Australian base metals companies Universal Resources Limited and Vulcan Resources Limited announced that they have agreed to merge the 2 companies by scheme of arrangement.
Following the merger, the merged group will seek to progress development and finance of its two advanced development stage projects, Kylylahti and Roseby. The company will benefit from the flexibility provided by development options and a robust capital structure.
Mr Alistair Cowden MD of Vulcan Resources said that the merger proposal was an attractive proposal for both sets of shareholders.
He said that "With the combination of 2 very advanced projects with completed definitive feasibility studies over 1 million tonnes of copper in Resources, our respective management experience and a healthy cash balance sheet we can create a significant, copper focused global development company. We have been looking for some time for opportunities to enhance our production potential and this potential merger is a compelling opportunity to achieve that aim for the benefit of both companies."
Mr Peter Ingram MD of Universal Resources said that the proposed merger offered all shareholders an enhanced path to production.
He said that "This is a classic win-win situation for both companies and we believe the scale and synergy benefits generated by the potential merger of Universal and Vulcan are significant. We are confident that the merged company, with a much larger capital base and market capitalization will be significantly better placed to achieve production at not just one advanced project but in time at two robust operations."
With a strong focus on its copper development and exploration portfolio, following the merger the group will conduct a strategic review of its non copper assets, principally nickel and uranium to assess options to maximize shareholder value. Under the terms of the Scheme, if approved, all issued shares in Vulcan will be transferred to Universal and Vulcan shareholders will receive 6.85 Universal shares for each share in Vulcan.
Vulcan has unlisted options on issue which will be dealt with via individual agreements with Universal, conditional upon approval of the Scheme. It is anticipated that the merged group will consolidate its share capital and change its name upon the successful completion of the transaction.
1. Benefits of the Proposed Merge;
The Vulcan and Universal boards believe that the combined corporate, management and technical strengths of both companies will result in increased capacity to successfully develop existing projects and will fast track the merged company to become a substantial copper producer.
The merged entity expects to derive substantial development financing and operational synergies between Kylylahti and Roseby enabling the merged company to better advance the 2 development stage projects. The combination of the 2 projects creates an extended pipeline for value realization and growth beyond a single project.
The merged group will have a distinct copper focus, owning 100% of the Roseby Copper Project in Queensland as well as 100% of the Kylylahti Copper Cobalt Nickel Project located near Outokumpu in eastern Finland. Both projects offer the potential for a long mine life.
The Mt Isa Inlier and Outokumpu area are large, established fields with a development track record. The merged group will have significant exposure to exploration assets in both these areas including:
1. 2,200 square kilometres of granted tenements in the Mt Isa Inlier Queensland.
2. Key tenements in the Outokumpu area, Finland; and
3. 95% of the Kuhmo Nickel Project located 250 kilometers north of Kylylahti in Finland.
2. Key Terms of the Proposed Merger
The proposed transaction has the full support of the Boards of Directors of both Universal and Vulcan. The Board of Vulcan has informed Universal that subject to the Independent Expert's report and in the absence of a superior offer it will unanimously recommend that its shareholders vote in favor of the proposed merger.
1. Vulcan Shareholders receive 6.85 Universal shares for every Vulcan share they own.
2. This will result in the issue of approximately 1,555 million shares to Vulcan's shareholders.
3. The post merger structure comprises 63.6% Vulcan shareholders and 36.4% Universal shareholders, on an undiluted basis.
4. Universal will offer to exchange unlisted Vulcan options for Universal securities based on an agreed pricing determined by option valuation techniques.
The merger is subject to certain conditions precedent, including:
1. Any necessary regulatory and third party approvals;
2. Vulcan shareholder approval and favorable independent expert's report;
3. Court approval of the merger;
4. The Vulcan options being acquired; and
5. No 'prescribed occurrences material adverse changes occurring or superior competing proposals being made in relation to either Vulcan or Universal.
6. The parties are seeking advice to confirm that Vulcan shareholders outside of Australia are able to participate in the transaction.
3. Exclusivity and Break Fees
After an exclusivity period which ended on September 25th 2009, the 2 parties have executed a Merger Implementation Agreement. The MIA contains certain terms and conditions usual for a transaction of this nature including no shop obligations on Vulcan.
Break fees of AUD 300,000 have been negotiated and will be enforceable should either party decide not to pursue the transaction or Vulcan shareholders do not approve the transaction.
4. Overview of the Merged Group Board and Management
Mr Kevin Maloney will continue as non executive chairman of the company, Mr Alistair Cowden MD of Vulcan will be appointed MD of the merged company and Mr Peter Ingram MD of Universal will retire from his current role on completion of the merger and continue as a non ED of the combined entity.
Mr Fiona Harris and Mr Heikki Solin from the Vulcan Board and Mr Jason Brewer from the Universal Board will also join as Non Executive directors.
