
In addition to the approximately 9-per-cent ownership of Vaaldiam shares by Tiomin, certain shareholders, directors and officers holding approximately 16 per cent of the outstanding Vaaldiam shares have agreed to vote in favour of the transaction.
Details regarding these and other terms of the transaction are set out in the arrangement agreement, which will be filed by Tiomin and Vaaldiam on the SEDAR website.
Closing
Completion of the transaction is subject to customary conditions, including a favourable vote of two-thirds of the Vaaldiam common shares voted at a special meeting of shareholders called to approve the transaction, a favourable vote of a majority of the Tiomin common shares voted at a special meeting of shareholders called to approve the issuance of Tiomin common shares in connection with the transaction, and the receipt of court and other necessary regulatory approvals.
Further information regarding the transaction will be contained in a proxy circular that Vaaldiam and Tiomim will prepare and mail to their respective shareholders in connection with the special meeting of shareholders to be held to approve the transaction. It is expected that these materials will be mailed in February, 2010, for a meeting to be held in March, 2010. Once mailed, the proxy circular will also be available on SEDAR. All shareholders are urged to read their proxy circulars once they become available as they will contain additional important information concerning the transaction.
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