Mt Gibson Iron Ltd has claimed an equity deal struck by target Aztec Resources Ltd today with Australian Royalties Corporation Pty Ltd could actually make its takeover easier because the agreement was below the bid price.
Mount Gibson Iron Ltd has claimed an equity deal struck by target Aztec Resources Ltd today with Australian Royalties Corporation Pty Ltd could actually make its takeover easier because the agreement was below the bid price.
South Perth-based target Aztec announced today it had signed a deed of settlement with Australian Royalties Corporation Pty Ltd which removed caveats that stood in the way of a refinancing arrangement.
However, a deal to issue 77.7 million shares at a price of 22.5c each - worth around $17.5 million in total - triggers a defeating condition in the Mount Gibson Iron Ltd takeover offer of 26.5 cents per share.
Mount Gibson managing director Luke Tonkin said the move was "staggering" and could well undermine Aztec's defence of the bid.
"This deal is of great concern to Mount Gibson as a shareholder," he said.
Mount Gibson would reassess its decision once credit approval from an Aztec banking syndicate had been received, which Mr Tonkin did not think was likely to occur before Thursday.
The full text of an Aztec announcement is pasted below
Aztec Successfully Concludes Agreement with Australian Royalties Corporation - Banking Credit Approval Pending
Aztec Resources Limited (ASX and AIM code: AZR) ("Aztec") is pleased to announce the signing of a deed of settlement and release ("Agreement") terminating the royalty and repurchase rights held by Australian Royalties Corporation Pty Limited ("ARC"), the original vendor of 30% of the Koolan Island Iron Ore tenements.
Under the Agreement:-
- ARC will release all caveats it has lodged over Aztec's Koolan Island mining tenements;
- ARC and Aztec have terminated the royalty and repurchase arrangements. As a result, ARC is no longer entitled to amongst other things:
- The royalty of $1 per tonne for every tonne of iron ore sold from the Project that was previously payable to ARC;
- The option for ARC to repurchase its original 30 per cent interest in the Koolan Island tenements for a nominal sum if production has not commenced from those tenements by 15 June 2007;
- Aztec has issued 77,777,778 fully paid ordinary shares in Aztec to ARC at a price of $0.225 per share (equivalent to Aztec's one month Volume Weighted Average Price to 18 October 2006).
This issue of these shares to ARC represents total consideration of $17.5 million for the royalty and associated rights. This represents a substantial saving to the undiscounted value of the royalty which would have been $29.1 million over the life of the mine based on the planned mining schedule of 29.1 million tonnes. This $29.1 million excludes any additional payments likely to be attributed to any upside potential from Aztec's exploration activities.
Aztec Chairman Ian Burston said the Agreement was an excellent outcome for Aztec shareholders:
"We have improved the profitability and security of the project by extinguishing all rights held by ARC."
"Most importantly, the agreement with ARC will allow the banking syndicate to finalise credit approval for Aztec's $100 million debt finance facility. Once credit approval is received, which we anticipate will be in the next few days, Aztec will be on track to deliver first mining and stockpiling of iron ore by the end of 2006 and first shipments of iron ore in early 2007," Mr Burston said.
Aztec notes that the issue of shares to ARC will trigger a defeating condition in Mount Gibson's (ASX code: MGX) Offer. However, the signing of this agreement was a commercial imperative that was critical to the future of the Company and Directors felt the interests of Aztec shareholders were best served by entry into this Agreement. As previously noted, Aztec has kept Mount Gibson, to the extent possible, fully appraised of developments.
ARC has indicated its position in respect of the Mount Gibson Offer in the attached letter. In summary, ARC will accept the Offer in relation to the shares issued under the Agreement if:
- Mount Gibson varies the Offer so that it extends to the shares issued to ARC under the Agreement;
- Aztec Directors recommend the Offer (in the absence of a better offer); or
- Mount Gibson's Offer is declared free of all defeating conditions no later than 21 days after the date of the issue of the new shares.
Aztec has requested that the suspension from trading be continued until the credit approval from the banking syndicate is received. Aztec undertakes to keep the market informed of progress in respect of credit approval.
