Sherwood Copper Corporation (TSX VENTURE: SWC)(TSX VENTURE: SWC.DB)
and Capstone Mining Corp. (TSX: CS) have entered into a Letter
Agreement to combine, by way of a plan of arrangement or other form
of business combination, to create a well-funded, low-cost,
growth-oriented, copper company with two producing mines in mining
friendly jurisdictions in North America. The two companies have
agreed to combine on an "at-market" basis whereby each Sherwood
shareholder will receive 1.566 shares of Capstone (based on the
20-day volume weighted average share price of the two companies).
The boards of directors of Sherwood and Capstone have unanimously
approved the terms of the transaction.
Transaction Rationale
Capstone and Sherwood believe this merger will realize
significant benefits for each of the company's shareholders,
including:
- Significant production growth, with forecast production of 85
million pounds of copper in 2008, increasing to 110 million pounds
in 2009, with significant by-products of gold, silver, lead and
zinc, as previously disclosed;
- Low cost production with forecast total cash costs of under
US$1.00 per pound of payable copper in 2008 and 2009, including all
off-site costs and net of by-product credits, generating
significant free cash flow to fund corporate growth
opportunities;
- An aggressive, growth oriented company focused on maximizing
the value of its existing high grade mines, Cozamin and Minto,
through sequential increases in resources, reserves and production;
the pursuit of value through continual improvements at its
operations; the advancement of the high grade Kutcho project
towards a production decision and accretive merger and acquisition
opportunities.
- Diversification of operational and geographic risk with the
high grade open pit Minto copper-gold-silver mine in Canada and the
high grade, underground Cozamin copper-silver-zinc-lead mine in
Mexico.
- Increased market capitalization that should improve trading
liquidity for shareholders of the combined company.
- Continued focus on optimization and cost reduction strategies,
with the Cozamin mill throughput set to increase to 3,000 tonnes
per day and Minto to 3,200 tonnes per day by the end of 2008. Minto
will also reduce exposure to high fuel costs for electrical power
generation by connecting to grid power in Q4/08.
- Excellent exploration upside at both the Cozamin and Minto
mines, where high grade resources have been increased by 47% and
140%, respectively, over the past two years, exclusive of the
results from major exploration programs completed in 2008, many of
the results for which are still pending. Sherwood completed 120
holes at Minto and 81 holes at Kutcho in 2008, the results for
approximately half of which remain to be reported, while Capstone
has completed 7,000m of underground and 25,000m of surface drilling
at Cozamin, the results of which are to be incorporated into an
updated resource and reserve estimate.
- A combined management team with complementary experience and a
proven track record of building and profitably operating mines to
create shareholder wealth, supported by a seasoned and experienced
board of directors.
- Exposure to the potential development of the high grade Kutcho
copper-zinc-gold-silver project in northwestern British Columbia,
where a preliminary economic assessment (see Sherwood news release
dated June 12, 2008) indicated potential for production of 45
million pounds of payable copper per year at a cash cost of less
than $1.00 per pound (net of by-product credits) and outlined
several opportunities for further project enhancements.
- Strong balance sheet to support growth strategies.
- Enhanced market exposure for Sherwood's shareholders through
access to Capstone's TSX listing and increased weighting in the TSX
composite index.
- Broadened research coverage for Capstone's shareholders
through Sherwood's analyst coverage, presently at nine firms across
the spectrum of Canadian brokerages.
Capstone and Sherwood further believe that their shareholders
will benefit from the tax-effective combination of the two
companies and allow for participation in the upside from the
significantly enhanced business platform.
Board & Management
The board and management structure of the combined company will
draw on the expertise of both companies and the board will include
four current Sherwood directors, one current director of Capstone
and one nominee of Capstone. Colin K. Benner has agreed to serve as
non-executive Chairman. Darren Pylot (currently President & CEO
of Capstone) will become Vice Chairman and CEO and Stephen Quin
(currently President & CEO of Sherwood) will become President
& COO of the combined company. Richard Godfrey (currently Chief
Financial Officer of Sherwood) will become Chief Financial Officer
of the combined company; other senior management from both
companies will be integrated into the senior management of the
combined company, retaining many of the same responsibilities.
Capstone and Sherwood intend to capitalize on the success of their
respective strategies for the operation, expansion and exploration
of the high grade Cozamin and Minto copper mines, located in
Zacatecas, Mexico, and Yukon, Canada.
"Capstone and Sherwood have each looked at numerous merger and
acquisition possibilities over the past year and have concluded
that this is the most compelling consolidation opportunity in the
sector," said Darren Pylot, President & CEO of Capstone. "The
combined management teams are a great fit, with complementary
skills and experience and a common focus on acquiring and operating
high grade, low cost operations in mining-friendly, politically
stable jurisdictions. Operationally, the high grade Cozamin and
Minto copper mines are tremendous assets, and each is undergoing a
third expansion program and, combined, should produce more than 100
million pounds of copper at cash cost of less than a dollar per
pound in 2009. These operations provide an excellent platform for
future growth."
"The combination of Sherwood and Capstone is a highly
complementary transaction," said Stephen Quin, Sherwood's President
& CEO. "Capstone's strong cash and investments and modest
copper hedging program is complementary to Sherwood's more
leveraged balance sheet and larger copper hedging program (through
the end of 2011). Both Sherwood and Capstone have production
expansion opportunities at their Minto and Cozamin mines, which we
aim to advance as soon as practicable, and Sherwood offers
significant organic growth potential through continued exploration
success at Minto and a high grade development opportunity at its
Kutcho copper project."
Transaction
Capstone and Sherwood anticipate that the transaction will be
carried out by way of statutory plan of arrangement of Sherwood
whereby Capstone would acquire all of the issued shares of Sherwood
and Sherwood would become a wholly-owned subsidiary of Capstone
(the "Arrangement"). The transaction would be subject to certain
standard conditions including that not less than 66 2/3% of the
issued and outstanding shares of Sherwood being voted at a
shareholders meeting being in favour of the transaction. However,
the parties may consider an alternative form of transaction, such
as an amalgamation or other form of business combination, as
mutually determined by Capstone and Sherwood.
Full details of the offer will be included in the formal
Arrangement Agreement and Management Information Circular to be
filed with the regulatory authorities and mailed to Sherwood
shareholders in accordance with applicable securities laws. Under
the Arrangement Capstone will acquire all of the issued and
outstanding shares of Sherwood in consideration for the issue of
Capstone shares on the basis of 1.566 Capstone shares for every
Sherwood share. The Arrangement is an "at market" transaction with
no premium to either party, based on the 20-day volume weighted
average price of each of Capstone and Sherwood to September 5,
2008. Based on the current Sherwood shares outstanding, the
transaction would involve the issuance of approximately 84 million
Capstone shares, which equates to 105% of Capstone's shares
outstanding.
The proposed transaction is expected to be completed before the
end of 2008 and is subject to certain customary conditions,
including receipt of all necessary court and shareholder approvals
and dissent rights to the Arrangement shall not have been exercised
prior to the effective date of the Arrangement by holders of
Sherwood shares representing in the aggregate 5% or more of
outstanding Sherwood shares at such time. It is anticipated that a
special meeting of shareholders of Sherwood (the "Meeting") will be
held at a time yet to be determined to approve the proposed
transaction.
Under the terms of the Arrangement, each Sherwood shareholder
will be entitled to 1.566 Capstone shares for every one Sherwood
share held. Sherwood's outstanding options and warrants adjusted in
accordance with their terms so that the number of Capstone shares
received upon exercise and the exercise price are adjusted
proportionately to reflect the exchange ratio described above.
The transaction is subject to the consent of Sherwood's lenders
under the provisions of its debt facilities.
Following a change of control event in Sherwood, Capstone must,
within 30 days of the occurrence of the change of control, make an
offer to redeem all of Sherwood's convertible debentures then
outstanding. The offer to purchase must be made at a purchase price
equal to 101% of the principal amount of the debentures, plus
accrued and unpaid interest thereon, if any, up to but excluding
the date set for the completion of the offer to purchase. Capstone
has had indications of interests from a financial institution in
providing a debt facility up to the amount of the convertible
debentures, should Capstone decide it wishes to avail itself of
this option.
Capstone has engaged Scotia Capital as its financial adviser and
Blake, Cassels & Graydon LLP as its legal advisor in respect of
this transaction. Sherwood has engaged Haywood Securities Inc. as
its financial advisor and Gowling Lafleur Henderson LLP as its
legal advisor in respect of this transaction.
Conference Call
Capstone and Sherwood will hold a conference call at 11:00 AM
Toronto time (8:00 AM Vancouver time) on Tuesday September 9, 2008
to allow shareholders, securities analysts and investors the
opportunity to hear management discuss the business combination
outlined herein. The call can be accessed by dialling (toll free)
1-866-334-3876 or at 416-849-4292. The call will also be webcast by
Vcall; the call and presentation can be accessed at Capstone's or
Sherwood's websites at www.capstonemining.com or
www.sherwoodcopper.com, respectively. The call will also be
available for replay by dialling (toll free) 1-866-245-6755 or
416-915-1035 (Passcode 130485) for 14 days.
About Capstone Mining
Capstone is a Canadian based mining company currently operating
the 100% owned Cozamin copper-silver-lead-zinc mine located in
Zacatecas State, Mexico. The Cozamin Mine produced 6.7 million
pounds of copper at a total cash cost of US$0.90 per pound in the
three months ended June 30, 2008. Capstone has approximately 80.3
million shares outstanding and is well financed with no bank debt,
and approximately US$100 million in working capital and marketable
securities as of June 30, 2008, based on current share prices.
Additional information on Capstone Mining and its Cozamin Mine
is available on Capstone's website at
http://www.capstonemining.com.
About Sherwood Copper
Sherwood Copper owns 100% of the high grade Minto copper-gold
mine in Yukon, Canada, which was built on budget and ahead of
schedule in 2007. The Minto Mine is one of the highest-grade open
pit copper-gold mines in the world, and is forecast to be a low
cost producer. With 140% growth in resources in two years, followed
by a successful 2008 drilling program, Sherwood plans to evaluate
options for further significant production expansions. Sherwood
also has a 100% interest in the high grade Kutcho copper-zinc
project in BC, Canada, which it is advancing towards production.
The Minto Mine produced 12.8 million pounds of copper at a total
cash cost of C$0.96 per pound in the three months ended June 30,
2008. Sherwood has approximately 53.8 million shares outstanding
and, at June 30, 2008, had approximately $51.7 million in project
related debt, $43.6 million in convertible debentures, and $8.1
million drawn against a corporate credit facility, after repaying
US$16.9 million in the first six months of 2008.
Additional information on Sherwood and its Minto Mine can be
obtained on Sherwood's website at
http://www.sherwoodcopper.com.
Forward-Looking Statements
This document may contain "forward-looking statements" within
the meaning of Canadian securities legislation and the United
States Private Securities Litigation Reform Act of 1995. These
forward-looking statements are made as of the date of this document
and Capstone Mining Corp. and Sherwood Copper Corp. (hereinafter
referred to as the "Companies") do not intend, and do not assume
any obligation, to update these forward-looking statements.
Forward-looking statements relate to future events or future
performance and reflect management of the Companies' expectations
or beliefs regarding future events and include, but are not limited
to, statements with respect to the estimation of mineral reserves
and resources, the realization of mineral reserve estimates, the
timing and amount of estimated future production, costs of
production, capital expenditures, success of mining operations,
environmental risks, unanticipated reclamation expenses, title
disputes or claims and limitations on insurance coverage. In
certain cases, forward-looking statements can be identified by the
use of words such as "plans", "expects" or "does not expect", "is
expected", "budget", "scheduled", "estimates", "forecasts",
"intends", "anticipates" or "does not anticipate", or "believes",
or variations of such words and phrases or statements that certain
actions, events or results "may", "could", "would", "might" or
"will be taken", "occur" or "be achieved" or the negative of these
terms or comparable terminology. By their very nature
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Companies to be materially
different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Such
factors include, among others, risks related to actual results of
current exploration activities; changes in project parameters as
plans continue to be refined; future prices of resources; possible
variations in ore reserves, grade or recovery rates; accidents,
labour disputes and other risks of the mining industry; delays in
obtaining governmental approvals or financing or in the completion
of development or construction activities; as well as those factors
detailed from time to time in the Companies' interim and annual
financial statements and management's discussion and analysis of
those statements, all of which are filed and available for review
on SEDAR at www.sedar.com. Although the Companies have attempted to
identify important factors that could cause actual actions, events
or results to differ materially from those described in
forward-looking statements, there may be other factors that cause
actions, events or results not to be as anticipated, estimated or
intended. There can be no assurance that forward-looking statements
will prove to be accurate, as actual results and future events
could differ materially from those anticipated in such
statements.
Accordingly, readers should not place undue reliance on forward
looking statements.
Neither the TSX Venture Exchange nor the TSX any accept
responsibility for the adequacy or accuracy of this press
release.
Contacts: Capstone Mining Corp. Darren Pylot President & CEO
(604) 684-8894 or 1-866-684-8894 Capstone Mining Corp. Chris
Tomanik (604) 684-8894 or 1-866-684-8894 Capstone Mining Corp. Mark
Patchett (604) 684-8894 or 1-866-684-8894 Email:
info@capstonemining.com Website: www.capstonemining.com Sherwood
Copper Corporation Stephen Quin President & CEO (604) 687-7545
or 1-888-338-2200 Sherwood Copper Corporation Neil MacRae (604)
687-7545 or 1-888-338-2200 Email: info@sherwoodcopper.com Website:
www.sherwoodcopper.com
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