Acquisition and Capital Reorg
Ovoca Gold plc
Proposed Acquisition of Magsel, Bulun and Olymp
Capital Reorganisation
Ovoca Gold plc is pleased to announce that it has entered into a conditional acquisition agreement to acquire a 100 per cent. interest in a portfolio of gold exploration projects in the Magadan region of the Russian Federation
Highlights
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The Target Companies, Magsel, Bulun and Olymp, are the owners of the Stakhanovsky Licence, the Rassoshinskaya Licence and the Nevsko-Pestrinskoye Licence respectively.
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Attractive exploration portfolio which the Directors believe will position Ovoca as a significant junior gold explorer in Russia.
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Initial consideration of approximately US$7 million and deferred consideration of up to a maximum of US$18 million, payment of which is contingent upon the achievement of certain exploration and licence targets. In addition, Ovoca will assume approximately US$7.5 million of debt of the Target Companies.
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Ovoca's existing cash and investments of US$58 million will finance the Proposed Acquisition and exploration programmes on each of the licences.
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Proposed 5 for 1 Capital Reorganisation to create a more appropriate capital structure and share price for the Company
In accordance with AIM Rule 13 and IEX Rule 13, the Proposed Acquisition is deemed to be a related party transaction as the Target Companies are wholly owned by Mikhail Mogutov, Leonid Skoptsov and Yuri Radchenko who are directors of Ovoca and together with their related parties, as defined by the AIM Rules and the IEX Rules, collectively own 44.7 per cent. of the Issued Share Capital. Although under the AIM Rules and the IEX Rules Independent Shareholder approval is not required for the Proposed Acquisition, having consulted with the Company's Nominated Adviser and IEX adviser, Davy, the Board of Ovoca has decided to make the Proposed Acquisition conditional on the approval of Independent Shareholders. The Independent Directors, being Tim McCutcheon and Rowan Maule, consider, having consulted with Davy, the Company's Nominated Adviser and IEX adviser, that the terms of the Proposed Acquisition are fair and reasonable insofar as the Independent Shareholders are concerned.
The Board believes that the Capital Reorganisation will create a more appropriate capital structure and share price for the Company and are therefore proposing to consolidate every 5 Ordinary Shares into 1 New Ordinary Share.
An extraordinary general meeting has been convened to be held at Buswells hotel, 23-25 Molesworth Street, Dublin 2, Ireland at 10.00 a.m. on 15 January 2010 to deal with the Proposed Acquisition and the Capital Reorganisation.
A circular, which will contain further information on the Proposed Acquisition and the Capital Reorganisation, will shortly be to shareholders and once posted will be available on the Company's website www.ovocagold.com.
Timothy McCutcheon, CEO of Ovoca said:
"I am very excited about this transaction and the opportunity it presents for Ovoca's shareholders. The disposal of our 100% owned Goltsovoye project in Magadan earlier this year for an 80% premium to our market capitalisation demonstrated Ovoca's ability to acquire, add value and then exit properties in the precious metals sector. By acquiring a new portfolio of assets in Magadan, management intends to repeat the success of the Goltsovoye deal in an area where we have established business relationships and operational know-how. The circular being sent to shareholders provides a full overview of the properties we intend to acquire, and I believe the information reveals the attractiveness of these assets. Our goal as a company is to be the premier gold exploration company in Russia and the ideal partner for strategic investors wishing to enter the Russian gold mining space. This transaction puts us firmly in that place."
For further information please contact:
Timothy McCutcheon - Ovoca Gold plc
Tel: +79 852 108 928
John Frain / JJ Cahill - Davy
Tel: +353 (1) 679 6363
In this announcement terms not otherwise defined shall have the same meaning as in the Circular to be posted to Shareholders.
This announcement contains forward-looking statements. These statements relate to the Company's future prospects, developments and business strategies. Forward-looking statements are identified by their use of terms and phrases such as 'believe', 'could', 'envisage', 'potential', 'estimate', 'expect', 'may', 'will' or the negative of those, variations or comparable expressions, including references to assumptions. The forward-looking statements in this announcement are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. These forward-looking statements speak only as at the date of this announcement.
The Independent Directors accept responsibility for their recommendation of the Proposed Acquisition and associated opinions contained in this announcement. To the best of the knowledge and belief of the Independent Directors, who have taken all reasonable care to ensure that such is the case, the information contained in this announcement for which they accept responsibility is in accordance with the facts and does not omit anything likely to affect the import of such information.
The Directors of Ovoca accept responsibility for the information contained in this announcement, other than the information that the Independent Directors accept responsibility for. To the best of the knowledge and belief of the Directors, who have taken all reasonable care to ensure that such is the case, the information contained in this announcement, other than the information that the Independent Directors accept responsibility for, is in accordance with the facts and does not omit anything which is likely to affect the import of such information.
Davy, which is regulated in Ireland by the Financial Regulator, is acting exclusively for Ovoca and no-one else in connection with the matters described in this document. Davy will not regard any other person (whether or not a recipient of this document) as its customer or be responsible to any other person for providing the protections to customers of Davy nor for providing advice in relation to the transactions and arrangements described in this document. Davy is not making any representation or warranty, express or implied, as to the contents of this document. Davy has not approved the contents of, or any part of, this document and no liability whatsoever is accepted by Davy for the accuracy of any information or opinions contained in this document or for the omission of any information.
Any response in relation to the Proposed Acquisition or Capital Reorganisation should be made only on the basis of the information contained in the Circular or any document by which the Proposed Acquisition or Capital Reorganisation are made. Shareholders are advised to read carefully the Circular once it has been despatched.
1. INTRODUCTION
Ovoca announces that it had entered into a conditional acquisition agreement to acquire a 100 per cent. interest in a portfolio of gold exploration projects in the Magadan region of the Russian Federation. The Target Companies, Magsel, Bulun and Olymp, are the owners of the Stakhanovsky Licence, the Rassoshinskaya Licence and the Nevsko-Pestrinskoye Licence respectively, further details of which are set out in sections 4 and 5.
The consideration payable by Ovoca for the Target Companies comprises an initial consideration of US$4 million and RUB 89 million (approximately US$3 million) and deferred consideration of up to a maximum of US$18 million, payment of which is contingent upon the achievement of certain exploration and licence targets. In addition, Ovoca will assume RUB 223 million (approximately US$7.5 million) of net debt of the Target Companies.
In accordance with AIM Rule 13 and IEX Rule 13, the Proposed Acquisition is deemed to be a related party transaction as the Target Companies are owned by Mikhail Mogutov, Leonid Skoptsov and Yuri Radchenko who are directors of Ovoca and together with their related parties, as defined by the AIM Rules and the IEX Rules, collectively own 44.7 per cent. of the Issued Share Capital. Although under the AIM Rules and the IEX Rules Independent Shareholder approval is not required for the Proposed Acquisition, having consulted with the Company's Nominated Adviser and IEX adviser, Davy, the Board of Ovoca has decided to make the Proposed Acquisition conditional on the approval of Independent Shareholders.
In addition, Ovoca is proposing a Capital Reorganisation to create a more appropriate capital structure and share price for the Company. Further information in relation to the Capital Reorganisation is set out in section 9.
A circular, which will contain further information on the Proposed Acquisition and the Capital Reorganisation, will shortly be to shareholders and once posted will be available on the Company's website www.ovocagold.com. The purpose of this Circular is to provide you with information about the background to and the reasons for the Proposed Acquisition, to explain why the Independent Directors consider the Proposed Acquisition to be in the best interests of the Company and its Independent Shareholders and why the Independent Directors recommend that you vote in favour of the Related Party Resolution. In addition, the Circular provides you with information about the Capital Reorganisation and why the Directors recommend that you vote in favour of the Capital Reorganisation Resolutions.
The Resolutions are to be proposed at an extraordinary general meeting which has been convened to be held at Buswells hotel, 23-25 Molesworth Street, Dublin 2, Ireland at 10 a.m. on 15 January 2010.
2. BACKGROUND TO AND REASONS FOR THE ACQUISITION
In April 2006, Ovoca acquired a 74 per cent. interest in Ayax which owned a 100 per cent. interest in the Goltsovoye deposit, a silver deposit located in the district of Omsukchan in the Magadan Oblast, north east Russia for 110 million Ordinary Shares. The Goltsovoye deposit had State approved resources of 74.4 million ounces of silver at an average grade of 933 g/t under the C1 and C2 resource classification. Following the Ayax acquisition, Ovoca conducted a programme of confirmatory drilling to make the Russian resource data JORC Code compliant and prepared a bankable feasibility study, which was completed in January 2008, for the purposes of raising development finance. Ovoca acquired the remaining 26 per cent. interest in Ayax in September 2008 for 43 million Ordinary Shares.
In July 2008, Ovoca entered into a non-binding term sheet with a major Russian banking institution for a US$92.7 million project finance loan facility for the construction and commissioning of a mine at the Goltsovoye deposit. However, during the financing due diligence process, there was a deterioration in Russian and international credit and equity markets and the emergence of economic recession in many developed and emerging market economies. This resulted in a significant loss of confidence and liquidity in financing markets and a decline in both commodity prices and the share prices of junior mining companies. This severely impacted junior mining companies' ability to raise debt and equity finance on appropriate terms for the development of projects.
Following the receipt of an unsolicited proposal, Ovoca completed the disposal of Ayax to JSC Polymetal and a third party entity in January 2009. The proceeds from the disposal of Ayax were US$11.1 million in cash and 7.5 million JSC Polymetal common shares. On 18 November 2008, the date of the announcement of the disposal of Ayax, this consideration was valued at US$31.1 million. This represented a 80.3 per cent. premium to Ovoca's then market capitalisation, based on closing mid market share prices on the Business Day immediately before the announcement.
Following the disposal of Ayax, the Board has adopted a prudent policy in the management of Ovoca's cash reserves while maintaining its exposure to the gold market. Ovoca has disposed of approximately 5.5 million JSC Polymetal common shares and engaged an independent professional asset manager to invest approximately US$10 million in the equity securities of liquid gold mining companies. As at 30 November 2009, the valuation of Ovoca's cash and investments was approximately US$58.2 million, further details of which are detailed in section 7.
Since 2006 the Company has recruited a highly qualified management and technical team including geologists, engineers and metallurgists that have been retained and used in the Board's review of strategic options. Throughout 2009, the Board has been disciplined in keeping administration and corporate overheads low while continuing to review its strategic options for Ovoca and its cash resources. These options included the further development of Ovoca's existing portfolio of exploration assets in the Kola Peninsula in Russia, low execution risk and late development stage acquisitions and making cash distributions to Shareholders.
The Company's existing exploration licences, which include the Pellapahk and Oleninskoye exploration targets, are located in the Kola Peninsula, in the Murmansk Region of the Russian Federation, in prospective areas along the Kolmozero-Voronya Greenstone Belt. Following drilling in the 2007/08 season by Ovoca in Pellapahk, a large molybdenum/copper ore body was discovered. The Board is reviewing options for this asset which include attracting a strategic development partner who would fund a mining operation of sufficient economic size or to divest of the asset. The initial results of the 2008/09 season in Oleninskoye were below the expectations of Ovoca's geologists. The Board decided to carry out further tests using a new sample preparation technique on the drill cores. The results of this additional testing showed that the original results did not accurately reflect the true grade of the samples. The retesting of all samples from the 2008/09 season will not be completed until the end of Q1 2010 and the Board will wait for this analysis to be completed before deciding on further investment in Oleninskoye.
Throughout 2009, the Board reviewed numerous low execution risk and late development stage acquisition opportunities in the Russian Federation, South America, the European Union and North America. However, the Board was concerned about the logistical and managerial issues for the Company owning and running mining operations in parts of the world for which it had no experience and that such a strategy would not fully utilise the management team's skill set. In addition, the Board reviewed exploration and production opportunities in the Russian Federation in areas where the Company has expertise, and, in the Board's opinion, require modest current capital outlay and have world-class potential.
The Independent Directors believe that the Proposed Acquisition is in the best interests of the Company and Independent Shareholders. It will enable Ovoca utilise the Board and management team's skill set and connections that it has built up in the Russian Federation, particularly in the Magadan region, where it previously owned the Goltsovoye deposit. As mentioned above, Ovoca has examined numerous investment and acquisition opportunities throughout 2009, and the Independent Directors believe that the consideration being paid and the structure being used to acquire the Target Companies are similar to comparable transactions. In addition, the Independent Directors believe that the assets being acquired are very attractive assets, are suitable for Ovoca at this time, will position the Company as a junior gold explorer in Russia and will create shareholder value.
3. RELATED PARTY TRANSACTION
In accordance with AIM Rule 13 and IEX Rule 13, the Proposed Acquisition is deemed to be a related party transaction as the Target Companies are wholly owned by Mikhail Mogutov, Leonid Skoptsov and Yuri Radchenko who are directors of Ovoca and together with their related parties, as defined by the AIM Rules and the IEX Rules, collectively own 44.7 per cent. of the Issued Share Capital.
The Independent Directors consider, having consulted with Davy, the Company's Nominated Adviser and IEX adviser, that the terms of the Proposed Acquisition are fair and reasonable insofar as the Independent Shareholders are concerned.
Although Independent Shareholder approval is not required for the Proposed Acquisition under the AIM Rules and the IEX Rules, having consulted with the Company's Nominated Adviser and IEX adviser, Davy, the Board of Ovoca have decided to make the Proposed Acquisition conditional on the approval of Independent Shareholders. Mikhail Mogutov, Leonid Skoptsov and Yuri Radchenko have undertaken that they and their related parties, as defined by the AIM Rules and the IEX Rules, will not vote on the Related Party Resolution.
4. INFORMATION ON THE TARGET COMPANIES
Ovoca is acquiring a 100 per cent. interest in the Target Companies which are private, limited liability companies incorporated in the Russian Federation. The Target Companies have no substantial business activity other than being the owners of the Stakhanovsky Licence, the Rassoshinskaya Licence and the Nevsko-Pestrinskoye Licence respectively in the Magadan region of the Russian Federation.
Magsel
Magsel owns the Stakhanovsky Licence, a full gold exploitation licence in the north western part of the Magadan region that was entered into by Magsel in May 2007 and is valid until 2027. The relevant licence area is 73 square km and it is located in the Susmanskii district near to the town of Udarnik and close to infrastructure, power lines and other gold mines. As at 30 September 2009, Magsel had a zero net asset position and a net debt position of US$2.4 million. Net debt as at 30 November 2009, which Ovoca will assume as part of the Proposed Acquisition, is US$2.4 million and is due to the Vendors and to contractors who undertook exploration and other activities on the Stakhanovsky Licence since May 2007.
In the period 2004 to 2007, the Stakhanovsky Licence area was explored by Magadangeologia, a state-owned company, who carried out exploration programmes targeting primary gold mineralisation. Magadangeologia found that there were high levels of variations observed in gold distribution in the area and sufficient data was collected for the State to auction the Stakhanovsky Licence, which Magsel acquired in May 2007.
Since May 2007, Magsel has prepared a project evaluation plan which was approved by the State in November 2007 and immediately commenced exploration work. Bulk sampling was carried out in 2009 after Magsel decided that it was necessary to gain a more accurate understanding of gold grade in the area following conclusions that the sample sizes used by Magadangeologia were not adequate to accurately observe grade distribution. Testing of a 260 tonne bulk sample from two known ore zones confirmed that the average grade of the deposit is likely to be economic and that there is enough mineralisation to support an industrial-sized operation. The Directors' estimate of the most explored mineralised dykes assessed mineral potential at a volume of approximately 22.5 tonnes of gold (714,000 oz) with a grade of approximately 2 g/t for the 5.6 km of mineralised dykes. It should be noted that this mineral potential is neither JORC Code nor Russian standard compliant.
SRK visited the region and completed an independent technical review of the Stakhanovsky Licence area. They concluded that the data collected from the Stakhanovsky Licence area which indicates that this is a highly prospective area for additional gold mineralisation and requires further exploration. A report by SRK on the Stakhanovsky Licence is contained in Part II of the Circular.
Ovoca intends to complete a more detailed exploration plan in 2010 and commence exploration activity using reverse circulation drilling. Ovoca intends to drill between 10,000 and 15,000 metres in the Stakhanovsky Licence area in 2010 in drill holes averaging 100 metres in depth. In 2011 Ovoca plans to conduct reserve definition drilling within an established resource base and to complete exploration activity by September 2012. Subject to successful exploration results and the State approving Ovoca's technical report for gold production, Ovoca plans to commence a bankable feasibility study and begin construction of a mine on the Stakhanovsky Licence. The Directors believe that first gold production in Magsel will commence in 2013.
Bulun
Bulun owns the Rassoshinskaya Licence, a gold exploration licence in the north east part of the Magadan region that was entered into by Bulun in December 2008. The relevant licence area amounts to 2,460 square km and is located in the Srednekanky and Omsukchansky districts, approximately 200km from the Kubaka gold mine and 350km from the town of Simchan. Although the license area is considered remote, navigable waterways in the area, namely the Kolyma and Korkodon river systems provide an opportunity for low cost transport of freight, during warmer periods of the year.
As at 30 September 2009, Bulun had net assets of US$3 million and a net debt position of US$4.2 million. Net debt as at 30 November 2009, which Ovoca will assume as part of the Proposed Acquisition, is US$5 million and is due to the Vendors and to contractors who undertook exploration and other activities on the Rassoshinskaya Licence since December 2008.
Since December 2008, Bulun has prepared a report for the State detailing their exploration findings. As of November 2009, Bulun has performed over 16,000 metres of diamond drilling and over 195,000 cubic metres of trenching.
SRK visited the region and completed an independent technical review of the Rassoshinskaya Licence area. They concluded that the Rassoshinskaya Licence has significant potential to host a mineable deposit and that, assuming favourable results are received from outstanding test results, geological modelling and resource estimation should commence. The SRK report on the Rassoshinskaya Licence is contained at Part II of the Circular. Since the SRK site visit dated September 2009, over 11,000 of the outstanding test results have been received.
Ovoca intends to continue the exploration activities carried out by Bulun to date, concentrating on the southern section of the Rassoshinskaya Licence area ("Olcha"). The planned exploration activity for 2010 is currently being developed by Ovoca geologists. Exploration activities will be finalised in 2011 and a report on the findings will be prepared for the State. The Board believes that an exploitation licence for Olcha can be obtained in 2011 based on the current data and data obtained from the planned 2010 exploration season. In the event that an exploitation licence is not obtained in 2011, the Board believes the Rassoshinskaya Licence will be extended by the State for an additional three year period to permit Bulun to continue with exploration activities.
Olymp
Olymp owns the Nevsko-Pestrinskoye Licence, a silver exploration licence in the central part of the Magadan region that was entered into by Magsel in 2006 and transferred to Olymp in July 2009. The relevant area amounts to 1,059 square km and is located in the Omsukchansky district, close to an all weather highway and power lines and the Goltsovoye silver deposit previously owned by Ovoca. As at 30 September 2009, Olymp had a zero net asset position and a net debt position of US$0.1 million. Net debt as at 30 November 2009, which Ovoca will assume as part of the Proposed Acquisition, is US$0.1 million and is due to the Vendors.
Since 2006, Olymp has prepared a project evaluation plan which was approved by the State in June 2007. Exploration activity commenced in July 2007 and to date Olymp has dug over 37,600 cubic metres of trenches, carried out over 4,600 metres of drilling and analysed approximately 9,000 soil and rock samples.
Ovoca intends to continue with the sample testing commenced by Olymp and complete exploration activity by September 2011. The Board believes the options for the Nevsko-Pestrinskoye Licence include the eventual disposal to a major miner in the region or to joint venture with a partner to further explore the mineral potential of the licence area and obtain an exploitation licence.
5. LICENCES
Stakhanovsky Licence
The Stakhanovsky Licence was issued to Magsel in May 2007 as an exploitation licence for specific works including geological research, exploration and extraction of gold at Stakhanovsky ore field and is valid until May 2027.
The principal conditions of the Stakhanovsky Licence are:
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to prepare and have approved by the State a project evaluation plan before November 2007;
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to commence a project evaluation plan before May 2008;
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to complete a project evaluation plan and prepare a report for the State containing an evaluation of gold deposits of categories P1 and C2 before May 2010;
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to prepare and have approved by the State a more detailed exploration plan before September 2010;
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to commence exploration activity before September 2010;
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to complete exploration activity and prepare a report for the State before September 2012;
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to prepare and have approved by the State a technical report for gold production by March 2013; and
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to commence preparation and building of the mine before September 2014.
The Directors are satisfied that Magsel is in compliance with all necessary conditions of the Stakhanovsky Licence.
Rassoshinskaya Licence
The Rassoshinskaya Licence was issued to Bulun in December 2007 as a gold exploration licence. The Rassoshinskaya Licence is valid until February 2011 and can be extended as an exploration licence for up to six years on application to the State. Additionally, all or part of the licenced area can be converted to an exploitation licence by the State on presentation of findings to the State.
The principal conditions of the Rassoshinskaya Licence are:
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to prepare a geological report for the State containing the results of the exploration activities including an estimate of potential resources of gold of categories P2 and P3 by December 2008; and
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to finalise exploration activities and prepare a geological report for the State on identified gold deposits containing the results of the evaluation activities, including an estimate of potential resources of gold categories P2 and P3 and resources of category C2 by February 2011.
The Directors are satisfied that Bulun is in compliance with all necessary conditions of the Rassoshinskaya Licence.
Nevsko-Pestrinskoye Licence
The Nevsko-Pestrinskoye Licence was acquired by Magsel in 2006 as a silver exploration licence and transferred to Olymp in July 2009. The Nevsko-Pestrinskoye Licence is valid until September 2011 and can be extended as an exploration licence for up to six years on application to the State. Additionally, all or part of the licenced area can be converted to an exploitation licence by the State on presentation of findings to the State.
The principal conditions of the Nevsko-Pestrinskoye Licence are:
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to prepare and confirm a project evaluation plan not later than June 2007;
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to commence exploration activity by September 2007; and
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to complete exploration activity and prepare a report for the State by September 2011.
The Directors are satisfied that Olymp is in compliance with all necessary conditions of the Nevsko-Pestrinskoye Licence.
6. TERMS OF THE PROPOSED ACQUISITION AND RELATED ARRANGEMENTS
The total consideration payable by Ovoca for the Target Companies comprises an initial consideration of US$4 million and approximately RUB 89 million (approximately US$3 million), and deferred consideration of up to a maximum of US$18 million which is contingent upon the achievement of certain targets. In addition Ovoca will assume approximately RUB 223 million (approximately US$7.5 million) of debt of the Target Companies, approximately US$2.8 million of which is due to contractors and US$4.7 million due to the Vendors.
Magsel
Ovoca will acquire 100 per cent. of Magsel for an initial consideration of US$4 million and deferred consideration of up to a maximum of US$15 million which is contingent upon the achievement of certain exploration targets. In addition Ovoca will assume approximately US$2.4 million of debt, approximately US$1.1 million of which is due to contractors and US$1.3 million due to the Vendors. The amount of deferred consideration paid is determined by, and conditional upon, gold resources being calculated and reported at the Stakhanovsky licensed area and the commencement of gold production thereon.
Payment under (i) and (ii) above is conditional upon the gold resources as calculated and reported by independent consultants exceeding 300,000 ounces of gold. Once exceeded, full amount is payable.
Bulun
Ovoca will acquire 100 per cent. of Bulun for an initial consideration of RUB 89 million (approximately US$3 million) and deferred consideration of US$3 million. The deferred consideration will be fully payable on all or part of the Rassoshinskaya Licence area being converted from an exploration licence to an exploitation licence by the local or federal authorities. In addition Ovoca will assume approximately US$5 million of debt, approximately US$1.6 million of which is due to contractors and US$3.4 million due to the Vendors.
Olymp
Ovoca will acquire 100 per cent. of Olymp for the nominal amount of RUB 2,500 (approximately $100). In addition Ovoca will assume approximately US$0.1 million of debt which is due to the Vendors.
Further details on the nature of the Target Companies and the Licences are set out in Sections 4 and 5.
7. CASH AND INVESTMENTS
The Company's liquid assets as at 30 November 2009 are as follows:
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US$'000 |
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Cash |
27,450 |
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JSC Polymetal common shares 1 |
19,523 |
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Investments 2 |
11,208 |
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58,181 |
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|
|
1 As at 30 November 2009, Ovoca is the legal and beneficial holder of 2,007,398 JSC Polymetal common shares, which are listed on the Official List of the UK Listing Authority. The closing mid market share price of a JSC Polymetal common share on 30 November 2009 was US$9.725 per share
2 The investment manager has invested approximately US$8 million of the US$10 million received in the equity securities of liquid gold mining companies with the remainder held in cash. The Company retains full, direct title to the portfolio. The investment portfolio is valued at the closing price of the publically limited company stocks on their respective exchanges (Canadian, US and UK) as at 30 November 2009 and the cash balance is valued at cash plus accrued interest
The Company plans to finance the consideration of the Proposed Acquisition and its exploration and development activities on the Target Companies with its existing cash resources and investments.
8. RISK FACTORS AND FURTHER INFORMATION
Your attention is drawn to the risk factors set out in Part III of the Circular to be posted to Shareholders and the additional information set out in Part IV of the Circular. Shareholders should read the whole of the Circular and not rely solely on the summarised information on this letter.
9. OVERVIEW OF THE PROPOSED CAPITAL REORGANISATION
The price levels at which the Company's shares have recently traded (averaging Stg4.3p over the 3 month period from 1 September 2009 to 30 November 2009), means that small absolute movements in the share price represent large percentage movements, resulting in significant volatility. The Board believes that this volatility, in addition to the wide bid/offer spread, is to the detriment of Shareholders and can impact on the liquidity in the Ordinary Shares. In addition, the Board believes that the number of shares in issue, currently 442,294,026, is too high for a company of Ovoca's size.
The Board believes that the Capital Reorganisation will create a more appropriate capital structure and share price for the Company, and that the Capital Reorganisation is in the best interests of Shareholders generally for the following reasons:
• the Board believe that following completion of the Capital Reorganisation the New Ordinary Shares will be more attractive in potential corporate transactions where the Company wishes to issue new shares as consideration; and
• the Board also consider that the Capital Reorganisation will assist in decreasing the bid/offer spread in the market for the Company's Ordinary Shares, which they believe will decrease the volatility of the share price and therefore improve the attractiveness of the New Ordinary Shares to new investors.
The Board are therefore proposing to consolidate every 5 Ordinary Shares into 1 New Ordinary Share. So as to facilitate the Capital Reorganisation, Davy has agreed to subscribe for 4 Ordinary Shares at par to increase the number of existing shares to 442,294,030 in order to ensure that (immediately preceding the Capital Reorganisation) the number of Ordinary Shares in issue would be exactly divisible by 5.
Shareholders should be aware that if they hold fewer than 5 Ordinary Shares they would not be entitled to receive any New Ordinary Shares under the Capital Reorganisation and as a result would lose their entire shareholding. Any fractions arising from the Capital Reorganisation will be aggregated and sold for the benefit of the Company.
Following the Capital Reorganisation, the Company's authorised share capital would be €15,000,000 comprising 120,000,000 New Ordinary Shares. Assuming no further Ordinary Shares are issued between the date of the Circular and the date on which the Capital Reorganisation becomes effective, the issued share capital would comprise 88,458,806 New Ordinary Shares. The rights attaching to the New Ordinary Shares, including voting and dividend rights will be the same as the rights currently attaching to the Ordinary Shares under the Articles of Association.
It is expected that trading in the New Ordinary Shares will commence on 18 January 2010. Subject to the Capital Reorganisation Resolutions being approved by Shareholders, share certificates for Ordinary Shares will no longer be valid and new share certificates will be issued. In the case of Shareholders who hold shares through the CREST system, the New Ordinary Shares will be credited to CREST accounts on 18 January 2010. Pending the receipt of new certificates, Shareholders would still be able to trade in New Ordinary Shares and transfers of New Ordinary Shares held in certificated form would be certified against the register of members of the Company.
Consequences for Existing Options
The Company's Share Option Schemes provides that in the event of any variation in the share capital of the Company by way of capitalisation or rights issue or any consolidation, subdivision or reduction or otherwise, the number of Ordinary Shares subject to any Share Option and the option price for each of those Ordinary Shares shall be adjusted in such manner as the Auditors confirm to be fair and reasonable. The Board, having consulted with the Auditors, have agreed that each participant shall be entitled to surrender every existing option held by him which has not been entirely exercised and to be granted in its place a new option. This will be at the same total option price and in all other respects on identical terms in respect of such number of Ordinary Shares so that the ratio between that number of Ordinary Shares and the total number of Ordinary Shares shall be the same as the ratio between the number of Ordinary Shares to which the existing Share Option (or, as the case may be, the unexercised portion thereof) related and the total number of Ordinary Shares immediately prior to the sub-division, consolidation or reduction of capital (as the case may be), provided that the grant of any such replacement option shall not result in any participant becoming entitled to subscribe for Ordinary Shares at less than their nominal value.
10. EXTRAORDINARY GENERAL MEETING
An extraordinary general meeting has been convened to be held at Buswells hotel, 23-25 Molesworth Street, Dublin 2, Ireland at 10 a.m on 15 January 2010, at which the Resolutions will be proposed. The Proposed Acquisition is conditional upon, inter alia, the passing of the Related Party Resolution by a majority of Independent Shareholders at the Extraordinary General Meeting. The Share Consolidation is conditional upon the passing of the Capital Reorganisation Resolutions by Shareholders at the Extraordinary General Meeting.
The full text of the Resolutions is set out in the Notice at the end of the Circular.
11. ACTION TO BE TAKEN
You will find enclosed with the Circular a Form of Proxy for use by Shareholders at the Extraordinary General Meeting or any adjournment thereof. Whether or not you intend to be present at the Extraordinary General Meeting, you are requested to complete the Form of Proxy in accordance with the instructions printed on it and return it as soon as possible and in any case so as to be received by the Company's Registrars, Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland no later than 10.a.m. on 13 January 2010. Completion and return of Forms of Proxy will not preclude Shareholders from attending and voting at the Extraordinary General Meeting should they so wish.
12. RECOMMENDATION
The Independent Directors consider that the terms of the Proposed Acquisition are fair and reasonable insofar as the Independent Shareholders are concerned and accordingly, the Independent Directors, unanimously recommend that Independent Shareholders vote in favour of the Related Party Resolution to be proposed at the forthcoming EGM.
In addition, the Directors recommend that Shareholders vote in favour of the Capital Reorganisation Resolutions to be proposed at the EGM, as the Directors intend to do so in respect of their own beneficial holdings of 197,843,044 Ordinary Shares, representing approximately 44.7 per cent. of the Issued Share Capital.
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