Last checked at 13 Nov 2008 07:00
GRIFFIN MINING LIMITED
60 St James's Street, London SW1A 1LE, United Kingdom
Telephone: + 44 (0)20 7629 7772 Facsimile: + 44 (0)20 7629 7773
E mail: griffin@griffinmining.com
13 November 2008
PURCHASE OF 39% INTEREST IN SPITFIRE OIL LTD
RELATED PARTY TRANSACTION
Griffin Mining Limited ("Griffin" or the "Company") announces that it has agreed to purchase 16,666,667 ordinary shares in Spitfire Oil Ltd ("Spitfire"), representing a 39.2% interest in the issued share capital of Spitfire, at 15p per share for a total cash consideration of £2,500,000 from Citadel Equity Fund Ltd ("Citadel").
Background on Spitfire*
Spitfire was incorporated on 2 May 2007 and on 11 July 2007 acquired the entire issued capital of Spitfire Oil Pty Ltd (formerly Hurricane Fuels Pty Ltd) by way of a share swap. On 18 July 2007, Spitfire's shares were admitted to trading on AIM under the ticker "SRO". At the same time, Spitfire placed 16,666,667 new Ordinary Shares with Citadel at 60p per share to raise £10,000,000 (before expenses).
Spitfire's principal activity is the pursuance of the production of fuel oil and distillate from the Salmon Gums Lignite deposits in Western Australia. Spitfire controls 6 exploration tenements totalling 519 km2 near Salmon Gums, near Esperance, in the south east of Western Australia. As reported in Spitfire's Admission Document dated 13 July 2007 ("Admission Document"), the tenements contain a large lignite (brown coal) deposit with a JORC Inferred Resource (>10m thick seam) of 500 million tonnes of lignite. The lignite has a high Kerogen (hydrocarbon) content which, based on Spitfire's testwork, on a limited number of samples, indicates that oil may be recoverable from the deposit at an average yield of approximately 69 litres per tonne of lignite (in situ) or 0.43 barrel per tonne. This implies a potentially recoverable fuel oil resource of approximately 200 million barrels (or 33 billion litres) throughout the deposit. Salmon Gums is located next to a main road, railway and pipeline connecting Kalgoorlie and the port of Esperance.
In the period from incorporation to 30 June 2008, Spitfire reported a loss before tax of A$2.8m and net assets of A$16.6m including cash balances of A$14.1m equating to £6.8m or 16p per share.
Mr Mladen Ninkov and Mr Roger Goodwin are directors of both Griffin and Spitfire. This will give Griffin significant influence over Spitfire requiring Griffin to treat Spitfire as an associated company under International Accounting Standard 28 requiring Griffin to recognise its share of Spitfire's financial results.
Rationale Of Proposed Transaction
Griffin has been seeking acquisition opportunities for some considerable time, since successfully bringing into production its Caijiaying zinc gold project in China in the summer of 2005. Griffin's preference has been for a resource project that already has a JORC resource that can be developed in the near term to generate significant profits and cash flow. In these uncertain times, Griffin has of late sought to spread political and commodity risk by seeking a project outside of China with alternative commodities to zinc. At 30 June 2008, Griffin reported that it had cash balances of US$84m available to invest in such projects.
To date, Griffin has reviewed a considerable number of projects, few of which have met Griffin's investment criteria. Spitfire meets Griffin's criteria in that, as reported in Spitfire's Admission Document, its Salmon Gums project has a JORC Inferred Resource (>10m thick seam) of 500 million tonnes of lignite and is located in a stable country where Griffin already has a presence. Although Spitfire's Salmon Gums project is a hydrocarbon project, this does meet Griffin's objective of spreading commodity risk and all of Griffin's directors have experience of the oil and gas sector.
The Transaction
For a period until 27th May 2008 Citadel held a 30.2% interest in the issued share capital of Griffin, accordingly the transaction is considered a related party transaction under the AIM Rules. In this regard, the directors of Griffin (with the exception of Mladen Ninkov and Roger Goodwin), having consulted with its nominated adviser, Collins Stewart Europe Limited, consider that the terms of the transaction are fair and reasonable insofar as its shareholders are concerned.
Comment
Chairman Mladen Ninkov commented, "this purchase enables Griffin to acquire a strategic stake in a project that meets Griffin's investment criteria, spreading both political and commodity risk. The opportunity to acquire this strategic stake at such a favourable price, being at a 75% discount to the original funding price, has been carefully considered and approved by the independent directors. Griffin's investment should be well placed to benefit from Spitfire's continuing exploration drilling program to define a JORC Indicated Resource, results expected from the L2VTM Pyrolysis tests and conceptual mine and process engineering studies to deliver a definitive feasibility study and a design basis for a phase 1 commercial plant.
With dwindling world resources and the expectation of significant increases in the price of oil in the future, this alternative energy project is highly attractive. Should the results from the L2VTM tests be successful and the development of a commercial plant be achievable, Griffin has the potential to reap significant financial rewards upon the Salmon Gums project coming into commercial operation."
Griffin retains significant cash balances and continues to look for other projects.
*Notes:
The information in this announcement that relates to exploration results, coal resources or reserves is based solely on information extracted from the Competent Person's Report prepared for Hurricane Fuels Ltd and Spitfire Oil Limited ("Competent Person's Report"), which is set out in Spitfire's Admission Document.
Spitfire is a Bermuda registered company and as such is not subject to the Takeover Code and accordingly there is no obligation for a mandatory offer under the Rules of the Takeover Code by any shareholder increasing their holding above 30% of Spitfire's issued share capital.
Further information
| Mladen Ninkov - Chairman | Telephone: +44(0)20 7629 7772 |
| Roger Goodwin - Finance Director | |
| Griffin Mining Limited | |
| Adrian Hadden | Telephone: +44(0)20 7523 8350 |
| Collins Stewart Europe Limited (Nominated Adviser & Broker) | |
| Jos Simson/ Leesa Peters | Telephone: +44 (0) 20 7429 6603 |
| Conduit PR Ltd | Mobile: + 44(0) 7899 870 450 |
Griffin Mining Limited's shares are quoted on AIM, the London Stock Exchange (symbol GFM).
The Company's news releases are available on the Company's web site: www.griffinmining.com