Jan 14 2015
Morien Resources Corp., is pleased to announce it has entered into a definitive purchase and sale agreement with Kameron Collieries ULC, an affiliate of The Cline Group LLC, for the sale of Morien's 25% interest in the Donkin Coal Project in Cape Breton, Nova Scotia. Kameron currently holds a 75% interest in Donkin, having acquired it from Glencore PLC on December 3, 2014.
A Special Meeting of Shareholders ("Meeting") will be held on February 10, 2015, when the Company's shareholders ("Shareholders") will be asked to approve a special resolution ("Transaction Resolution") authorizing the Transaction. The material terms of the Transaction will be set forth in a Management Information Circular ("Circular") to be mailed out to Shareholders and filed on SEDAR on or about January 14, 2015. Pursuant to the terms of the Agreement, Kameron has agreed to pay Morien aggregate cash consideration of $5.5 million; $2 million on closing, $2 million on or before the 2nd anniversary of closing, and $1.5 million on or before the 3rd anniversary of closing. Morien is also entitled to a gross production royalty of 2% on the first 500,000 tonnes of coal sales per calendar quarter, and 4% on any coal sales from quarterly tonnage above 500,000 tonnes.
After careful consideration, including a thorough review of the Agreement, Morien's board of directors (the "Board") unanimously determined that the Transaction is in the best interest of the Company and recommends that Shareholders vote in favour of the Transaction.
In the course of coming to this conclusion, the Board reviewed information and considered a number of factors including, among other things:
Prospective Royalty Payments
Morien management and its Board analysed the potential annual royalties to be received from Donkin and believe the Transaction will bring significant value to Shareholders. Based on the current permitted production rate of 2.75 million sales tonnes per year for Donkin, and on current and forecasted coal prices for coal, the Board considered royalty payments that could range from $4.6 million to $6.7 million annually. These values are only estimates, based on judgements made by the Board and Morien management, and would be achieved only when the Project commences and reaches maximum permitted production levels. Actual results and royalties received, if any, may vary from those considered by the Board and Morien management (see the advisory regarding Forward-Looking Statements below).
Minimizing Shareholder Dilution
The Transaction is believed to be more favourable, with less financial risk, than the value in retaining Morien's working interest. If Morien were to retain its working interest, the Company would need to raise funds through the issuance of additional equity, likely resulting in significant Shareholder dilution, in order to fund its 25% share of the costs required to bring Donkin into production. Although Kameron has not provided estimates of future capital costs for the development of the Project, previous studies prepared by Glencore suggested total capital development costs in excess of $300 million, excluding sustaining capital. At that level, Morien's 25% of these costs would be in excess of $75 million.
Upside Exposure Without Direct Operating Risk
Shareholders are able to benefit in the event of higher production and coal prices but will not be exposed to the direct capital and operating risks associated with operating a coal mine.
Strong Financial Position and Growth Opportunities
The cash payment from Kameron on the closing of the Transaction, combined with Morien's existing funds, will result in the Corporation having a total cash position of approximately $4.5 million. Funds from the two anticipated future milestone payments from Kameron, totalling $3.5 million, in addition to existing royalties from Banks Island Gold Ltd., and an anticipated milestone payment from Vulcan Materials Co. of $800,000 in early 2016, related to the Black Point Aggregate Project, will further strengthen the Company's financial position. These funds will allow Morien to pursue growth opportunities at an opportune time in a period of low valuations in the resource sector.
Reputation and Expertise of Cline
Cline has a strong reputation as a high quality mine developer, and is currently operating three of the four most productive underground coal mines in the United States. Cline's development experience in both continuous miner and longwall coal mining, coupled with its marketing expertise for similar quality coal to Donkin, provide great synergy. The Board believes Kameron has the potential to establish a safe, efficient and economically viable long-term operation at Donkin.
Diversified Royalty Portfolio
The Donkin royalty will further diversify Morien's portfolio. Morien has two existing royalty arrangements; a 1.5% net smelter return royalty from the Yellow Giant gold mine owned by Banks Island Gold Ltd., which currently provides payments to Morien in the order of $200,000 per year; and a production royalty from the Black Point Aggregate Project to be provided by Vulcan Materials Co., which is anticipated to commence sometime after 2018 and to be in the range of $250,000 to $750,000 per year over the project's expected 50 year life.