SPECIAL CORRESPONDENT in LONDON UNDER the heads of agreement of April 26 between Weatherly International and Ongopolo Mining and Processing (OMP), Weatherly's equity interest in the Tsumeb mine could ultimately rise to a maximum of 70 per cent, according to details of the transaction published by the company in London yesterday.
Ongopolo announced on Wednesday that it had signed a deal with the London-listed company.
Weatherly has committed to paying £17 million (about N$183 million) in cash for its Ongopolo stake, and in addition has signed an interim management agreement, under which it will take over operational management during a restructuring period leading to a completion of the transaction.
The cash investment is to comprise * US$20 million as a subscription for new shares in Ongopolo to establish a controlling 50 per cent interest in the company's enlarged capital base; * US$8,2 million to secured creditors (mainly local financial institutions) to buy Ongopolo debt securities at below par value and to purchase an additional six per cent interest; * US$1,8 million to one of the secured lenders to retain a property package which includes five farms containing surface rights for the Tscheudi mining project.
The agreement requires the secured lenders to convert their outstanding debt to shares in Ongopolo with the option to convert these instead to Weatherly shares at a value of 20p (US$0,36 or about N$2,15) each.
In consequence, and depending on whether the secured lenders opt to hold Ongopolo or Weatherly shares, the latter's equity interest "could increase over time to 70 per cent", the company said.
Discussions have also been held with Ongopolo's trade creditors concerning an outstanding amount of some US$17 million, with creditors representing 85 per cent of this amount having agreed to a debt rescheduling over a five-year period.
In addition, Weatherly has agreed as part of its US$20 million equity subscription, to advance up to N$40 million (US$6,6 million) of interim funding for OMP's ongoing operations, of which N$30 million has been guaranteed by the Namibian Government in the event of failure to close the transaction by June 30, and N$10 million has been secured by a first mortgage over certain exploration assets.
To finance the transaction, Weatherly intends to raise £18 million (US$30 million) through a placement on the Alternative Investment Market (AIM), the venture capital junior board of the London Stock Exchange (LSE) in two phases.
The first will be through the listing of new shares issued under a private placement for £9,1 million at 10,5p per share for which unconditional commitments have already been received, including a subscription for 450 000 new shares by the company's chairman, German national Dr Wolf Martinick.
The admission of these shares on AIM is expected to take place on May 4, but trading will not resume until after a second placement for £8,9 million, due in about six to weeks' time.
REVERSE TAKEOVER Under AIM rules, the acquisition by Weatherly of its stake in Ongopolo is deemed a reverse takeover (RTO), because the Namibian company is the larger entity.
Weatherly's shares were in consequence suspended from trading on April 26 and dealings will only resume once the transaction has been completed, a condition for which is that consent must be given by the shareholders of Weatherly in an extraordinary general meeting (EGM) of the company.
At the time of suspension, Weatherly's shares were trading at 11,75p (US$0,21) on AIM, giving the company a market capitalisation of £17 million (US$30 million).
In addition to due diligence of Ongopolo, Weatherly is to commission a 'Competent Person's Report' on Ongopolo's operating and exploration assets, to be carried out by the UK's RSG Capital.
The £8,9 million balance of the placing by Weatherly will take place when this technical and financial report has been completed.
WTI anticipates effective control of OMP will provide synergies with its copper interests in Zambia, where it holds exploration and development rights to the decommissioned Luanshya copper mine and its copper-rich tailings, which the company estimates could produce up to 60 000 tonnes/year using modern mining and processing techniques.
Commenting on the agreement with OMP, WTI's chief executive Rod Webster said it provided a "unique opportunity" for the company and the Namibian Government to oversee the "the rejuvenation and future development of Ongopolo's considerable assets".
He added that a regional strategy was envisaged, under which the Ongopolo smelter at Tsumeb could be expanded to process concentrates from both Luanshya and other mines in Zambia and the DRC.
Based on an independent technical report of 2004, Weatherly estimates that Ongopolo has sufficient known reserves for the next five years, plus sufficient resources from its existing exploration interests to expand the reserve base by a further five years.
It lists three new mining projects being developed by Ongopolo, which the funding by Weatherly will enable to proceed.
These include the recently-completed 800 metre deep shaft at Asis Far West, where lateral extension to the main ore body is underway, and which is intended to replace the ageing Kombat mine.
The other projects comprise a small satellite underground operation at the existing Tsumeb West mine (1 million tonnes at an average grade of two per cent copper), and a larger project to establish an open pit mining operating at nearby Tscheudi (15 million tonnes grading 0,93% copper).
Ongopolo's current overall resource base, to be confirmed by due diligence, is estimated at some 30 million tonnes at an average grade of 1,5 per cent copper, equivalent to 476 000 t of contained copper.
OMP also owns a portfolio of advanced exploration assets, comprising primarily, copper, lead/zinc and precious metal deposits.
EZE Price at posting:
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