GRN.L Regulatory News (GRN)

17 Nov 2006 07:37

Gravity Diamonds Limited17 November 2006 RELEASED ON BEHALF OF: GRAVITY DIAMONDS LIMITED (ASX & AIM : GRN) 17 November 2006 PROPOSED MERGER OF MWANA AFRICA PLC AND GRAVITY DIAMONDS LIMITED Another step for Mwana Africa towards creating a major African-focused integrated diamond exploration and production business Unanimous recommendation from Board of Gravity Mwana Africa Plc (AIM: MWA) ('Mwana') and Gravity Diamonds Limited (ASX/AIM:GRN) ('Gravity') are pleased to announce their proposed merger to create anenlarged diamond exploration and production business within Mwana. Thisagreement follows the announcement in August 2006 that Mwana had acquired a14.99% stake in Gravity. The merger proposal will be implemented by a scheme ofarrangement pursuant to the Australian Corporations Act, whereby Mwana willoffer Gravity shareholders 28 cents cash for every Gravity share held or,through an equity alternative, Mwana will offer Gravity shareholders one Mwanashare for every four Gravity shares held. This will value Gravity at A$43.11million (£17.43 million). In so doing, Mwana will consolidate its already strong land position in theprolific Kasai craton in the Democratic Republic of Congo ('DRC'), which willsupplement the attributable diamond production it already owns through a 20%stake in Societe Miniere de Bakwanga ('MIBA'). Importantly, the experienced Gravity exploration team will supplement the highlevel experience in project development and construction that already existswithin the Mwana management team. Holders of Gravity listed options will also be asked to approve a separatescheme of arrangement pursuant to the Australian Corporations Act, under whichMwana will offer them six cents per option. The merger proposal is notconditional on the option scheme being approved and becoming effective. The Board of Gravity has unanimously recommended that all Gravity shareholdersand listed optionholders support and accept the merger proposal, in the absenceof a superior proposal. Gravity Board members intend to vote their own sharesand listed options in favour of the merger proposal, and will sell theirunlisted options to Mwana. Background on Gravity Gravity is listed on the ASX and AIM in London. It was incorporated in Australiain May 1986 but reconstituted three years ago as a standalone diamond company toexplore for diamonds in Australia and in the DRC with BHP Billiton as its majorshareholder and alliance partner. In the DRC, Gravity is exploring for diamonds on the Kasai craton, one of themost prospective diamond terrains in the world that remains relativelyunexplored by modern exploration methods. The Kasai terrain is thenorth-easterly extension of the Angolan diamond fields where there are numerousknown diamondiferous kimberlite pipes and widespread alluvial mining over theborder. The DRC is historically one of the world's largest diamond producersalthough most of the production comes from artisanal alluvial mining, with onlyone known diamondiferous kimberlite mine at Mbuji Mayi. Through a successful,widespread program of reconnaissance kimberlitic indicator mineral ('KIM')sampling carried out over the past two years, the company has identified fourhighly prospective areas from which it is recovering coarse grained indicatorminerals and diamonds that indicate close proximity to diamondiferous kimberlitepipes and it is rapidly moving towards target testing. In Australia, the company's successful exploration strategy is based on thedeployment of BHP Billiton's FALCON(R) airborne gravity gradiometer technologyand has led to the discovery of a number of new kimberlite and lamproite pipes.At Abner Range in the Northern Territory in particular, the diamondiferous ABN021 discovery is currently undergoing a bulk sampling program to gain anindication of its potential to be commercially viable. Background on Mwana Mwana is an AIM-listed pan-African natural resource company with a portfolio ofproducing and exploration assets in a range of commodities across Africa. Theseinclude producing nickel and gold mines in Zimbabwe, gold exploration projectsin Ghana and gold and copper projects in the DRC. Importantly, it sharesGravity's positive view about the considerable potential of the diamond industryin the DRC. In May 2006, Mwana acquired 20 per cent of MIBA, the country's leading diamondproducer based in Mbuji Mayi, via its purchase of Sibeka P/L, signalling itsentry into the diamond industry and significantly strengthening its interests inthe DRC. MIBA has produced an average of six million carats of diamonds per yearover the past five years. Mwana has a strong management team with many years of combined experience ofproject acquisition and development in Africa. Along with Gravity's team ofexperienced explorers, the combined company will be a potent force in diamondexploration and development in the DRC. Terms of offer The merger proposal will be implemented by schemes of arrangement to be approvedseparately by the shareholders and listed optionholders of Gravity. Mwana will offer Gravity shareholders 28 cents for every Gravity share theyhold. In the alternative, Mwana will offer Gravity shareholders one Mwana sharefor every four Gravity shares held, subject to certain conditions and a minimumholding requirement. Holders of Gravity listed options will also be asked to approve a scheme ofarrangement under which their options will be transferred to Mwana for six centsper option. Also, as part of the merger proposal, holders of unlisted Gravityoptions will have their options transferred to Mwana for a cash consideration. If the merger proposal is approved, Gravity will become a wholly-ownedsubsidiary of Mwana and will no longer be listed on ASX or AIM. Mwana does notcurrently intend to list its shares on ASX. The merger proposal is subject to a number of conditions, including the approvalof Gravity shareholders at a scheme meeting and the approval of the scheme bythe Court. The attachment to this announcement sets out the key terms andconditions of the merger implementation deed signed by Mwana and Gravity. Full details of the schemes will be contained in the explanatory booklet whichGravity currently anticipates being circulated to shareholders and listedoptionholders in February 2007. The explanatory booklet will include anindependent expert's report in respect of each of the schemes. The schememeetings are expected to be held in March with implementation and completion ofthe transaction to follow in the weeks after. The directors of Gravity, having consulted with its nominated adviser, considerthat, for the purposes of the rules applicable to AIM companies and theirnominated advisers, the terms of the proposed merger are fair and reasonableinsofar as Gravity's shareholders are concerned. The Board of Mwana alsounanimously supports the merger proposal. Commenting on behalf of Gravity, Phil Harman, Managing Director, said: "TheBoard and management of Gravity recognise that the merger with Mwana representsan ideal opportunity to place its exciting exploration programs in the DRC on amuch firmer footing. We now have a partner that recognises the potential of theBHP Billiton relationship as defined by our alliance agreement and that webelieve has both the will and capability to maximise value from any discovery." Kalaa Mpinga, Chief Executive Officer of Mwana, said: "There has been a meetingof minds between Gravity and Mwana in seeing the substantial opportunities thatexist for the development of the diamond industry in the DRC. The merger of thetwo companies is the next stage in the creation of a significant new diamondexploration and production business with world class assets focused on centraland southern Africa. This business will sit alongside Mwana's growing portfolioof other natural resource assets and is a further step towards its strategicobjective to create a major pan-African natural resource group." ENDS Enquiries: Mwana Africa PLCOliver Baring, Executive ChairmanKalaa Mpinga, CEO Tel. +44 207 654 5588 Tom RandellMaria Suleymanova Tel. +44 207 653 6620 Gravity Diamonds LimitedPhil Harman, Managing DirectorMel Drummond, Company Secretary Tel. +61 3 9909 7655 ATTACHMENT TO ANNOUNCEMENT Key Terms of Merger Implementation Deed ('MID') Gravity and Mwana have entered into a MID dated 17 November 2006 to provide aframework for implementing the share scheme and the option scheme. The MID setsout the obligations of Gravity and Mwana in relation to the schemes. A copy ofthe MID will be contained in the Explanatory Booklet to be provided to Gravitysecurity holders prior to the scheme meetings. A summary of the key terms of theMID is set out below. Conditions precedent Implementation of the merger proposal is subject to the following conditionsprecedent which must be satisfied or waived (as applicable) by 8.00am on thedate that Gravity seeks Court approval of the share scheme: • the receipt of all regulatory approvals that are necessary ordesirable to implement the merger proposal; • no Gravity material adverse change occurs; • no Gravity 'prescribed occurrence' occurs; • no Mwana material adverse change occurs; • no Mwana insolvency event occurs; • Mwana lodges with AIM an application for admission to trading on AIMof the Mwana shares to be issued to Gravity shareholders under the share scheme; • Gravity shareholders approve the share scheme by the majoritiesrequired under section 411(4)(a) of the Australian Corporations Act; • Mwana and each holder of Gravity unlisted options enter into a privatetreaty deed for the transfer of their unlisted options to Mwana (GravityUnlisted Option Deeds); • the Court approves the share scheme in accordance with section 411(4)(b)of the Australian Corporations Act; and • Mwana provides satisfactory evidence to Gravity that Mwana has fundingarrangements in place to pay the maximum aggregate cash component due to Gravityshareholders and listed optionholders under the share and option schemes and theamounts payable under the Gravity Unlisted Option Deeds. Relationship between the share scheme and the option scheme The share scheme is not conditional on the option scheme being approved andimplemented. However, the option scheme will only proceed if the share schemebecomes legally effective. No solicitation and no talk Gravity must not, subject to the exceptions below or without Mwana's consent: • directly or indirectly solicit or initiate discussions, expressions ofinterest, offers or any proposals in relation to a competing transaction; or • enter into any agreement, arrangement or understanding in relation toor which may reasonably be expected to lead to a competing transaction (otherthan confidentiality arrangements on ordinary commercial terms in relation tothe competing transaction). Gravity may undertake any action that would otherwise be prohibited by the aboveexclusivity arrangements in relation to a bona fide competing transaction whichwas not solicited by Gravity where the Gravity Board, acting in good faith,determines that the competing transaction is superior to the Gravityshareholders and/or the Gravity optionholders than the relevant scheme. The exclusivity provisions will not apply to the extent that a Court or theTakeovers Panel determines that any part of these arrangements constitutes abreach of fiduciary or statutory duties, constitutes unacceptable circumstanceswithin the meaning of the Australian Corporations Act or is unlawful. Break fee Gravity has agreed to pay Mwana a fee of $150,000 (inclusive of GST, VAT or anysimilar value added tax) if: • a Gravity 'prescribed occurrence' or a Gravity material adverse changeoccurs and the MID is terminated by Mwana; • Gravity's board of directors fails to recommend unanimously the sharescheme or any Gravity director withdraws a recommendation previously made inrespect of the share scheme other than: • because of a Mwana material adverse change or a Mwana insolvency event; or • following the independent expert opining that the share scheme is not in the best interests of Gravity shareholders, other than because of a competing transaction, and the MID is terminated by Mwana; or • the share scheme does not become legally effective by 31 May 2007 (orsuch other date agreed by the parties) as a consequence of a materialnon-compliance by Gravity with any of its obligations under the MID. Gravity has agreed to pay Mwana a fee of $400,000 (inclusive of GST, VAT or anysimilar value added tax) if a competing transaction is announced or made by aperson other than Mwana and that competing transaction has not been withdrawn orhas not expired by the time of the scheme meetings and the MID is terminated byMwana. Mwana has agreed to pay Gravity a fee of $150,000 (inclusive of GST, VAT or anysimilar value added tax) if: • there is a Mwana material adverse change or a Mwana insolvency event andthe MID is terminated by Gravity; • Mwana's board of directors makes a public statement indicating that itno longer supports the merger proposal other than because of a Gravitymaterial adverse change and the MID is terminated by Gravity; or • the share scheme does not become legally effective by 31 May 2007 (orsuch other date agreed by the parties) as a consequence of a materialnon-compliance by Mwana with any of its obligations under the MID. Termination Either party can terminate the MID at any time prior to 8.00am on the date thatGravity seeks Court approval of the share scheme if: • the other party is in material breach of certain material obligations orwarranties given under the deed; • Gravity shareholders do not approve the share scheme by the majoritiesrequired under section 411(4)(a) of the Australian Corporations Act; • the board of directors of the other party withdraws its recommendationor support for the merger; • a Court or governmental agency permanently restrains or prohibits themerger; • if the Court refuses to order the convening of the share scheme meetingor refuses to approve the share scheme; or • any of the conditions precedent are not satisfied or waived by 31 May2007 (or such other date as may be agreed by the parties). Gravity can terminate the MID at any time prior to 8.00am on the date thatGravity seeks Court approval of the share scheme if the Gravity board changesits recommendation to Gravity shareholders and optionholders to vote in favourof the schemes as a result of: • a bona fide competing transaction being publicly announced that theGravity board determines is superior to the schemes; • the independent expert views that either of the schemes is not in thebest interests of the relevant scheme participants; or • the Gravity board views that recommending the merger constitutes abreach of its fiduciary or statutory duties, constitutes unacceptablecircumstances within the meaning of the Australian Corporations Act or isunlawful. This information is provided by RNS The company news service from the London Stock Exchange