Meridian to continue Omchak due diligence on non-exclusive basis
MOSCOW. Aug 11 (Interfax) - Australia's Meridian Minerals Limited will continue due diligence on the potential acquisition of a 75% interest in Russian gold company ZAO Omchak, which is controlled by Britain's Petropavlovsk plc, on a non-exclusive basis as of August 11, the potential buyer said in a statement.
Petropavlovsk plc and Meridian Minerals have twice extended the period of exclusivity for the due diligence.
Meridian said on February 18, 2011 that it had entered into a non-binding Heads of Agreement (HoA) to acquire a 75% interest in the non-alluvial assets of ZAO Omchak from Petropavlovsk for $40 million. Meridian and Petropavlovsk have now agreed to extend the exclusivity period from May 11, 2011 until July 11, 2011. This two month extension has been necessary to allow Meridian to complete its due diligence on Omchak and its assets.
The period was then extended until August 11.
During the exclusivity period, Meridian intends to complete the due diligence to its absolute satisfaction; advise Petropavlovsk if Meridian will proceed with the purchase of the 75% interest in the non-alluvial assets of Omchak; negotiate and enter into a sale and purchase agreement reflecting the terms and conditions of the acquisition as agreed in principle in the HoA and such other terms as customary for this type of transaction; and conclude a shareholders' agreement to record the terms and conditions for the development of the Omchak assets.
The transaction does not include Omchak's alluvial assets and its subsidiaries, which will be transferred to Petropavlovsk.
Petropavlovsk consolidated 90% in Omchak in July 2010 by purchasing 32.5% from Susumanzoloto and 7.5% from the asset's manager, OJSC ZRK Shkolnoye.
ZRK Omchak is the former joint venture of Petropavlovsk and OJSC Susumanzoloto.
One of binding terms of the agreement between Meridian and Petropavlovsk is the necessity of one side purchasing the remaining 10% in Omchak from the third party. It was earlier reported that shareholders in Shkolnoye approved in February 2010 the sale of 14% in Omchak to Cyprus-based Gesport Holdings Ltd. At the same time, reports circulated that Petropavlovsk might sell a stake in ZRK to Gesport. Russia's Federal Antimonopoly Service (FAS) authorized Gesport to consolidate up to 80% in the gold production enterprise. The offshore's beneficiary has yet to be identified.
ZRK Omchak's main asset is the Verkhnee-Aliinskoye gold ore field in the Baleisky district of the Chita Region. The field was discovered in 1980. Initial surveys and resource tallies were held in 1985-1986. According to Meridian, the field's preliminary gold reserves were put at 700,000-1.1 million ounces with gold ore concentration at 6.5-10 grams per tonne. According to a current feasibility study, an underground mine could be developed at the field, which would be in operation for around 12 years if the production rate comes to 7.7 grams of gold per tonne and 12.9 grams of silver per tonne, thereby bringing annual output to 265,000 tonnes. The company will likely utilize gravitational extraction technology for production.
Payments for the start of production are estimated at $76 million. Meridian and Petropavlovsk will likely finance these operations at a ratio of 75:25. If the deal is successful, Meridian hopes to commence development in 18 months. Total costs for this period of the project are put at $122 million.
In addition, the company holds licenses for exploration projects such as the Kulinskoye ore field, the Bukhtinskaya section, the Buryusinsky ore hub and Kauchak.
The Australian company is currently looking at various options for raising capital in order to acquire the asset and finance its operations, the statement said.
Meridian Minerals Ltd specializes in the exploration and development of various recoverable resources. The company owns the Lennard Shelf zinc and lead field in Western Australia. The company's shares are traded on the Australian Stock Exchange.
The Petropavlovsk Alliance (until 2009 - Peter Hambro Mining) develops gold ore fields in Russia's Far East. The company's production for 2010 came to 506,800 (15.8 tonnes) in precious metals, including 52,300 ounces from its stake in Omchak. Petropavlovsk's shares are traded on the London Stock Exchange (LSE).
