RNS Number:0455Q
River Diamonds PLC
13 March 2008
13 March 2008
River Diamonds PLC
("River Diamonds" or "the Company")
Proposed acquisition of all the share capital of Viso Gero International, Inc.
not held by the Company
Application for Re-Admission of the Enlarged Share Capital of the Company to
trading on AIM
Notice of General Meeting
River Diamonds plc announces the publication of the Re-Admission document for
the proposed acquisition of all the share capital of Viso Gero International,
Inc. not held by the Company ("the Acquisition") and the resumption of trading
of its shares to the AIM Market of the London Stock Exchange plc.
TRANSACTION HIGHLIGHTS
* River Diamonds' shares resume trading today on publication of the
Re-Admission document
* Following completion of the Acquisition, River Diamonds will own 100%
of the Vatukoula Gold Mine in Fiji
* River Diamonds has conditionally placed shares at 6p to raise gross
proceeds of �4,669,000
ADMISSION STATISTICS
Number of Existing Ordinary Shares 1,104,705,388
Number of Placed Shares 77,816,666
Number of Consideration Shares 477,633,333
Number of Arrangement Fee Shares 25,000,000
Number of Retained Consideration Shares 334,343,333
Enlarged Share Capital following Re-Admission 1,685,155,387
Consideration Shares as a % of Enlarged Share Capital 28.34%
NewOrdinary Shares as a % of Enlarged Share Capital 34.44%
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Publication of Re-Admission document and dealings recommence 13 March 2008
in the Existing Ordinary Shares
Latest date for receipt of the Forms of Proxy 29 March 2008
General Meeting 31 March 2008
Completion of the Acquisition, Re-Admission
becomes effective and dealings commence in the New Ordinary Shares 01 April 2008
Board Changes
Shortly before the publication of this document and in anticipation of the
changed composition of the Board following completion of the Acquisition,
Anthony Balme and Nicholas Shaw-Hardie resigned as Directors. In addition, David
Lenigas has agreed to provide his services in an executive capacity, and
accordingly will cease to be treated as a non-executive director. Given his
previous experience at the Vatukuola Gold Mine, Mr Lenigas will play a key role
in advising the Company on the technical and operational matters relating to the
Mine and on any subsequent mining investments of the Company.
Donald Strang was appointed as a non-executive director on 12 March 2008. In
addition, it is intended that John Stalker and Neil Herbert will be appointed as
directors of the Company with effect from Re-Admission.
Donald Ian George Layman Strang, Non-executive Director, age 40
Mr Strang is a qualified chartered accountant with 20 years' experience in the
financial and resources sectors. He has experience operating in the AIM
environment. He is currently finance director for Brinkley Mining plc and also
for Leni Gas and Oil plc. He is also a non-executive director of Lonrho plc.
Mr Strang was previously the chief financial officer and company secretary for
Global Coal Management plc (formerly Asia Energy plc) and BDI Mining Corp. He
has previously held senior financial positions with Ernst & Young and several
publicly listed Australian gold mining companies (Macraes Mining Company Limited
and Perilya Mining Limited) and has also worked with Deutsche Bank and Credit
Suisse Group in the investment banking sector.
Other than as detailed above there is no further information to be disclosed
pursuant to paragraph (g) of Schedule Two of the AIM Rules.
Colin Orr-Ewing, Chairman of River Diamonds commented, "The acquisition of the
Vatukuola Mine provides River Diamonds with the opportunity to bring this
historic gold mine back to profitability at a time of high prevailing gold
prices. We believe this will bring benefits not only to River Diamonds'
shareholders, but also to the Fijian Government, the employees at the mine and
the people of Fiji."
13 March 2008
Enquiries:
Colin Orr-Ewing, Executive Chairman
River Diamonds plc
Tel: 020 7016 5100
Dave Paxton
Hichens Harrison & Co. plc
Tel: 020 7832 7785
Laura Llewelyn/ Beth Harris
Parkgreen Communications
Tel: 020 7851 7480
David Porter/ James Joyce
W.H. Ireland Limited
Tel: 020 7220 1666
For details of the transaction please see below. For the full Re-Admission
document, please visit the Company's website: www.riverdiamonds.co.uk.
The terms used in this announcement have the same meaning as in the Re-Admission
document.
To Shareholders and, for information purposes only, all holders of options in
the Company
Dear Shareholder
Proposed acquisition of all the share capital of VGI not held by the Company
Application for Re-Admission of the Enlarged Share Capital of the Company to
trading on AIM
Notice of General Meeting
1. Introduction
River Diamonds announced on 14 December 2007 that it had signed a conditional
agreement to acquire from the Vendor the 80% of the share capital of VGI not
already held by the Company. Trading in the Ordinary Shares had been suspended
on 27 November 2007 upon the announcement of discussions relating to the
transaction and resumed upon publication of this document. It is a condition
precedent of the Acquisition Agreement that VGI will have acquired the 6% of
Westech not held by VGI on or before the completion of the Acquisition.
Accordingly, subject to completion of the Acquisition in accordance with the
terms of the Acquisition Agreement, the Company will own the whole of VGI and
will indirectly, wholly own the Vatukoula Gold Mine in Fiji.
The consideration payable under the Acquisition Agreement is to be satisfied by
the issue of the Consideration Shares to the Vendor and the persons nominated by
the Vendor and a cash payment of AUS$2,100,000 to the Vendor. This values the
80% interest in VGI at �29,561,000 based on the Placing Price being attributed
to the Consideration Shares and the conversion of the cash consideration into
Sterling at an exchange rate of AUS$2.14 to the �. The consideration is to be
satisfied upon Re-Admission, which if the Acquisition is approved by
Shareholders, is anticipated to be on 1 April 2008.
Under the terms of the Templar Agreement 143,290,000 of the Consideration Shares
will be acquired by Templar and accordingly the Vendor and the Vendor's
Associates will initially retain 334,343,333 Retained Consideration Shares.
The Consideration Shares will represent 28.3% of the Enlarged Share Capital and
will, when issued, rank pari passu in all respects with the other Ordinary
Shares then in issue, including all rights to all dividends and other
distributions declared, made or paid following Re-Admission. The Retained
Consideration Shares will represent 19.8% of the Enlarged Share Capital and be
held by the Vendor and the Vendor's Associates:
The Company also announced on 14 December 2007 that it had conditionally placed
70,833,833 Placed Shares and on 5 March 2008 that it had conditionally placed a
further 6,983,333 Placed Shares in each case at the Placing Price to raise gross
aggregate proceeds of �4,669,000. Such funds will be deployed to fund the cash
consideration for the Acquisition, for further re-commissioning costs, and other
working capital and operational costs of the Mine. The Placing is conditional on
completion of the Acquisition and Re-Admission. The Placed Shares will represent
4.6% of the Enlarged Share Capital. In addition the Company has secured the
Working Capital Facility (further details of which are set out in paragraph 7.1
(h) of Part V of this document) which is conditional on the completion of the
Acquisition and Re-Admission.
The Acquisition will, if completed, constitute a reverse takeover under the AIM
Rules for Companies and accordingly requires approval by Shareholders which will
be sought at the forthcoming General Meeting. Re-Admission is conditional,
amongst other things, on the passing of the Resolution at the General Meeting.
If the Resolution is not passed at the General Meeting, the Acquisition and the
Placing will not proceed, funds will not be available under the Working Capital
Facility, and trading in the Existing Ordinary Shares on AIM will continue.
The purpose of this document is to set out the principal terms of, and to seek
Shareholder approval for, the Acquisition and to explain why the Existing
Directors believe that the Acquisition is in the best interests of the Company
and its Shareholders as a whole and to recommend that you vote in favour of the
Resolution.
2. Background to and reasons for the Acquisition
The Company was admitted to AIM on 26 August 2004 to pursue a strategy of
building and exploiting a portfolio of mineral exploration and mining projects.
Initially the Company focused principally on exploration for alluvial diamond
deposits in Brazil, through the projects at Alto Paraguai and Diamantino.
In the following year, after a strategic review, the Company extended its
investment in exploration to include kimberlite resources at Paranatinga in
Brazil and in Sierra Leone, through its participation in the Panguma dyke
project which it now wholly owns. Through its diamond exploration activities in
Brazil, the Company was given the opportunity to apply for gold exploration
licences in the Rio Novo project in central Brazil and to date it has carried
out some preliminary gold exploration over the area. The Company's diamond
exploration licences have all lapsed or are being allowed to lapse. In April
2007, the Company acquired 0.46% of the ordinary share capital of GDR. GDR is a
diamond exploration and development company whose principal asset is the Kao
diamond project in Lesotho.
While the Company already has limited exposure to gold in Brazil, in the second
half of 2007 it was presented with the opportunity to extend its interests in
the gold sector and to participate in productive or near productive operations
by acquiring in two stages (through subscribing for new shares for cash) 20% of
the equity of VGI for an aggregate amount of �4,250,000. This investment has
given the Company an indirect equity interest in the Vatukoula Gold Mine of
approximately 19%. The investment in the Vatukoula Gold Mine has provided the
Company with access to a near term producing asset at a time of prevailing
strong gold prices.
The Acquisition will provide the Company with 100% ownership of the Vatukoula
Gold Mine enabling it to have full control over its existing investment in the
Mine and to expand significantly its interest in the gold sector.
3. Structure of the Enlarged Group
On Re-Admission, the Enlarged Group structure will be as shown below:
http://www.rns-pdf.londonstockexchange.com/rns/0455q_-2008-3-13.pdf
Note: All subsidiaries of the Enlarged Group will be wholly owned by the
Company.
4. Information on the assets of the Enlarged Group
Certain information on the assets of the Enlarged Group is given below.
Vatukoula Gold Mine in Fiji
Introduction
The Vatukoula Gold Mine is an underground mine with an operational history of
over 70 years. The Company currently has a 19% indirect equity interest in the
Vatukoula Gold Mine and on completion of the Acquisition, the Enlarged Group
will hold a 100% indirect equity interest in the Mine.
Areas of operations - Fiji
The Mine is located in Fiji, an island group in the South Pacific Ocean. Fiji
comprises two main islands, Viti Levu and Vanua Levu, with many smaller islands
surrounding. The Mine is located in the northern part of the island of Viti Levu
within the Tavua Basin, situated within the Tavua volcano.
Fiji became independent in 1970, after nearly a century as a British colony.
Democratic rule was interrupted by two military coups in 1987, caused by concern
over a government perceived as dominated by the Indian community. The coups and
a 1990 constitution that cemented native Melanesian control of Fiji, led to
heavy Indian emigration; the population loss resulted in economic difficulties,
but ensured that Melanesians became the majority. A new constitution enacted in
1997 was more equitable. Free and peaceful elections in 1999 resulted in a
government led by an Indo-Fijian, but a civilian-led coup in May 2000 ushered in
a prolonged period of political turmoil. Parliamentary elections held in August
2001 provided Fiji with a democratically elected government led by Prime
Minister Laisenia Qarase. Re-elected in May 2006, Qarase was replaced in
December 2006 following a military coup led by Commodore Voreqe Bainimarama, who
became president. He was subsequently replaced as president by Ratu Joseph
Iloilo and in January 2007, Bainimarama was appointed interim prime minister.
The Directors believe that there is now a degree of stability in the country.
Reserves and Resources
The Competent Person's Report assigned mineral reserves and resources to the
Vatukoula Gold Mine as follows:
Gross Net Attributable
Category Tonnes Grade Contained Tonnes Grade Contained Operator
(millions) Au (oz/t) Metal Au (millions) Au (oz/t) Metal Au
(millions (millions
of ozs) of ozs)
Mineral Reserves Westech Gold
Pty
Proved 1.23 12.30 0.49 0.23 12.30 0.09
Probable 1.11 10.50 0.37 0.21 10.50 0.07
Depletion (0.08) 12.30 (0.03) (0.02) 12.30 (0.01)
Sub-Total 2.26 11.41 0.83 0.43 11.41 0.16
Mineral Resources
Vatukoula Underground
Measured 3.87 16.99 2.11 0.74 16.99 0.40
Indicated 3.24 11.72 1.22 0.62 11.72 0.23
Inferred 4.63 10.77 1.61 0.88 10.77 0.30
Depletion (0.08) 16.99 (0.04) (0.02) 16.99 (0.01)
Sub-Total 11.66 13.06 4.90 2.22 13.06 0.93
Vatukoula Tailings
Measured 4.49 1.50 0.22 0.85 1.50 0.04
Indicated 0.69 1.30 0.03 0.13 1.30 0.01
Inferred
Sub-Total 5.18 1.47 0.25 0.98 1.47 0.05
Total 16.84 9.49 5.15 3.20 9.49 0.98
Source: Competent Person's Report, March 2008, p., 5
Note: Gross are 100% of the reserves and resources which also reflects the
reserves and resources of the Enlarged Group
Net attributable are the reserves and resources indirectly
attributable to the Company as at the date of this document
Net Present Value of the Vatukoula Gold Mine
The Competent Person has estimated the Net Present Value in US$m of the
Vatukoula Gold Mine (on a 100% basis) under a variety of discount rates and gold
prices as set out on the following table. The assumptions supporting these
calculations are set out on pages 91-99 of the Competent Person's Report in Part
IV of this document.
Gold Price US$ per ounce
750 850 950
Discount Rate 8% US$ 108.5 US$ 169.5 US$ 230.6
Discount Rate 10% US$ 100.1 US$ 157.2 US$ 214.3
Discount Rate 12% US$ 92.6 US$ 146.1 US$ 199.6
Mine geology and Mineralisation
The Mine is hosted within basaltic rocks of the Tavua Volcano, except for the R1
area which is hosted in the younger Turtle Pool Formation. Mineralisation is
hosted within quartz carbonate veins and are typically seen as flatmakes, steep
shears and shatter zones. Flatmakes are shallow to moderate dipping mineralised
fractures, steep shears have a dip of greater than 45 degrees and shatter zones
are zones of intersection between one or more flatmakes with two or more major
faults or faulted dykes. The main ore bodies are the Prince/Dolphin flatmake,
Matanagata flatmake, 2000N flatmake and 166N flatmake. In addition to flatmake
mineralisation there is the R1 area and Steep Structures that relate to the
flatmakes.
Exploration
As part of the planned restart, substantial near-mine and development
exploration has been planned. This will initially focus on mineralisation along
strike and down dip of existing ore bodies; once this has been completed
exploration will begin on the Basala target. This target is 200 square metres
with an elevated soil gold grade of 0.25 ppm.
There is also exploration potential at two localities around the caldera, the
Nasomo magnetic target and the Waikatakata area.
The Competent Person believes significant further upside with regard to
potential additional resources exists.
Associated Assets
At the Mine site there is a seven hundred thousand tonne per annum processing
facility, which includes crushing, grinding, flotation, roaster, and CIP and
tailings dams. Equipment at the Mine also includes several Toro load-haul-dump
vehicles, jumbo rigs, support trucks and other associated equipment.
Infrastructure at the Mine also includes a 20.5 Mega-watt power station and
freehold land.
Leases and other rights
The Mine operates within three mining leases which cover a total area of
1,254.91 hectares with the associated Special Site Rights (which respectively
confer certain access rights, rights to draw water and the right to maintain
tailings) and Special Prospecting Licences (which give rights to explore areas
outside of the mining leases). A summary of these leases, the Special Site
Rights and the Special Prospecting Licences is set out at paragraph 8.2 of Part
V of this document. The Special Site Rights and Special Prospecting Licences
have expired (see Risk Factors in Part II of this document) and are at present
under application for renewal and in the meantime the Mine continues to utilise
the rights conferred.
Operating history of the Vatukoula Gold Mine
The Mine commenced production in 1933 and has produced some seven million ounces
of gold and over two million ounces of silver from the treatment of around
22,500,000 tonnes of ore.
The table below shows historic production from the Mine for the period 1996 to
2006, as extracted from the Competent Person's Report in Part IV of this
document:
Year Ore Tonnes Recovered Recovered Ounces
Milled Grade (g/t) (oz)
1996 594,919 6.44 123,197
1997 675,612 5.61 121,780
1998 586,499 5.74 108,306
1999 509,242 7.62 124,811
2000 568,903 7.82 143,039
2001 520,575 6.79 113,589
2002 547,702 7.45 131,175
2003 529,611 6.73 114,642
2004 574,137 6.83 126,017
2005 525,221 6.16 104,033
*2006 343,612 5.76 63,583
Source: Competent Person's Report March 2008
* Production from all sections of the Mine was shutdown in April 2006, following
which Philip Shaft production was gradually re-started in June 2006. As a result
of the shutdown, tonnes treated and grade were both lower for the 12 months
ending 30 June 2006
The aggregated operating losses of the subsidiaries of Westech that are involved
in the ownership and operation of the Vatukoula Gold Mine, for each of the three
years ended 30 June 2007, have been extracted from the Accountants' Report in
Part III(D) of this document and are set out below:
2005 2006 2007
AUS$'000 AUS$'000 AUS$'000
Revenue 65,805 38,039 21,408
Cost of sales (58,115) (53,561) (33,093)
Gross profit/(loss) 7,690 (15,522) (11,685)
Other operating income 1,021 - -
Administrative expenses (15,342) (14,613) (10,526)
Other operating expenses (24,213) (5,014) (46,904)
Operating loss (30,844) (35,149) (69,115)
The Directors believe that the operating losses of the last three years can be
attributed to a combination of a lower prevailing gold prices compared to the
current gold price and high operating and administrative costs. Moreover after
June 2005, the management of the Mine decreased production without a
proportionate decrease in operating and administrative expenses. Therefore, the
losses grew substantially between 2005 and 2007.
The Mine was placed on care and maintenance by its previous owners, Emperor
Mines, in December 2006 following (it is understood), a review of its operating
climate and on 6 January 2007 members of the military forces of Fiji entered
parts of the Vatukoula Gold Mine. After discussions between Emperor Mines and
the Fijian Government, the government imposed a number of conditions to Emperor
Mines continuing its operations. These conditions were regarded as untenable by
Emperor Mines and therefore on 28 March 2007 it sold all of its Fijian assets,
including the Vatukoula Gold Mine, to Westech.
10 August Deed
Following the sale to Westech, Westech pursued further discussions with the
Fijian Government as a result of which a deed was signed by both Westech and the
Fijian Government on 10 August 2007 which provides, amongst other things,
certain tax concessions with respect to the operations of the Mine; in
particular:
(i) a reduction from 6% to 3% in tax and royalties on ore extracted for a
period of five years;
(ii) a two year exemption on import duties on automotive diesel and
industrial diesel oil for use at the Mine;
(iii) a five year exemption from export tax;
(iv) an exemption from fiscal duty on the import of plant equipment
machinery and motor vehicles required to operate the mine for a period
of three years; and
(v) eligibility to seek exemption from payment of without holding tax on
overseas payments of interest, consultants fees and dividends.
In addition, the 10 August Deed confirmed that the mining leases, Special Site
Rights and Special Prospecting Licences remained valid notwithstanding any
previous breaches of the Fijian Mining Act.
Under the terms of the 10 August Deed, Westech agreed to contribute funds to a
rehabilitation trust fund aimed at the remediation of the environmental and
social aspects of the local community around the Vatukoula Gold Mine. These
contributions comprise the initial contribution of �460,000 and four further
annual contributions of approximately �350,000 each. The initial contribution is
currently being held in escrow awaiting the formal establishment of the
Rehabilitation Trust Fund.
Re-commissioning plan
Since its acquisition by Westech, efforts have been focused on re-commissioning
the Mine. Key steps which have been taken include:
* Re-commissioning of operational shafts and ore and waste passes.
* Commencement of mining with ore being hauled to surface.
* Re-commissioing of the assay office and the engagement of geologists
and samplers.
* Re-commissioning of the environmental water laboratory and the
establishment of an environmental monitoring plan.
* Preparation of the processing plant for commissioning in March 2008.
The Competent Person's Report has made a number of operational recommendations
in relation to the Mine. In particular, these covered:
* Some Quality Assurance and Quality Control measures in the geological
department.
* Geotechnical matters.
* Staffing at the mineral processing plant.
* Environmental matters.
The Board is currently considering all of these recommendations and, to the
extent to which they have not already been addressed, will consider the
necessary steps for implementation, should this be deemed appropriate.
The strategy of the Enlarged Group will be to bring the Mine back to full
production by the second half of 2009. Extraction of the underground ore
reserves commenced in November 2007. The Directors expect that treatment of the
ore will commence in March 2008 with a throughput of 129,000 tonnes of
underground ore by the middle of 2008, rising to 524,000 tonnes of underground
ore in the following year, producing an expected 26,000 ounces of gold in
respect of the first period and rising to approximately 110,000 ounces in the
following year.
The mill feed ore is expected to come from the current ore reserves and
resources. Due to the continuity of the mineralised bodies, both along strike
and down dip, the Directors are confident, as confirmed in the Competent
Person's Report, that the reserve tonnes will increase once additional
exploration is commenced.
The mining operations use conventional labour intensive stoping methods together
with trackless ground handling and haulage followed by skip hoisting via the
vertical shafts. Stoping will be a mixture of Long Wall Breast, Shrinkage and
Cut and Fill.
Further information on the Vatukoula Gold Mine is set out in the Competent
Person's Report in Part IV of this document.
Litigation and Creditors
Westech has, since it acquired the Vatukoula Gold Mine, in addition to restoring
the Mine operationally, been seeking to put in order the financial affairs of
its Fijian subsidiaries and, in particular to address, two significant
outstanding issues.
1. FIRCA raised in August 2007 an assessment for approximately F$11.1
million in respect of withholding taxes on dividend and interest payments in
respect of the period 1988 to 2005 and the relating late payment penalties.
These claims are not accepted by Westech and are the subject of a legal appeal
which in the Directors' opinion, have taken legal advice, is unlikely to be
determined before the end of the year.
In the meantime in an agreement signed, after Westech had taken legal
advice, on 21 February 2008 between FIRCA and Westech, without prejudice to the
position of either Westech or FIRCA in relation to the substantive issues of the
claims, FIRCA has agreed to take no further steps in respect of their claims and
Westech has in return agreed to make certain without prejudice payments out of
revenue, on account of the tax and penalties. If and to the extent that
Westech's appeal succeeds it will able to claim the return of the commensurate
amount paid under this agreement.
2. There are approximately 230 unsecured creditors of Westech who are owed
approximately F$8.8m in trade debts pre-dating the December 2006 Mine closure.
These debts are in large part undisputed. In addition, Westech has provided for
a further amount of approximately F$3.2m in respect of contingent liabilities
for payments for redundancies made prior to the acquisition of the Mine (the
final amount of which is the subject of appeal proceedings in the Fijian
courts).
In respect of the amounts owing to the trade creditors, an application
to the High Court in Fiji is now being prepared to establish a scheme of
arrangement for the repayment of trade creditors over a court-sanctioned period
of time.
Panguma Diamond Project, Sierra Leone
In June 2005, the Company entered into a joint venture agreement with Olympus
Development Company Ltd which allowed it to acquire a participating interest of
up to 51% of the Panguma Diamond Project in Sierra Leone. Between December 2005
and December 2006 the Company explored the deposit under the joint venture
agreement. In December 2006 the Company acquired full ownership of the Panguma
Diamond Project by the purchase of Panguma Diamond Limited.
The Panguma exploration licence expired on 1 March 2008. The licence can be
renewed for a further term of one year at the discretion of the Minister of
Mineral Resources. The Company has applied for a renewal for a further term of
one year.
The following information on the Panguma Diamond Project has been extracted from
the Competent Person's Report which can be found in full in Part IV of this
document.
The Panguma area is about 230 km from Freetown and covers approximately 5,400
hectares in eastern Sierra Leone. In recent years Sierra Leone appears to have
stabilised politically, in the view of the Directors. In the view of the
Competent Person, new bedrock diamond discoveries, as well as the high value of
Sierra Leone diamonds combine to make the country a prime target for diamond
exploration.
Prior to the work undertaken by River Diamonds, the Panguma kimberlites, part of
the Tongo dyke system, had never been commercially explored. An alluvial diamond
rush took place from 1956 that made Panguma one of the main diamond centres in
Sierra Leone.
River Diamonds initiated a detailed exploration programme on the Panguma
concession in 2006. Field work comprised initial surveying of the concession
area, geological mapping, collection of mini-bulk samples, core drilling, and
geochemical soil sampling.
Exploration by River Diamonds has demonstrated that a number of the kimberlite
dyke systems located at Panguma have a strike extent up to 4-5km and the
mini-bulk sampling programme confirms that most of the Panguma dykes are
diamondiferous, with strongly anomalous values within the widest reported
(composite) dyke at 0.8m. Some of the other dykes/fissures sampled also contain
interesting grades up to 0.77ct/t, although dykes are narrower and may splay and
pinch towards the southwest. These results bear comparison with similar work
reported by Mano River and partners from the Lion dykes at Kono and the Tongo
dyke system, although the narrow width of the dykes at Panguma can present a
challenge to economic evaluation and development. Given the narrow dyke width
the proposed collection of a bulk sample of up to 1,000 tonnes will require
shaft sinking and underground mining on one or more dykes.
Rio Novo Project, Brazil
River Diamonds has two licences which give it the right to explore for gold
within the Tapajos gold province in central Brazil, an area which has undergone
very little modern exploration. The Directors, however, believe that the high
numbers of artisanal miners working the area suggest that significant gold
mineralisation may be present. The licensed areas lie in a highly prospective
area, with other companies actively exploring the surrounding area and the
working Palito mine, owned by Serabi Mineracao, which is adjacent to the
licensed areas.
The mineralisation in the area is associated with quartz veining and
hydrothermal alteration related to the veins.
Rio Tinto undertook a systematic mineral exploration across the province in the
1980's and the Brazilian Geological Survey also carried out a regional mapping
and geophysical survey in 2000. In November 2006, River Diamonds undertook a
geological review of the area focusing on historic and current artisanal
workings of both of alluvial and vein hosted origin. The work included mapping
and grab sampling.
The Competent Person's Report expresses the opinion that the area has
significant gold potential and that River Diamonds should carry out a well
planned exploration programme across the area to identify possible targets for
further exploration.
Further information on the Rio Novo Project is set out in the Competent Person's
Report in Part IV of this document
Kao Diamond Project, Lesotho
On 26 April 2007, the Company acquired 1,212,121 ordinary shares in Global
Diamond Resources plc (representing approximately 0.46% of its issued share
capital as of December 2007) for �400,000.
GDR's principal asset is the 93% owned Kao Diamond Project in Lesotho which is a
kimberlite deposit with an indicated and measured resource of 147 million tonnes
of kimberlite at a grade of 6.9 carats per hundred tonnes. The Kao Diamond
Project was commissioned on 22 November 2007, and during the first week 30
tonnes of alluvial material was processed producing the first diamonds including
a 0.86 carat stone.
5. Strategy of the Enlarged Group
The Company's near term strategy is to bring the Vatukoula Gold Mine back to
full production and profitability, and to exploit any exploration potential at
or surrounding the Mine. Currently, there is no plan or intention to hedge the
gold production from the Mine.
The Company's initial focus will be on processing the current ore stockpiles and
extracting further ore from the upper areas of the mine.
The Directors believe that the combination of stringent cost controls and
management expertise with strong gold prices, and operations unburdened by
hedging obligations will provide an opportunity to bring the Mine back to
profitability.
The Company is currently assessing its strategy with respect to its diamond and
gold assets in Sierra Leone and Brazil respectively. Over the next 12 months the
Company will determine which course of action will deliver the greatest value to
shareholders.
The Company will also consider opportunities for acquisitions in the global
exploration and minerals sector, particularly of undervalued or under
capitalised assets.
Conditional upon Re-Admission, the Board will consider changing the corporate
name of the Company.
6. Principal Terms of the Acquisition
On 14 December 2007, the Company entered into the Acquisition Agreement,
completion of which is conditional upon the passing of the Resolution at the
General Meeting and Re-Admission, to acquire all of the share capital of VGI not
already held by it from the Vendor. It is a condition precedent of the
Acquisition Agreement that VGI will have acquired the remaining 6% of Westech.
The aggregate consideration for the Acquisition is �29,561,000 to be satisfied
by the issue of the Consideration Shares and a cash payment of AUS$2,100,000.
The terms of the Acquisition Agreement provide that 286,580,000 of the
Consideration Shares will be issued to the Vendor and that, upon the Vendor's
directions, 143,290,000 Consideration Shares will be issued to Fair Choice
Limited and 15,921,111 Consideration Shares will be issued respectively to each
of Brian Wesson, Amelia Wesson and Clyde Wesson. Under the Templar Agreement,
Templar has acquired the right to 143,290,000 of the Vendor's entitlement to
Consideration Shares.
The Consideration Shares will represent 28.3% of the Enlarged Share Capital and
the Retained Consideration Shares will represent 19.8% of the Enlarged Share
Capital.
Templar will hold 25.4% of the Enlarged Share Capital. Templar's relationship
with the Company from Re-Admission will be governed through the Relationship
Deed, details of which are set out in paragraph 7.1 (m) of Part V of this
document.
Subject to completion of the Acquisition, the Company will own 100% of VGI and
will indirectly, through Westech and its subsidiaries, own 100% of the Vatukoula
Gold Mine.
7. Details of the Placing
Conditional upon the completion of the Acquisition and Re-Admission, the Company
has raised �4,669,000 (gross) through the placing of 77,816,666 Placed Shares.
The Placed Shares will represent approximately 4.6% of the Enlarged Share
Capital. A summary of the Placing Agreement is contained in paragraph 7.1 (k) of
Part V of this document.
8. Information on the Vendor and the Vendor's Associates
The Vendor and Vendor's Associates will at Re-Admission hold the Retained
Consideration Shares.
The Vendor is a company incorporated in the British Virgin Islands which is
indirectly owned by Red Lion. Red Lion is a private holding company, based in
Vancouver, Canada and headed by Walter H. Berukoff.
For the last 30 years, Mr Berukoff has been a mining entrepreneur and taken an
active role in developing and restructuring business enterprises throughout the
Americas, Europe, Africa and Asia. Mr Berukoff is the founder of several mining
companies, including American Eagle, Miramar Mining Corporation, Northern Orion
Resources, La Mancha Resources and X-Tal Resources.
Fair Choice Limited, which is incorporated in Hong Kong, is an investment
vehicle of Michael Silver who has a background in mining and was formerly
managing director of Dome Resources NL.
Mr Brian Wesson is the founder of Westech which purchased the Vatukoula Gold
Mine from Emperor Mines in March 2007. Brian has over 23 years' experience as a
senior executive in several mining companies, and prior to founding Westech, he
held an executive position with Emperor Mines. Mr Wesson has also been employed
by Durban Roodepoort Deep Limited (South Africa), East Rand Proprietary Mines
Limited, and Harmony Gold Mine Virginia.
Amelia Wesson and Clyde Wesson are respectively Mr Wesson's wife and son.
The Retained Consideration Shares will be held as follows:
Name Retained
Consideration Shares
The Vendor 143,290,000
Fair Choice Limited 143,290,000
Brian Wesson 15,921,111
Amelia Wesson 15,921,111
Clyde Wesson 15,921,111
Total 334,343,333
9. Use of Proceeds
The net proceeds of the Placing are expected to amount to approximately �4m and
will be used to fund the cash consideration for the Acquisition, for further
re-commissioning costs, and other working capital and operational costs of the
Mine.
10. Current Trading and Prospects
If the Acquisition is completed, the Company's principal activity will be the
operations at the Vatukoula Gold Mine. In November 2007, the first gold was
poured since the Mine was placed on care and maintenance in December 2006. River
Diamonds made a loan of �1.45m to VGI between December 2007 and January 2008 for
working capital requirements of the Mine. Ore extraction commenced in December
2007 and has been continuing.
The Board expects that the results of operations of the Company will be
principally affected by the volumes of gold which can be extracted from the Mine
and subsequently sold, the ability to control costs at the Mine, the prevailing
gold price and by general market, political and macroeconomic conditions.
Shareholders should be aware that if the Acquisition is not approved or is
otherwise not completed the Board anticipates that, in the absence of the funds
arising from the Placing or from the Working Capital Facility (both of which are
conditional on completion of the Acquisition) and in view of the irrecoverable
costs associated with the Acquisition and Re-Admission, in the near term there
would be severe constraints placed on the Company's activities until it is able
to effect a further capital raising.
11. Existing Directors and Proposed Directors
Shortly before the publication of this document and in anticipation of the
changed composition of the Board following completion of the Acquisition,
Anthony Balme and Nicholas Shaw-Hardie resigned as Directors. In addition, David
Lenigas has agreed to provide his services in an executive capacity, and
accordingly will cease to be treated as a non-executive director. Donald Strang
was appointed as a non-executive director on 12 March 2008. It is intended that
John Stalker and Neil Herbert will be appointed as directors of the Company with
effect from Re-Admission. Brief biographies of the Directors are set out below:
(i) Existing Directors
Ian Colin Orr-Ewing, Executive Chairman, age 66
Mr Orr-Ewing is a graduate of Oxford University in Geography and has been
involved in the natural resources sector for 35 years. He began his career as an
investment manager for the Shell Pension Fund in London after completing his
education as a Certified Accountant. His experience covers both the oil and
mining industries and he has been a director of UK and Canadian oil companies
and Irish and Canadian mining companies. Currently, Mr Orr-Ewing also advises a
fund management company on its natural resources portfolios. Mr. Orr-Ewing also
has extensive experience in international financial affairs. He was deeply
involved in the oil industry from 1971 through to 1987 with numerous companies
in the North Sea, Libya, Nigeria and Algeria.
Kiran Caldas Morzaria, Finance Director, age 34
Mr Morzaria holds a Bachelor of Engineering (Industrial Geology) from the
Camborne School of Mines and an MBA (Finance) from CASS Business School. He has
eight years of experience in the mineral resource industry covering gold and
diamonds. Mr Morzaria spent his first four years in exploration, mining and
civil engineering working for Highland Gold, Firestone Diamonds and CL
associates. He was appointed Finance Director of River Diamonds plc in 2004 and
since then has been overseeing the development of its mining and exploration
projects in Sierra Leone and Brazil and the expansion of the Company's interests
into gold mining. In this role, Mr Morzaria has been involved in acquisitions,
joint ventures, valuations, independent experts' reports, due diligence and
capital raisings. Mr Morzaria is currently a non-executive director of Immersion
Technologies International plc, Hot Tuna (International) plc and Brinkley Mining
plc.
David Anthony Lenigas, Executive Director, age 46
Mr. Lenigas holds a Bachelor of Applied Science Degree in Mining Engineering.
Currently the executive chairman of Lonrho plc, he has extensive experience
operating in the public company environment. Mr. Lenigas is also executive
chairman of Leni Gas & Oil plc, Lonrho Mining plc and Lonzim plc and director of
Global Coal Management PLC and Templar Minerals Limited.
Mr Lenigas was the Managing Director between 1989 and 1991 of the joint venture
company between Western Mining and Emperor Mines which ran the Vatukoula Gold
Mine.
Donald Ian George Layman Strang, Non-executive Director, age 40
Mr Strang is a qualified chartered accountant with 20 years' experience in the
financial and resources sectors. He has experience operating in the AIM
environment. He is currently finance director for Brinkley Mining plc and also
for Leni Gas and Oil plc. He is also a non-executive director of Lonrho plc.
Mr Strang was previously the chief financial officer and company secretary for
Global Coal Management plc (formerly Asia Energy plc) and BDI Mining Corp. He
has previously held senior financial positions with Ernst & Young and several
publicly listed Australian gold mining companies (Macraes Mining Company Limited
and Perilya Mining Limited) and has also worked with Deutsche Bank and Credit
Suisse Group in the investment banking sector.
(ii) Proposed Directors
John Ian Stalker, Proposed Non-executive Director, age 55,
Mr Stalker was the Chief Executive Officer of UraMin Inc, a London and Toronto
listed Uranium exploration and development company until late 2007 when the
company was acquired by Areva.
Prior to joining UraMin, Mr Stalker was at Gold Fields Ltd., the world's fourth
largest gold producer. At Gold Fields, he managed the company's PGE project in
Finland starting in 2001 and eventually became a vice president and responsible
for all of the company's projects in Australia and Europe in 2004.
Prior to Gold Fields, he worked at Lycopodium, an engineering, mining, and
metallurgical consultancy company. Mr Stalker has also been employed by Ashanti
Goldfields Company Limited, Caledonia Mining Corporation, AGC Ltd. and Zambia
Consolidated Copper Mines Ltd. He holds a BSc. in chemical engineering.
Mr Stalker is a non-executive director of Templar Minerals Limited, a
substantial shareholder of the Company.
Neil Lindsey Herbert Non-executive Director, age 41
Mr Herbert was the former Finance Director of UraMin Inc , a London and Toronto
listed Uranium exploration and development company until late 2007 when the
company was acquired by Areva. Mr. Herbert was previously Finance Director of
Galahad Gold PLC, International Molybdenum PLC, Kalahari Diamond Resources PLC
and HPD Exploration PLC. He was also Chief Financial Officer of Argentinian gold
explorer Brancote Holdings PLC until its acquisition by Meridian Gold Inc and
was Group Financial Controller of Antofagasta PLC when the Los Pelambres and El
Tesoro copper mines were brought to production. Before joining the mining sector
he worked for PricewaterhouseCoopers and he is a fellow of the Association of
Chartered Accountants.
Mr Herbert is a non-executive director of Templar Minerals Limited, a
substantial shareholder of the Company.
(iii) Senior Management
Brian Stanley Wesson, Technical Manager, age 49
Mr Wesson was a founder of Westech International Engineering ("WIE") which owned
the Vatukoula Gold Mine. Mr Wesson was the Executive Manager of WIE and adviser
to their board in Fiji.
Prior to WIE, Mr Wesson held an executive position with Emperor Mines dealing
with corporate strategic projects and was a director of South Pacific
Infrastructure Pty Limited. Mr Wesson has also been employed by Durban
Roodepoort Deep Limited (South Africa), East Rand Proprietary Mines Limited, and
Harmony Gold Mine Virginia.
12. Corporate Governance
The Directors intend that the Company will continue to comply with the main
provisions of the Combined Code in so far as they are practicable for a company
of its size. It is proposed that each of the Proposed Directors will be
appointed to the Board conditional on Re-Admission. Upon Re-Admission, the
Company will therefore have three non-executive directors with relevant
experience to complement the executive directors and to provide an independent
view to the Board.
The Directors have established an audit committee, a remuneration committee and
a nomination committee with formally delegated duties and responsibilities.
However, with effect from Re-Admission, the audit committee will comprise Donald
Strang and Neil Herbert with Donald Strang as Chairman. It will continue to be
responsible for ensuring that appropriate financial reporting procedures are
properly maintained and reported on and for meeting with the Group's auditors
and reviewing their reports on the accounts and the Group's internal controls.
With effect from Re-Admission, the remuneration committee will comprise Neil
Herbert and Donald Strang with Neil Herbert as Chairman. It will continue to be
responsible for reviewing the performance of the executive Directors, setting
their remuneration, determining the payment of bonuses to the executive
Directors, and consider the Enlarged Group's bonus and options schemes.
The nomination committee will, with effect from Re-Admission, comprise Colin
Orr-Ewing, David Lenigas and the non-executive Directors and will be chaired by
David Lenigas. The nomination committee will meet at least once a year and at
such other times as the chairman of the committee requires and has the
responsibility for managing the process of making Board appointments and
recommendations to the Board to provide a formal, transparent and rigorous
appointments procedure
The Combined Code provides that smaller companies should have at least two
independent non-executive directors. However, John Stalker and Neil Herbert are
also directors of Templar Minerals Limited which is a substantial shareholder of
the Company and furthermore, John Stalker will also be performing some executive
functions. Accordingly only Donald Strang fully satisfies the independence
criteria set out in the Combined Code. In the near term, the Board believes that
Neil Herbert notwithstanding his other directorships will be able to exercise
independent judgement aligned with the interests of Shareholders generally.
However, in longer term the Board recognises that it is unsatisfactory to not
comply more strictly with the provisions of the Combined Code in this respect
and the Company will be seeking at an early opportunity to ensure that it
appoints another director who is clearly independent within the meaning of the
Combined Code.
The Company has adopted and will continue to operate a share dealing code for
Directors and employees in compliance with the AIM Rules for Companies.
13. Lock-ins and Orderly Market Arrangements
Each of the Directors, Brian Wesson, Amelia Wesson, and Templar have agreed with
the Company, WH Ireland and Hichens Harrison that (save in certain limited
circumstances) they will not for a period of 12 months from Re-Admission sell or
otherwise dispose of any of their respective interests in Ordinary Shares and
for a further 12 months only to dispose of such shares with Hichens Harrison's
consent and on an orderly market basis.
In addition, each of the Vendor, Fair Choice Limited and Clyde Wesson have
agreed with the Company, WH Ireland and Hichens Harrison that for the period of
12 months from Re-Admission they will only dispose of their respective interests
in Ordinary Shares with Hichens Harrison's consent and on an orderly market
basis.
14. Dividend Policy
The Directors do not envisage declaring a dividend in the short to medium term.
However, if or when sufficient distributable reserves are available the
Directors intend to pursue a progressive dividend policy.
15. Employees
The table below highlights the geographic distribution and the average number of
employees of the Enlarged Group over the last three years (as if the Enlarged
Group was in existence over that period):
Year 2005 2006 2007
Location
London 6 6 6
Fiji* 1983 1837 124
Brazil 27 10 10
Sierra Leone 0 6 3
* as employed at the Vatukoula Gold Mine which is not currently wholly owned by
the Company. As at 24 January 2008 the Fiji employees numbered 533.
16. Warrants
Under the terms of the Placing Agreement, the Company has agreed conditional
upon Re-Admission to issue warrants over 1.5% of the Enlarged Share Capital to
WH Ireland. The warrants are exercisable at the Placing Price pursuant to and on
the terms of the WH Ireland Warrant Instrument.
The Company has also agreed conditional upon Re-Admission to issue warrants over
1% of the Enlarged Share Capital to Hichens Harrison. The warrants are
exercisable at the Placing Price pursuant to and on the terms of the Hichens
Harrison Warrant Instrument.
17. Enlarged Share Capital
Application will be made for the Enlarged Share Capital to be admitted to
trading on AIM. It is expected that trading in the Enlarged Share Capital will
commence on 1 April 2008.
18. CREST
CREST is a paperless settlement procedure enabling securities to be evidenced
otherwise than by a certificate and transferred otherwise than by written
instrument. The Existing Ordinary Shares are currently enabled for settlement
through CREST. Accordingly, settlement of transactions in the Ordinary Shares
following Re-Admission may take place within the CREST system if relevant
Shareholders so wish. CREST is a voluntary system and holders of Ordinary Shares
who wish to receive and retain share certificates will be able to do so.
19. General Meeting
You will find set out at the end of this document a notice convening the General
Meeting of the Company to be held at 10.00 a.m. on 31 March 2008 at Carmelite,
50 Victoria Embankment, Blackfriars, London EC4Y 0LS to consider the Resolution.
20. Action to be Taken
A Form of Proxy is enclosed for use at the General Meeting. Whether or not you
intend to attend the General Meeting, you are requested to complete, sign and
return the Form of Proxy to the Company's registrars, Capita IRG Plc, Proxies
Department, PO Box 25, Beckenham, Kent BR3 4BR by no later than 10 a.m. on 29
March 2008. The completion and return of a Form of Proxy will not preclude you
from attending the General Meeting and voting in person should you subsequently
wish to do so.
21. Taxation
A summary of the taxation treatment for UK taxpayers of the Ordinary Shares is
set out in paragraph 13 of Part V of this document.
22. Further information
Your attention is drawn to Parts II to V of this document, which provide
additional information on the Existing Group and the Enlarged Group.
23. Recommendation
The Existing Directors consider the Acquisition to be fair and reasonable and in
the best interests of the Company and the Shareholders as a whole.
The proceeds of River Diamonds' original subscription for shares in VGI, which
amounted to �4,250,000, were applied to support the Vatukoula Gold Mine and the
efforts to restore it to production. Since the Acquisition Agreement was entered
into the Company has provided further loans to Westech in the amount of
�1,450,000 which would become repayable upon demand if the Acquisition does not
proceed but which VGI would be unlikely to be in a position to repay within an
acceptable time frame.
Consequently, if the Acquisition does not proceed and accordingly the funds from
the Placing and under the Working Capital Facility do not become available to
the Company, the Company will need as a matter of urgency to seek urgent funding
to enable it to continue with its present activities.
Accordingly, the Existing Directors unanimously recommend Shareholders to vote
in favour of the Resolution as they intend to do themselves in respect of their
own beneficial holdings of Ordinary Shares.
Yours faithfully,
Colin Orr-Ewing
Chairman
This information is provided by RNS
The company news service from the London Stock Exchange
END
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