Letter of Intent for the Acquisition of Channel Resources (CHU-V) by West African Resources
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VANCOUVER, BRITISH COLUMBIA and PERTH, AUSTRALIA--(Marketwired - Aug. 14, 2013) -
NOT FOR DISSEMINATION IN THE UNITED STATES OR OVER UNITED STATES NEWSWIRE SERVICES
Channel Resources Ltd. ("Channel") (TSX VENTURE:CHU) and West African Resources Limited ("West African") (ASX:WAF)(ACN 121 539 375) jointly announce the signing of a letter agreement (the "Letter Agreement") pursuant to which the parties intend that West African will acquire, by way of a Plan of Arrangement, all of the issued and outstanding common shares and options of Channel (the "Transaction"). The Transaction has been unanimously approved by the board of directors of both companies.
The Letter Agreement states that the parties intend that all of the common shares of Channel ("Channel Shares") will be exchanged for ordinary shares of West African ("West African Shares") at a ratio of four (4) Channel Shares for one (1) West African Share. In addition, Channel shareholders will receive 1 (one) share purchase warrant ("Warrant") for each two (2) West African shares received in the transaction, each Warrant being exercisable to acquire one (1) West African Share at a price of A$0.40 for 36 months from completion of the Transaction. Each outstanding Channel option to acquire a Channel Share will be replaced or exchanged for one quarter (1/4) a West African option. The Transaction will result in West African issuing approximately 29.84 million West African Shares, resulting in Channel shareholders holding 13.2% of the total outstanding shares of West African.
The Transaction represents an approximate 100% premium over Channel's recent trading price, based on West African's last closing share price of AUD$0.16 on July 29, 2013, the last full day of trading prior to the imposition of a voluntary trading halt pending news of the Transaction (current exchange rates of approximately 1 AUD$ = 0.9460 CDN$).
Insiders of Channel holding approximately 8% of Channel Shares have signed lock-up agreements to support the Transaction. Under certain circumstances, the lock-up agreements grant to West African the option to buy such shares at the arrangement price if the Transaction does not complete and if West African elects to proceed with an 'any-and-all' takeover bid offer.
Private Placement Financing in Channel Resources
Pursuant to the terms of the Letter Agreement, West African has committed to purchase 29,650,936 shares of Channel at a price of $0.05 per share by way of a private placement subscription (the "Channel Financing"). Following the closing of the Channel Financing, which will occur as soon as exchange and other regulatory approvals are given, West African will own 19.9% of the Shares of Channel.
Gross proceeds of the placement will total $1,482,546, which will be used to fund transaction costs and for working capital purposes. Completion of the Channel Financing is subject to execution and delivery of standard documentation and receipt of all required regulatory approvals and consents, including the approval of the TSX.V. Securities issued pursuant to this private placement are subject to a four-month hold period in compliance with applicable securities laws and the policies of the TSX.V.
Primary Objectives of the Transaction
Channel shareholders are expected to benefit from participation in West African's exploration projects in Burkina Faso, encompassing 6,370 square kilometres of landholdings, including the Sartenga permit (hosted within the broader Boulsa project), which hosts a significant initial resource of gold, copper, molybdenum and silver (see "about West African" below). West African shareholders will benefit from Channel's 90% interest in the Tanlouka gold exploration permit ("Tanlouka") in Burkina Faso (see "about Channel" below).
Colin McAleenan, President and CEO of Channel stated: "Market conditions have taken a heavy toll on Channel in the past year; however, under the proposed Transaction Channel shareholders have the opportunity to benefit from West African's ability to realize the value of Tanlouka and also to participate in the exploration and development of its extensive landholdings which are contiguous with Tanlouka, numerous gold prospects and its flagship Sartenga copper-gold project. Importantly, West African is managed by a team with a long operational history in West Africa, that operates a fleet of cost-effective Company-owned drilling rigs, has a solid track record in financing junior resource companies and has the primary objective of establishing a gold mining operation on the properties as rapidly as possible."
Richard Hyde, Managing Director of West African said: "Channel's Tanlouka Project borders West African's Boulsa Project, and is located within 10 kilometres of advanced exploration targets at our Moktedu gold prospect. We will capitalise on near-term production potential resulting from the consolidation of shallow gold mineralisation at both Moktedu and Tanlouka, by directing our fleet of drilling rigs in the coming months on oxide mineralisation in both areas. Channel shareholders will also benefit from the growth potential of the large-scale Sartenga copper-gold project, which we will continue to diamond drill throughout the current wet-season and into 2014, allowing for resource estimates updates to be completed by the end of 2013 and again in 2014. We look forward to recommencing work at Moktedu and Tanlouka as soon as possible, updating resource estimates by year end and undertaking scoping studies in early 2014.
Transaction Terms
Implementation of the Transaction is subject to a number of conditions including the receipt by Channel of a favourable fairness opinion, approval by shareholders of Channel by way of special 2/3 majority together with approval by a simple majority of minority shareholders, as well as approval by regulatory and judicial authorities including the TSX Venture Exchange, the Australian Stock Exchange and the Supreme Court of British Columbia. Other conditions include negotiation of a definitive agreement which will provide for each party to complete a due diligence review of the other party limited to confirming the party's public record and representations given by it and for customary closing deliveries for a transaction of this nature. The transaction is expected to close in late October.
West African has reserved the right to seek a capped amount of interim equity funding while Channel will not seek any additional financing after the Channel Financing is completed. In conjunction with the Transaction, West African intends to list its Shares on the TSX Venture Exchange.
The Letter Agreement contains binding and non-binding terms. Binding terms include the Channel Financing, confidentiality provisions and a C$150,000 break fee if Channel accepts a superior proposal from a third party.
Upon completion of the Transaction, the current management team of West African will manage the affairs of Channel, and one nominee from Channel will join the board of directors of West African.
About Channel
Channel is a mineral exploration company with a portfolio of properties that includes the Tanlouka gold project in Burkina Faso, West Africa and a mineral-bearing brine property in Alberta, Canada. Channel's Tanlouka Project has been its primary focus and the company has advanced it rapidly from initial discovery in 2010 to the publication in 2012 of a maiden resource estimate for the Mankarga 5 target. Channel has set the stage for the continued expansion of Mankarga 5 as well as for potential new discoveries on mineralized targets in the north and central regions of the Tanlouka permit, allowing for significant exploration upside. Existing infrastructure in the area together with that introduced by Channel during its exploration programs will allow for work to proceed quickly to both expand the project as well as to assess the potential for its development.
Further information on Channel is available on the company's website at http://www.channelresources.ca.
About West African
West African is an Australian based exploration company involved in the exploration of gold and copper-gold projects in Burkina Faso.
Since its listing on the Australian Securities Exchange in 2010, West African has acquired a large land position in Burkina Faso and identified multiple targets that it has been exploring with its own fleet of seven drilling rigs, substantially reducing drilling costs compared to drilling by contractors.
West African holds mineral tenements covering the Boulsa Gold Project within central Burkina Faso's Manga-Sebba belt. The Boulsa Gold Project, of which West African Resources owns 100 per cent, covers 6,370 square kilometres and 200 kilometres of strike length of prospective early Proterozoic Birimian granite-greenstone terrain, and is located 90 kilometres east of the capital Ouagadougou.
The Sartenga prospect, which is part of the Boulsa project, hosts West African's most significant drilling results to date. West African discovered Sartenga in June 2012 and announced a substantial initial copper, gold, molybdenum and silver Inferred Resource at Sartenga in June 2013, and expects to update this estimate by the end of 2013 and again in 2014.
The Sartenga maiden Inferred Mineral Resource estimate contains 174,000 tonnes of copper, 651,000 ounces of gold, 11,000 tonnes of molybdenum and 2.5 million ounces of silver (Table 1). The maiden Inferred Mineral Resource, independently calculated by Ravensgate Mineral Industry Resource Consultants (Ravensgate), comprises 70 million tonnes at 0.2% copper, 0.3 g/t gold, 166 g/t molybdenum and 1.1 g/t silver
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