Response to CEN'S Rejection
Perth, June 14, 2013 AEST (ABN Newswire) - Rum Jungle Resources Limited (
ASX:RUM) notes the Fourth Supplementary Target's Statement released today by Central Australian Phosphate Limited (ASX:CEN).
RUM is mystified by the CEN directors' conclusion that the Monument joint venture proposal is superior to the RUM's joint venture proposal. In RUM's view, its joint venture proposal is clearly superior.
In summary, RUM proposed that:
- RUM and CEN form a 60:40 joint venture to which they would contribute their respective phosphate assets (including Barrow Creek 1 and Arganara);
- RUM would pay CEN $2 million on formation;
- RUM would commit to sole fund $4 million of expenditure (additional to the $2 million payment) within the longer of one year of formation of the joint venture and 31 December 2014 (Milestone Period); and
- conditional on RUM complying with this sole funding obligation and delivering a pre-feasibility study before the end of the Milestone Period, RUM's interest in the joint venture would increase to 75%.
A copy of the proposed terms of RUM's joint venture proposal as given to CEN accompanies this announcement.
RUM does not consider that CEN's Fourth Supplementary Target's Statement presents a fair comparison. Specifically, RUM notes the following:
1. RUM's total cash commitment more than Monument's - Under its joint venture proposal, RUM's total cash commitment would be $6 million; whereas Monument's total cash commitment under Monument joint venture proposal is only $4 million, not $8.8 million. Under Monument joint venture proposal, Monument has a right, but not an obligation, to sole fund the remaining $4.8 million for further exploration and a scoping study. RUM has already expended a significant amount of money on the Barrow Creek 1 resource for exploration to convert much of the resource to a "measured" resource, metallurgy to understand the composition and behaviour of the ore and on a completed scoping study, all of which would benefit the proposed joint venture and the single development of Barrow Creek 1 and Arganara project. It does not appear from the Fourth Supplementary Target's Statement that CEN has recognised that this expenditure and knowledge has value that avoids the need for replication as would be the case if Arganara was progressed under the Monument proposal.
2. Both CEN's and RUM's phosphate assets included in JV - Under RUM's joint venture CEN would acquire a 40% interest in RUM's phosphate assets and receive a $2 million payment at the outset, as well as retain a 40% interest in its own phosphate assets. Under the Monument joint venture proposal, CEN would not acquire an interest in any assets that it does not already own.
3. Both proposals include a risk of dilution - Under both the RUM and Monument joint venture proposals there is a risk of dilution of CEN's participating interest if CEN is unable to contribute to future exploration and development programmes. Either joint venture proposal may necessitate a capital raising by CEN to avoid dilution in the future.
4. RUM's delivery timeframe shorter - The timeframe under RUM's joint venture proposal is much shorter as RUM believes its knowledge of the resource and the infrastructure development parameters are much more detailed than CEN's, having already completed a scoping study. As noted above, RUM would target completion of a pre-feasibility study for a combined Barrow Creek 1 and Arganara project by the end of the Milestone Period.
In comparison, under the Monument joint venture proposal, Monument would have a period of 54 months from formation of the joint venture to complete a scoping study (not a pre-feasibility study) to earn its 51% interest in the joint venture (say towards the end of 2017, or possibly early 2018).
5. RUM far more advanced than CEN/Monument - As previously explained (See Note 1), RUM believes it should be possible to complete a pre-feasibility study for the combined Barrow Creek 1 - Arganara project within a much shorter timeframe than the timeframe within which Monument could complete one for CEN's phosphate assets. RUM's management team have already overseen extensive drilling of the Barrow Creek 1 resource (far more extensive than the drilling which CEN has completed on Arganara) and acquired significant knowledge through metallurgical test work and the completion of a scoping study in relation to it. RUM's Barrow Creek 1 resource includes both indicated and measured resources as well as inferred resources (CEN's resources at Arganara are all inferred only). RUM has spent considerably more money on exploration and studies for the development of its Barrow Creek 1 deposit than CEN has spent on its Arganara deposit, and has established a permanent operating base at Barrow Creek 1.
6. Strategic value of combination of Barrow Creek 1 and Arganara - There is significant strategic value in combining the Barrow Creek 1 and Arganara deposits. For the Arganara deposit to reach production stage substantial expenditure will be required. The combination would clearly avoid the need for duplication of mine site processing and transport infrastructure and should reduce the amount of capital expenditure required to exploit both deposits. This should also result in the Arganara deposit being developed more quickly, which should assist with securing access to scarce resources such as existing transport infrastructure and port capacity as well as to markets.
7. Neither JV proposal includes an off-take contract - Under the Monument joint venture proposal, Monument will have a right of first refusal to enter into off-take sales contracts for CEN's share of phosphate product or other minerals recovered, with the terms of such contracts to be negotiated by the parties in good faith. This is the same under RUM's joint venture proposal. The proposed off-take sales contracts with Monument are therefore by no means certain. In RUM's opinion, significant investment (RUM would expect in excess of $1 billion) is required for Monument to process the ore from the Arganara deposit into marketable fertiliser products, including building a mine and processing infrastructure at its Mengapur Polymetalic Project (to provide a source of sulphur), a sulphuric acid plant and possibly also downstream fertiliser production capacity, in addition to developing the mine and infrastructure at Arganara. RUM's own scoping study for Barrow Creek 1 indicated that the development of a start-up DSO operation at Barrow Creek 1 would have a capital cost of approximately $275 million plus an additional $175 million for when beneficiation is required. Furthermore, RUM understands that a feasibility study for construction of the Mengapur Polymetalic Project referred to in CEN's Fourth Supplementary Target's Statement has not yet been prepared and commencement of production at the Mengapur Polymetalic Project is not certain.
8. Potential for earlier production with RUM - RUM is targeting first production in 2016. There is no timeframe proposed for first production from the Arganara deposit under the Monument joint venture proposal. RUM considers that it would take CEN and Monument at least 3 years after completion of the scoping study to complete further feasibility studies, to obtain necessary environmental approvals and to develop Arganara. If the scoping study for Arganara is not completed until the end of 2017 or early 2018 (as contemplated in the Monument joint venture proposal), first production at Arganara may not commence before the end of 2020 or early 2021.
If CEN shareholders do not want the Monument joint venture proposal to proceed, they should vote against the resolution to approve the Monument joint venture proposal.
RUM'S TAKEOVER OFFER FOR CEN
The status of RUM's takeover offer is unaffected by CEN's rejection of RUM's joint venture proposal.
RUM still believes that its proposal to combine RUM and CEN under the takeover offer presents CEN shareholders with a significantly more attractive value proposition than the Monument joint venture proposal. There is a clear and compelling rationale for combining RUM and CEN into a larger company as previously explained.
The consideration offered under RUM's takeover is one cent per CEN share plus one RUM share for every 13 CEN shares. RUM confirms that it will not be increasing the consideration under its takeover offer beyond this in the absence of a superior competing proposal. RUM believes the offer consideration is full and fair.
RUM also confirms that it will declare its takeover offer unconditional if it receives acceptances representing 50% of the CEN shares on issue by no later than 7pm (Melbourne time) on Wednesday, 19 June 2013 and there are no breaches of any conditions of the offer before that time other than certain breaches known to RUM.2 RUM encourages CEN shareholders to accept its takeover offer before that time to increase the chances of the takeover offer being declared unconditional.
RUM also confirms that its takeover offer for CEN will lapse due to breaches of its offer conditions if the resolution to approve entry into the Monument joint venture is passed at the CEN general meeting scheduled to be held on 26 June 2013 and RUM has not declared its takeover offer unconditional before that time.3
If you have any questions in relation to RUM's takeover offer or how to accept it, CEN shareholders may contact RUM's Offer Information Line on 1800 810 891 (within Australia) or +61 2 8256 3353 (outside Australia).
Note 1. See RUM's Bidder's Statement and, in particular, the Fourth Supplementary Bidder's Statement dated 7 June 2013
About Verdant Minerals Ltd
Verdant Minerals Ltd's (ASX:VRM) strategic intent is to create shareholder value through the discovery, development and operation of fertiliser and industrial mineral projects, located in close proximity to existing transport infrastructure, with a primary focus on the Northern Territory of Australia.
| ||
|
