VANCOUVER, Dec. 24, 2015 /CNW/
- Alternative Earth Resources Inc. ("AER") (TSX.V: AER)
is pleased to provide an update and additional background to the
proposed acquisition by AER of Black Sea Copper & Gold Corp.
("Black Sea"). Refer to the AER News Releases dated October 20, 2015, and December 3, 2015 for additional background
details of the proposed transaction.
As was disclosed in the News Release dated
December 11, 2015, the Supreme Court
of British Columbia (the "Court")
has rendered its decision with respect to legal proceedings
commenced by Jaguar Financial Corp. ("Jaguar") against AER and its
directors in connection with the proposed acquisition of Black Sea
by AER. The Court ruled, among other things, that AER cannot
complete the acquisition of Black Sea until the transaction has
been approved by the shareholders of AER at a special meeting of
the shareholders. AER will file an appeal to the Court
decision.
Management and the board of directors of AER (the
"Board") wish to provide context for existing shareholders and
potential new investors with an overview of their business plan and
actions over the past 18 months. For the record, the Board is
composed of three-long standing directors whom have expertise
related to the mining industry and considerable experience serving
as directors and senior officers of TSX Venture Exchange
("TSXV") listed companies.
AER Business Plan: August 2014 - Present
AER's business strategy since August, 2014 has
been to generate cash from the sale of remaining geothermal
development assets and to pursue mineral project acquisitions
and/or merger opportunities. This plan was approved by shareholders
at AER's August 22, 2014 Annual and
Special General Meeting, which included a resolution to change the
business of AER from geothermal to mineral exploration.
Specifically, shareholders granted a mandate for management of AER
to investigate the acquisition of one or more properties without
the need for further shareholder approval, subject to TSXV
acceptance (the "2014 Mandate"). AER closed the sale of geothermal
assets on August 27, 2014 bringing
total working capital at that time to C$2.75M (US$2.53),
and thereafter implemented significant cost reduction measures to
preserve cash and maintain low overhead while investigating mineral
projects acquisitions and merger opportunities.
From August 2014 -
August 2015, AER investigated a large
number (approximately 100) of advanced and exploration-stage
mineral prospects. AER considered in detail approximately 25
advanced-stage properties, with NI 43-101 technical reports
outlining indicated and/or inferred resources, including several
for which comprehensive study by AER lead to extensive negotiations
with a view towards project acquisition.
As a matter of normal business, AER looked into
all types of mineral projects and companies, and throughout this
time AER has included in its planning consideration of merger
opportunities in keeping with our 2014 Mandate from shareholders
and with our public disclosure.
Description of Black Sea's
Business
Management and the Board believe that the Black
Sea merger opportunity brings more value to AER than any of the
other properties and/or merger situations that we have considered.
Black Sea's business plan, mineral property assets acquired over
the past two years and its management team, taken as a whole,
underlies the value which is attractive to AER. Black Sea
identified the "West Tethyan Metallogenic Belt", extending 1500
kilometers through Romania, Serbia
and Bulgaria to Turkey, as an under explored emerging region
of interest to western capital. The Belt includes five major
producing copper-gold mines (for example Majdanpek, Bulgaria -1000
Mt @ 0.6% copper and 0.35 g/t gold; in "Porphyry Copper
Assessment of Europe, Exclusive of
the Fennoscandian Shield", USGS Scientific Investigations Report
2010–5090–K, 2013) and two large producing gold mines (for example
Kislagdad, Turkey – 548 Mt
@0.63 g/t gold or > 10M ounces of gold; from
www.eldoradogold.com) and several active prospects including
"Cukaru Peki", a Joint Venture between Reservoir Minerals Inc. (see
www.reservoirminerals.com and Reservoir Minerals News Release,
December 1, 2015) and
Freeport-McMoRan Exploration Corporation. Black Sea's experienced
management and technical team have global experience and a track
record of discovery. Black Sea has assembled a "local" technical
support team in Eastern Europe to
conduct data reviews and to investigate situations in the field
with a goal to acquire 100 percent ownership interests in
exploration projects and to advance projects to discovery.
Three initial projects, Zlatusha and Kalabak in
Bulgaria, and the recent option to
acquire the Alankoy property in Turkey, have been acquired. All display both
classic high sulphidation epithermal and porphyry style deposit
footprints having large deposit discovery potential.
The Alankoy project is located in the Biga
Peninsula area of western Turkey
in a porphyry-epithermal gold-copper district that includes the
Halilaga, TV Tower (Pilot-Gold/Teck), Agi
Dagi and Kirazli (Alamos Gold) deposits. The project
area is underlain by an extensive alteration footprint and
gold-copper soil geochemical anomalies. Targets include
porphyry copper-gold, epithermal gold, and structurally-controlled
gold deposits.
The Zlatusha project is situated in the Upper
Cretaceous Timok-Srednogorie volcanic belt of Serbia/Bulgaria. Porphyry and epithermal copper-gold
deposits in this belt include Cukaru Peki (Reservoir
Minerals/Freeport) and Chelopech
(Dundee Precious Metals). The project area is underlain by
alteration footprints characteristic of the upper parts of porphyry
copper-gold systems, and includes high-grade gold-in-rock samples
at surface, as well as significant historic drill hole
intercepts. Targets include epithermal gold and porphyry
copper-gold deposits.
The Kalabak project is located in the Southern
Rhodopes region of Bulgaria in
geology analogous to the Biga Peninsula area of Western
Turkey. Significant epithermal gold systems in the region
include Ada Tepe (Dundee Precious
Metals), and the region is considered prospective for porphyry
copper. Kalabak is an early-stage project in an emerging
metallogenic belt segment, with porphyry-style alteration mapped at
surface.
Black Sea has developed an extensive geological
database throughout Bulgaria,
Romania and Serbia, including
extensive field reconnaissance and identification of up to 5
additional target areas to launch future property acquisition
applications. Black Sea's plans include the evaluation and
pursuit of more advanced stage third party acquisitions throughout
the region.
The Proposed Black Sea Transaction
In early September
2015, management of AER commenced discussions concerning a
potential transaction with Black Sea, and held a pre-filing
conference with representatives of the TSXV.
Gavin Cooper, in
addition to being a director of AER, is the CFO and a minority
shareholder of Black Sea. At the outset of AER's dealings with
Black Sea, and again at the first AER Board meeting to consider
Black Sea held on September 11, 2015,
Mr. Cooper disclosed his interest in Black Sea to the other
directors of AER. Following this disclosure, a special committee
comprised of disinterested directors (James
Yates and Brian Fairbank) was
formed to review and negotiate the terms of a potential transaction
with Black Sea (the "Special Committee"). Mr. Cooper was not
involved in the assessment, consideration, or voting in relation to
the Black Sea transaction.
The Special Committee promptly engaged a
qualified and respected independent expert on the valuation of
mineral projects, Ross Glanville
& Associates Ltd. ("Glanville"), to review information
concerning Black Sea and its assets and prepare a memorandum on the
relative values of AER and Black Sea. This memorandum was delivered
to the Special Committee prior to signing the non-binding letter of
intent to acquire Black Sea on October 19,
2015 (refer to the AER News Release dated October 20, 2015 for details of the letter of
intent). Glanville was also engaged by the Special Committee to
provide a fairness opinion in connection with the proposed Black
Sea transaction which was delivered to the Special Committee on
December 1, 2015. Glanville estimates
that AER's "total net asset value would be about C$2.8M, or about 8.5
cents per share" after the private placement
financing; Black Sea's value is estimated to be approximately
C$3.3m based on the median value of
several valuation methods, thus AER's cash shareholders gain an
estimated premium of about 18%. Glanville concludes
that "the terms of the proposed Acquisition (pursuant to which
Alternative Earth will acquire all of the shares of Black Sea by
issuing 33 million shares pro-rata to the shareholders of Black
Sea) are fair from a financial point of view to the existing
Alternative Earth shareholders (and to the new shareholders
participating in the financing of 8,000,000 units at six cents per share)."
In the month prior to AER's News Release of
October 20, 2015 outlining the
letter-of-intent ("LOI") between AER and Black Sea, AER stock was
trading between 3 ½ and 4 cents per
share for an implied market cap of around $1
million (C$0.04 X 25 million
shares outstanding). The private placement financing of AER of
8,000,000 units at 6 cents per share
(the "Financing") outlined in the News Release as part of the deal,
represented a 50% premium over the 30-day August 20-October 20, 2015 trading
prices. Aside from raising new funds, the Financing increases
the approximate value of AER to $2.8
million post-financing as compared Black Sea's approximate
value of $C$3.3 million. The implied value of the combined
companies from Glanville's estimated values is approximately
$6.1 million or 9 cents per share post-merger ($6.1 million divided by 66,000,000 shares
post-merger outstanding).
On October 22,
2015, the TSXV issued a letter granting conditional
acceptance to the proposed acquisition of Black Sea by AER, stating
that shareholder approval was "not applicable" and required AER to
provide a NI 43-101 technical report for the Alankoy property. An
NI 43-101 technical report authored by Erdem Yetkin, Ph.D., CPG, a
Qualified Person under the 43-101, was commissioned by Black
Sea. On November 30, 2015, a
draft NI 43-101 technical report concerning the Alankoy property
(the "Technical Report") was received by AER from Black Sea and
submitted to TSXV and for its review. Assuming that the Black Sea
transaction does proceed, the final Technical Report will be filed
on SEDAR and be publicly available once it has been vetted by
TSXV.
The proposed acquisition of Black Sea is
structured as a share exchange agreement among AER, Black Sea and
the thirty-seven shareholders of Black Sea. This structure
complies with all applicable corporate laws and the policies of the
TSXV. Under TSXV policy, the proposed transaction would not be a
"reverse takeover" ("RTO"), requiring shareholder approval, unless
the transaction results in a "change of control". Based upon the
significant number of Black Sea shareholders that are engaged in
the share exchange, and after review by management of AER and a
preliminary meeting with the TSXV, it was considered that there
would be no change of control that would result in an RTO;
therefore AER shareholder approval would not be required.
AER was due to hold its 2015 annual general
meeting ("AGM") by November 22, 2015,
however the final determination of the RTO and shareholder approval
issue would not be made until the TSXV had received and reviewed
the definitive final agreement for the Black Sea transaction, and
in any event would not have been enough time to set up a meeting
for a shareholder vote on the Black Sea by the November 22, 2015 AGM date. Accordingly, in early
November AER applied to the British Columbia Registrar of
Companies, and was granted, an extension to hold the AGM at any
time before March 28, 2016. The
rationale for the AGM extension application was that, in the event
that the TSXV did require shareholder approval for the Black Sea
transaction, the AGM and approval of Black Sea could be combined
into one meeting, thereby saving the substantial cost of holding
two shareholder meetings (the AGM plus a special meeting for Black
Sea) in a relatively short period of time. AER has now scheduled
the AGM to be held on February 26,
2016.
Jaguar Court Proceedings
On November 24,
2015, Jaguar filed its petition in Court and announced that
it will seek an order preventing AER from closing the Black Sea
transaction without first obtaining shareholder approval. Further,
Jaguar stated that it was considering making a take-over bid for
the shares of AER.
A news release dated December 3, 2015 discloses that the definitive
Share Exchange Agreement dated December 2,
2015 (the "Agreement") was signed and that, due to time
constraints, AER was proceeding with its plan to close the
acquisition of Black Sea on or before December 18, 2015, subject to the outcome of the
Jaguar Court proceedings and final TSXV acceptance.
The decision of the Court on December 10, 2015 found that the Black Sea
transaction was not fair and reasonable to AER and granted the
relief sought by Jaguar. Amongst other things, AER cannot complete
the acquisition of Black Sea without first obtaining approval from
AER shareholders at its next AGM scheduled for late February 2016. As a result, management and the
Board of AER are very concerned regarding the consequences of the
Court decision for the following reasons:
- Black Sea may allow the Agreement to terminate on December 18, 2015 (now extended to December 31, 2015), so that it can pursue other
business opportunities;
- In the event that the Black Sea transaction is terminated, the
concurrent $480,000 private placement
financing for AER (which is fully subscribed) will also be
terminated;
- In the event that the Black Sea transaction is not terminated,
the cost of preparing an information circular containing
prospectus-level disclosure concerning Black Sea, which is not
otherwise required under corporate law or TSXV policy, will be
substantial and, in light of the 2014 Mandate, may not be in the
best interests of the shareholders of AER;
- AER will have incurred substantial transaction and court costs
for a failed transaction and related financing;
- In light of Jaguar's attempts to block two transactions
announced by AER (Kiska and Black Sea), as well as similar actions
taken by Jaguar against other public companies (for example Galway
Metals Inc.), management of AER have concerns regarding Jaguar's
intentions.
Under the circumstances, management of AER will
continue to consider all alternative courses of action that are
available, with a view to protecting the interests of AER and its
shareholders, which may involve an appeal of the Court
decision.
Forward Looking Statements: This news release
contains forward looking statements that are subject to a number of
known and unknown risks, uncertainties and other factors that may
cause actual results to differ materially from those anticipated in
our forward looking statements. Forward-looking statements in this
release include statements regarding the timing and completion of
the private placement, and closing of the Black Sea acquisition.
Factors that could cause such differences include: the financing
and the acquisition may not be completed for any reason whatsoever,
including that the regulators may not approve them, changes in
world commodity markets, equity markets, costs and supply of
materials relevant to the mining industry, change in government and
changes to regulations affecting the mining industry. In addition
to other factors and assumptions which may be identified in this
press release, assumptions have been made regarding and are
implicit in, among other things, the timely receipt of any required
regulatory approvals. Although we believe the expectations
reflected in our forward looking statements are reasonable, results
may vary, and we cannot guarantee future results, levels of
activity, performance or achievements.
Neither the TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the TSX Venture Exchange) accepts responsibility for
the adequacy or accuracy of this release.
SOURCE Alternative Earth Resources Inc.