AAA.L Regulatory News (AAA)

24 Mar 2006 08:12

Adastra Minerals Inc24 March 2006 NEWS RELEASE Adastra Board of Directors Recommends Shareholders REJECT First Quantum's Revised and Final Offer and Announces Receipt of an Increased Offer from Mitsubishi Corporation to Purchase a 14.9% Interest in the Kolwezi Project Trading: TSX and AIM: Adastra London, UK (March 24, 2006) - The Board of Directors of Adastra Minerals Inc. ("Adastra", or the "Company") announces that it unanimously recommends thatAdastra shareholders REJECT First Quantum Minerals Ltd.'s ("First Quantum")revised and final offer (the "Revised First Quantum Offer") and NOT TENDER theirshares to the Revised First Quantum Offer. Whilst First Quantum has increasedits offer, the Board believes that the offer remains inadequate and continues toundervalue the Company and its assets. This belief is strengthened by Adastra'sreceipt yesterday of an increased offer from Mitsubishi Corporation to acquire a14.9% interest in the Kolwezi Project ("Kolwezi"). The proposed transaction withMitsubishi, revised as described under (4.) below includes a 20% increase in thepreviously-announced cash consideration offered by Mitsubishi to acquire a 14.9%interest in Kolwezi, and imputes a value of Cdn.$3.01 per fully diluted Adastrashare. In reaching its conclusions, the Board carefully reviewed and considered theRevised First Quantum Offer, with the benefit of advice from its financial andlegal advisers and the report and recommendation of a Special Committee ofAdastra directors (the "Special Committee") who are independent of Adastramanagement. The Board's assessment of the Revised First Quantum Offer and thereasons for the recommendation that shareholders reject the Revised FirstQuantum Offer are set out in a Notice of Change to Directors' Circular to beissued shortly. The full text of the inadequacy opinion of N M Rothschild &Sons Limited referred to below will be appended to the Notice of Change.Shareholders are urged to read the Notice of Change in its entirety. Bernard Vavala, Chairman, said: "Having reviewed First Quantum's revised andfinal offer, the Board is of the unanimous view that it is inadequate andrecommends that Adastra shareholders reject the offer by not tendering. TheBoard believes that completion by management of the financing, development andcommissioning of the Kolwezi Project together with Mitsubishi Corporation, willresult in better value for Adastra shareholders than the Revised First QuantumOffer." In the Notice of Change, the Board recommends rejecting the Revised FirstQuantum Offer based on a number of factors, including: 1. The Revised First Quantum Offer significantly undervalues Kolwezi. • The Revised First Quantum Offer significantly undervalues Adastra'sinterest in its principal asset, Kolwezi, a tailings project in the DemocraticRepublic of Congo. The recently completed definitive feasibility study forKolwezi (the "DFS") has calculated the net present value of Adastra's interestin the project at Cdn.$5.14 per fully-diluted Adastra share (based on the numberof Adastra shares, options and warrants outstanding as at March 6, 2006) using a10% real discount rate, Cdn.$3.93 per fully-diluted Adastra share using a 12%real discount rate and Cdn.$3.07 per fully-diluted Adastra share using a 14%real discount rate. These values are significantly higher than the stated valueof the Revised First Quantum Offer of Cdn.$2.65, and higher than the Cdn.$2.92implied value of the Revised First Quantum Offer based on the March 23, 2006closing price of First Quantum shares (assuming full pro-ration of the maximumcash and shares element). • The Revised First Quantum Offer fails to attribute value to thepotential to expand output from Kolwezi if the cobalt market permits. Whilethere can be no assurance that expansion will occur, the DFS incorporates aplant layout which would allow the doubling of operating capacity of Kolwezi.The CRU Strategies Ltd. market study prepared for Adastra projects that demandfor cobalt will grow by 4.25% annually through to 2020 which would support theproposed expansion of Kolwezi. Such an expansion, if it were to occur within 5to 6 years of commencement of production, would be expected to increase the netpresent value of Adastra's interest in Kolwezi by approximately 75%, an increaseof approximately Cdn.$2.30 per fully-diluted Adastra share based on theassumptions set out in the DFS and using a 14% discount rate. 2. The Revised First Quantum Offer fails to attribute value to Adastra's otherassets. • The Revised First Quantum Offer fails to attribute value to Adastra'sother assets, which include (i) the sub-surface exploration rights under thewhole of Kolwezi licence area, (ii) Adastra's option over the Kipushiunderground zinc-copper mine in the southern region of the Democratic Republicof Congo, and (iii) Adastra's prospective exploration licence in Solwezi,Zambia, which is contiguous with the Kipushi deposit. Management believes thata conservative valuation of these assets is approximately US$10 million, or theequivalent of approximately Cdn.$0.13 per Adastra share (on a fully-dilutedbasis). 3. The Revised First Quantum Offer undervalues Adastra's contribution to acombined entity. • The Revised First Quantum Offer fails to reflect the value contributedby Adastra's assets to a combined entity and does not provide Adastrashareholders with the benefit of any of the synergies which First Quantum hasclaimed would arise from a combination of the two companies. • The all share election under the Revised First Quantum Offer of oneFirst Quantum common share for every 14.76 Adastra shares is only a marginalimprovement over the exchange ratio of 1 to 15 that was indicated to Adastra onDecember 1, 2005 and that was determined by the Board of Directors tosignificantly undervalue Adastra's contribution to a combined entity. • Adastra estimates that it would contribute approximately 55% of the insitu copper equivalent reserves to a combined entity. This contrasts with themaximum of 7.4% of the combined entity's equity that Adastra shareholders wouldreceive if the maximum 4.93 million First Quantum common shares were issued toAdastra shareholders under the Revised First Quantum Offer (which would increaseto 8.6% of the combined entity if Adastra shareholders were to use the maximumof Cdn.$36.3 million of cash offered under the Revised First Quantum Offer topurchase First Quantum common shares in the market (based on First Quantum'sMarch 23, 2006 closing price of Cdn.$43.82)). • The average net asset value of First Quantum estimated in researchreports published by six separate investment analysts following the recentrelease of First Quantum's 2005 year-end results was approximately Cdn.$2.1billion. The DFS values Adastra's 65% interest in Kolwezi at Cdn.$256 million(at a discount rate of 14%). Even excluding the value associated with thepossible expansion of Kolwezi and Adastra's other assets, such relativevaluations suggest an exchange ratio of approximately 11.5 Adastra shares forone First Quantum common share - not 14.76 Adastra shares for one First Quantumcommon share. 4. The Revised First Quantum Offer is lower than the value imputed to Adastraby Mitsubishi's revised offer. • On March 23, 2006, Mitsubishi advised Adastra that, following itsreview of the DFS and the substantial completion of its technical due diligenceof the Project, it was prepared to amend the principal terms agreed between thetwo companies on January 10, 2006 (and described in Adastra's Directors'Circular of February 17, 2006 responding to First Quantum's initial offer).Mitsubishi's revised offer has the following key terms: (S)Mitsubishi's cash payment to Adastra when Kolwezi's loan financing is securedwill be increased by 20% from US$37.5 million to US$45 million, and the agreedmonetary cap on Mitsubishi's total exposure will be increased accordingly; (S)The US$12.5 million loan to Kingamyambo Musonoi Tailings SARL, Adastra'ssubsidiary, to be made by Mitsubishi on Adastra's behalf remains unchanged; (S)Mitsubishi's obligation to fund its share of Kolwezi's owners' costs untilloan financing is secured will be capped at US$2.6 million; and (S)Mitsubishi will be granted two additional quotational period options whenpricing copper purchased under its offtake contract for Kolwezi's production. • The revised Mitsubishi transaction remains subject to the completionof confirmatory due diligence, negotiation of definitive agreements and theapproval of the Board of Directors of each of Adastra and Mitsubishi. WhileManagement of Adastra is confident that the Mitsubishi transaction can becompleted as above, there can be no assurance that the Mitsubishi transactionwill be completed, or will be completed on such terms. • Based on the terms of the Mitsubishi transaction outlined in theDirectors' Circular (amended as described above), Adastra calculates that theMitsubishi transaction now values Adastra's interest in Kolwezi at US$202million. After adjusting for management's US$10 million valuation of Adastra'sother assets and the expected proceeds from the exercise of options and warrants(as described in the Directors' Circular), the Mitsubishi transaction - whichwould leave Adastra in control of Kolwezi- imputes a value of Cdn.$3.01 perAdastra share on a fully-diluted basis. The Revised First Quantum Offer islower than this, despite being a change of control transaction. 5. The Revised First Quantum Offer is financially inadequate. • Rothschild has delivered a written opinion to the Special Committeeand the Board that, as of March 23, 2006 and subject to the assumptions,limitations and qualifications set forth therein, the consideration under theRevised First Quantum Offer is inadequate, from a financial point of view, toAdastra shareholders. 6. The Revised First Quantum Offer subjects Adastra shareholders to thevolatility of First Quantum's share price. • The value of the Revised First Quantum Offer is vulnerable to thevolatility of First Quantum's share price, which is highly sensitive to theprice of copper. Copper is trading at an all-time high. Since the announcementof the Initial First Quantum Offer to March 23, 2006, the closing price of FirstQuantum's common shares on the Toronto Stock Exchange has ranged betweenCdn.$33.85 and Cdn.$43.82. How to withdraw your Adastra shares from the Revised First Quantum Offer Shareholders who have deposited Adastra shares under the First Quantum Offer andwho wish to obtain advice or assistance in withdrawing their Adastra shares areurged to contact The Equicom Group (in North America) toll free at1-800-385-5451 or Adastra (in Europe and elsewhere) at +44 (0)20 7257 2040. The Revised First Quantum Offer On March 20, 2006 First Quantum Minerals announced that it had increased itsoffer for Adastra Minerals Inc. to Cdn.$2.65 per share. In the revised offer, Adastra's common shareholders will have the right to electto receive Cdn.$2.65 in cash per Adastra common share or 1 First Quantum commonshare for each 14.76 Adastra common shares, subject to pro ration based upon themaximum amount of cash and First Quantum common shares offered. The maximumamount of cash to be paid by First Quantum will be approximately Cdn.$36.3million, and the maximum number of First Quantum common shares to be issued willbe approximately 4.9 million, taking into account the conversion of Adastra'soutstanding share options and warrants. Assuming full pro ration of thesemaximum amounts, this would result in approximately Cdn.$7.35 million in cashand 1 First Quantum common share for each 17.5 Adastra common shares subject tothe offer (this equates to approximately Cdn.$0.42 in cash and approximately0.057 First Quantum common shares per Adastra common share). Adastra shareholders who tender to the Revised First Quantum Offer and receiveshare consideration will be eligible to receive First Quantum's final 2005dividend of Cdn.$0.265 per First Quantum common share, equivalent toapproximately Cdn.$0.015 per Adastra share on a full pro-ration basis. About Adastra Adastra is an international mining company listed on the Toronto Stock Exchangeand on AIM, in London, under the symbol "Adastra". It is currently developingseveral mineral assets in Central Africa, including the Kolwezi Tailings Projectand the possible rehabilitation of the Kipushi zinc mine in the DemocraticRepublic of Congo. Adastra's growth strategy emphasizes the creation ofshareholder value through the development of world-class resources in stable orstabilizing political environments. Contact us: London AdastraTim Read, President and Chief Executive OfficerTel.: +44 (0)20 7257 2040 RothschildCharles Mercey / Stuart VincentTel.: +44 (0)20 7280 5000 Canaccord AdamsRobert FinlayTel.: +44 (0)20 7518 2777 Parkgreen CommunicationsJustine Howarth / Cathy MalinsTel.: +44 (0)20 7493 3713 Toronto EquicomMartti KangasTel.: +1 (416) 815 0700 This news release contains forward-looking statements within the meaning of theUnited States Private Securities Litigation Reform Act of 1995 andforward-looking information within the meaning of the Securities Act (Ontario)(together, "forward-looking statements"). Such forward-looking statements,include but are not limited to the Company's plans for its Kolwezi Project inthe Democratic Republic of Congo ("DRC"), the Kolwezi Project's net presentvalue, its overall economic potential, the availability of project financing,the likelihood of completion of a transaction with Mitsubishi Corporation, thecompletion of farm-in agreements in respect of the sub-surface rights to theKolwezi Project and the Company's Solwezi licence area, and involve known andunknown risks, uncertainties and other factors which may cause the actualresults, performance or achievements expressed or implied by suchforward-looking statements to be materially different. Such factors include,among others, risks and uncertainties relating to political risks involving theCompany's operations in the DRC and the policies of other nations andorganizations towards companies doing business in such jurisdictions, theinherent uncertainty of production and cost estimates and the potential forunexpected costs and expenses, fluctuations in the price of copper and cobalt,conclusions of economic evaluations, changes in project parameters as planscontinue to be refined, the inability or failure to obtain adequate financing orcomplete the proposed transaction with Mitsubishi Corporation on a timely basis,the effect on Adastra's near term share price should the Revised First QuantumOffer fail, and other risks and uncertainties, including those described in theCompany's Annual Report on Form 20-F for the year ended October 31, 2005 andreports on Form 6-K filed with the Securities and Exchange Commission and theCanadian Securities Administrators and available at www.sec.gov andwww.sedar.com. N M Rothschild & Sons Limited ("Rothschild"), which is authorised and regulatedby the Financial Services Authority in the United Kingdom, is acting for Adastrain relation to the matters referred to in this announcement and no one else andwill not be responsible to anyone other than Adastra for providing theprotections offered to clients of Rothschild nor for providing advice inrelation to the matters referred to in this announcement. This information is provided by RNS The company news service from the London Stock Exchange