Rockgate Capital (RGT-T) and Mega Uranium (MGA-T) to merge
June 6, 2013 - News Release
Mega Uranium Ltd. and Rockgate Capital Corp. have entered into a binding letter of intent to combine the two companies and create a diversified uranium company with advanced uranium assets in Australia and Mali, a pro forma cash balance of approximately $22-million, and a uranium-focused investment portfolio valued at approximately $12-million. Completion of the merger is subject to the satisfaction of certain conditions discussed as follows. Under the terms of the merger, Rockgate shareholders will receive 2.2 Mega shares for each one common share of Rockgate held (subject to rounding and without giving effect to the proposed share consolidation of the Mega shares discussed as follows). The exchange ratio represents an implied price of 25 cents per Rockgate share, based on the closing price of the Mega shares on the Toronto Stock Exchange on June 5, 2013, and a 36-per-cent premium to Rockgate's 20-day volume-weighted average price for the period ending June 5, 2013. Upon completion of the merger, Rockgate and Mega shareholders will own approximately 49 per cent and 51 per cent of the combined company, respectively.
Sheldon Inwentash, chairman and chief executive officer of Mega, commented: "This transaction represents the opportunity to combine one of Africa's most promising undeveloped uranium assets with our significant Australian portfolio, to create an international uranium developer. We are confident about the combined team's ability to unlock significant value from our collective assets for our shareholders."
Commenting on the transaction, Karl Kottmeier, president of Rockgate, said: "By combining Rockgate and Mega, we are creating a truly unique new company. Our experienced team will be dedicated to building value by advancing our diversified asset base of uranium-focused projects, and prudently managing our portfolio of equity investments and cash. We believe this new company will provide investors with an ideal way to gain exposure to the junior uranium sector."
Transaction rationale:
- A pipeline of advanced-stage and exploration projects in Africa and Australia with a sizable global resource base;
- Larger entity with superior capital markets presence and trading liquidity;
- Strong combined management team with complementary market and operational expertise;
- A portfolio of equity investments in quality junior uranium explorers and developers providing access to future growth;
- Potential synergies and cost savings via back-office consolidation, sharing of facilities/resources and overall economies of scale.
Benefits to Mega shareholders:
- Increased resource diversification and access to a growing polymetallic deposit in Falea;
- Accretive on a resource-per-share basis;
- Bolsters company treasury;
- Access to experienced technical team.
Benefits to Rockgate shareholders:
- Resource diversification geographically and with varying stages of development;
- Advanced projects in a leading uranium mining jurisdiction;
- Further diversification through exposure to a global equity portfolio;
- Significant premium on both a spot-price and 20-day-volume-weighted-average-price basis;
- Management team additions with extensive uranium market transactional expertise.
Management and board
After the merger, the combined company's management and board will reflect the collective strengths of both companies, having years of experience in the global resource sector, and strong expertise in Western Africa and Australian uranium landscape. Karl Kottmeier will become chief executive officer, Douglas Ford will become chief financial officer, Richard Patricio will become chief operating officer, and Bryan Hyde will become chief technical officer of the company. Richard Homsany will remain executive vice-president, Australia. Subject to the approval of the shareholders of Mega, the nine-member board will be led by Sheldon Inwentash as chairman and include Karl Kottmeier, Richard Patricio, Edward Ford, Allen Ambrose, Anthony Grey, Michael Sweatman, Phil Williams and Douglas Reeson.
Overview of portfolio
The combined company will have a portfolio of strategic assets, which will be the key drivers of growth and value creation, and include the following.
Falea
The 100-per-cent-owned flagship Falea project comprises three permits (totalling 225 square kilometres in southwestern Mali), and is a polymetallic, flat-lying deposit containing potentially viable quantities of uranium, silver and copper. Rockgate commenced a prefeasibility study on the Falea project in the fourth quarter of 2012, which is anticipated to be completed by the end of 2013.
Australian assets
Three resource-compliant uranium projects with additional interests in exploration properties covering approximately 5,800 square kilometres throughout Queensland, South Australia, Northern Territory and Western Australia. Lake Maitland (100 per cent owned, Western Australia) hosts 20.7 million pounds triuranium octoxide (U3O8) indicated at a grade of 0.05 per cent and 1.6 million pounds U3O8 inferred at a grade of 0.04 per cent and is currently in the feasibility stage. Ben Lomond (100 per cent owned, Queensland) hosts 7.9 million pounds U3O8 indicated at a grade of 0.27 per cent and 2.8 million pounds U3O8 inferred at a grade of 0.21 per cent, and is currently in prefeasibility, while Maureen (100 per cent owned, Queensland) hosts 5.9 million pounds U3O8 indicated at a grade of 0.09 per cent and 400,000 pounds U3O8 inferred at a grade of 0.11 per cent.
Balance sheet
The combined company will have approximately $22-million of cash at closing of the transaction. In the current uranium market, the combined company's mining assets will require minimal investment and, as such, the cash on hand is anticipated to be more than sufficient to advance both Falea through the prefeasibility study, and Lake Maitland definitive feasibility study and predevelopment, and maintain the other Australian assets while remaining able to undertake investment in new opportunities.
Investment portfolio
Shareholders can expect to benefit from a portfolio of advanced resource equity positions (approximately $12-million), which management believes are currently significantly undervalued in the market and potentially represent a strong sample of the next stage of uranium development assets globally.
Summary of the transaction
It is anticipated that the merger will be completed by way of a three-cornered amalgamation, or a plan of arrangement, resulting in Rockgate becoming a wholly owned subsidiary of Mega at closing. As part of the transaction, it is also proposed that Mega will effect a 1:10 consolidation of the Mega shares prior to the merger. Subject to completion of the prior consolidation of the Mega shares, Rockgate shareholders will receive 2.2 Mega consolidated shares for each 10 common shares of Rockgate held (subject to rounding).
The transaction is subject to completion of due diligence, the execution of a definitive agreement substantially on the terms set out in the letter of intent, and the approval of Rockgate shareholders and Mega shareholders (as to the issuance of the Mega shares under the merger and the 1:10 share consolidation), at meetings to be held as soon as practicable following execution of the definitive agreement, in addition to other customary closing conditions, including receipt of all regulatory and stock exchange approvals. Mega and Rockgate have also agreed to reciprocal non-solicitation restrictions, including rights to match any superior proposals, and for the payment of a $1-million reciprocal break fee under certain circumstances.
Certain members of management, directors and key shareholders of Mega and Rockgate, including Pinetree Capital Ltd. (in respect of Mega), have expressed their willingness to enter into support agreements with the companies to, among other things, vote their common shares of the companies in favour of the matters relating to the merger.
Subject to the execution of the definitive agreement and satisfaction of all closing conditions, the merger is expected to be completed in September, 2013.
Advisers and legal counsel
Dundee Capital Markets is acting as financial adviser, and Blake Cassels & Graydon LLP is acting as legal counsel to Rockgate and its board of directors.
Additional information about Mega Uranium and Rockgate Capital is available by visiting Mega's website or Rockgate's website, or under their profiles on SEDAR.
National Instrument 43-101 -- Standards for Disclosure for Mineral Projects
Stewart Taylor, BSc, Mega's president, is Mega's qualified person for the purposes of NI 43-101, and has reviewed and approved the technical contents of this release under the heading Australian assets. Bryan Hyde, CEng, BSc, MIMMM, a director of Rockgate, is Rockgate's qualified person for the purposes of NI 43-101, and has reviewed and approved the technical contents of this release under the heading Falea.
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