HGM.L Regulatory News (HGM)

20 Nov 2006 12:17

Highland Gold Mining Limited20 November 2006 Increased participation by Barrick Gold Corporation in Highland Gold MiningLimited Summary 20 November 2006, London - Highland Gold Mining Limited ("Highland", or the "Company") announces that it has signed a Share Exchange Agreement with BarrickGold Corporation ("Barrick") in relation to the transaction announced inprinciple on 2 November 2006, the terms of which have not changed materiallysince then. A Circular to shareholders, including a letter from the Chairman with details ofthe increased participation by Barrick, a summary of the main terms of the ShareExchange Agreement and an outline of the arrangements for co-operation betweenthe two parties following completion, together with notice of an ExtraordinaryGeneral Meeting to be held on Wednesday 13 December, 2006, is being posted toshareholders today. The Circular will be available for information to the public as of today viaHighland's website at www.highlandgold.com. Further detail 1. Introduction Barrick is a leading international gold mining company, with a portfolio of 27operating mines and seven advanced exploration and development projects locatedacross five continents, and a large land position on the world's bestexploration belts. It is listed in Canada and has an equity marketcapitalisation of c. 28 billion Canadian dollars. Barrick is to increase its shareholding in the Company to approximately 34 percent. in exchange for shares of certain Barrick subsidiaries which hold: • Barrick's 50 per cent. interest in all existing joint ventures with theCompany; and • four further gold exploration interests owned by Barrick. In addition, following completion of the transaction, certain Barrick personnelwill be appointed to the Board and further senior personnel of Barrick will joinRussdragmet, Highland's management company in Russia. Completion is subject to, amongst other things, the approval of shareholders byway of passing the special resolution granting the necessary authority to theDirectors for the issue of 34,492,305 ordinary shares to certain companies inthe Barrick group. The Company is also reviewing its financial options to raise up to US$50 millionto continue the development of its business. 2. Background to and reasons for the transaction Barrick has had a long collaborative relationship with the Company and inOctober 2003 it first acquired a holding of shares equivalent to 10 per cent. ofthe Company's then issued share capital. In January 2004, Barrick and theCompany entered into agreements under which Barrick subscribed for furthershares in the Company, taking its holding to approximately 17 per cent.. Theseagreements also provided mutual back-in rights to equity participation inacquisitions in Russia. In July 2005, Barrick subscribed for a further 11.4million shares taking the holding to approximately 20 per cent. of the thenissued share capital of the Company. The Company has received technical support and advice from Barrick since itsinitial subscription and Barrick has exercised its back-in rights over threeproperties acquired by the Company since 2004. Alex Davidson, Barrick ExecutiveVice President, Exploration and Corporate Development, sits on the Board as anon-executive director, and, in addition, the executives of the Company andBarrick's employees based in Moscow have developed a close working relationship. The Company and Barrick believe that it is in the interests of both companies todevelop this relationship further and to combine the ownership of the mininginterests which have been acquired by the Company since 2002 with the technicalskills of Barrick. The Company's mining interests include the producing minesat MNV and Darasun, the gold prospect at Mayskoye (at pre-feasibility stage), 50per cent. of the polymetallic prospect at Novoshirokinskoye ("Novo") (for whicha joint development with Kazzinc has been announced) and 50 per cent. of thegold prospect at Taseevskoye (at pre-feasibility study stage). The Company believes that the combination will provide a stronger platform todevelop and grow its mining business in the former Soviet Union. The Directorsbelieve that the Company will significantly benefit from Barrick'sindustry-leading expertise in mining operations, extensive worldwide explorationexperience, up-to-date technology and access to capital markets. 3. Information on the assets Pursuant to the Share Exchange Agreement, the Company will acquire Barrick'sinterests in the following companies which hold the interests described below: • 100% of Barrick's shares in Taseevskoye Netherlands B.V., and Barrick'srights and interests in the Taseevskoye licence; • 100% of Barrick's shares in HB Ventures Netherlands B.V., and Barrick'srights and interests in the Sovinoye, Belaya Gora and Malo Fedorov licences; • 100% of the shares in Barrick Resources LLC, the holder of the Lyubov,Maya-Inikan, and Sarasa licences; and • 100% of the shares in Barrick Gold Kyrgyzstan LLP, the holder of theUnkurtash and Kassan licences in Kyrgyzstan. 4. Principal terms and conditions of the transaction Pursuant to the Share Exchange Agreement, the Company has agreed to acquirethese interests in consideration for the issue to certain companies in theBarrick group of 34,492,305 ordinary shares. Completion of the transaction issubject to certain conditions, including the passing by shareholders of thespecial resolution authorising the Directors to issue such ordinary shares atthe EGM. Pursuant to the Share Exchange Agreement, all existing arrangementsbetween Barrick and the Highland group are to be terminated. The Company and Barrick have also signed a co-operation agreement (the "Co-operation Agreement") to address the ongoing relationship between the partiesfollowing completion of the transaction, the purpose of which is to ensure thatHighland is able to carry on its business independently of Barrick. 5. Board appointments Following completion, Barrick will have the right to appoint two additionaldirectors to the Board and a further announcement will be made upon suchappointments. It is expected that all of the current Directors will remain onthe Board until the Board structure is reviewed to take account of independence,experience and other compliance considerations. Henry Horne will remain asManaging Director of the Company. The Co-operation Agreement provides that theBoard shall consist of at least nine members. 6. Senior management and operational changes As part of the transaction, it is proposed that Rene Marion, currently Barrick'sRegional Vice President, Russia and Central Asia, will join Russdragmet as ChiefOperating Officer and Scott Perry, currently Barrick's Director of Finance,Russia and Central Asia, will join Russdragmet as Chief Financial Officer. Itis also proposed that other Barrick personnel will be engaged by Russdragmet tofill exploration, technical and other strategic roles. As part of an ongoing strategy, the offices and operations of both Barrick andRussdragmet are being combined. By combining the offices, Barrick's technicalskills and exploration experience in Russia will be merged with Russdragmet'sexpertise and know-how relating to the operation of assets within Russia. 7. Related party Given its existing shareholding, Barrick is a related party for the purposes ofthe AIM Rules. As at 17 November 2006, Barrick was interested in 31,742,959ordinary shares representing 19.8 per cent. of the issued share capital of theCompany at that date. Barrick has undertaken to vote in favour of theresolutions to be proposed at the EGM in respect of its holding of ordinaryshares. Following Completion, Barrick will own approximately 34 per cent. of theCompany's issued share capital. In view of Alex Davidson's position with Barrick as Executive Vice President,Exploration and Corporate Development, he has taken no part in the Board'sconsideration of the transaction. The Independent Directors (being the Directors of the Company other than AlexDavidson) consider, having consulted with JPMorgan Cazenove, the Company'snominated adviser, that the terms of the transaction are fair and reasonable inso far as shareholders are concerned. In providing advice to the Company,JPMorgan Cazenove has taken into account the Independent Directors' commercialassessments. 8. Darasun mine tragedy Since the tragic events at Darasun, the Company has taken practical steps tomitigate its effect on the families involved and the inevitable disruption inits mining activities. The Company continues to support the management andpersonnel involved. As part of the ongoing investigations, one Darasun employeehas been criminally charged with breach of safety rules. 9. Current trading At MNV, given the recent unusual extreme weather conditions, the Company expectsto be at the lower end of its target production range for 2006 of 150,000 to160,000 ounces of gold. Underground production at Darasun has not re-started because it has not yet beenpossible for management to gain access underground. Darasun management hasapplied to the authorities for the necessary approvals for underground access toassess the damage caused by the fire to the central shaft. Open pit productionis, however, slowly coming back on stream, although grades are belowexpectations. The first phase of the drilling programme at Taseevskoye is now complete andalmost 100 per cent. of the assay results have been received. These results arein the process of being interpreted and early indications are encouraging. AtMayskoye, good progress is being maintained and the bankable feasibility studyis on track to be completed by the end of the first quarter 2007. Initialmetallurgical test work at this stage is in line with our expectations and moreresults are expected soon. In October 2006, Stanmix Holdings Limited (a wholly owned subsidiary of theCompany) entered into an agreement whereby Kazzinc is to acquire an interest of48.3 per cent. in the mine at Novo for US$36 million. This agreement is subjectto the parties entering into a joint venture agreement which is now in thecourse of being agreed and is expected to be finalised by the end of November2006. The agreement is also subject to certain Russian and Kazakh regulatoryrequirements. The Directors believe that the appropriate approvals will beobtained during the course of December 2006. 10. Funding requirements On the basis that the transaction is completed, the Company is projecting totalcapital expenditure to the end of 2007 on the Highland group's mines andprojects to amount to approximately US$90 million and other capital requirementsto the end of 2007 to amount to approximately US$3 million. Outstanding loanswhich are currently repayable between now and the end of 2007 amount toapproximately US$22 million. Accordingly, the funding requirements of theenlarged Highland group to the end of 2007 are expected to amount to a total ofapproximately US$115 million. The Company expects to have the following sources of funding available in orderto meet this funding requirement: • the Highland group's operating resources; • proceeds of US$36 million from the sale to Kazzinc of 50 per cent. ofthe Company's interest in Novo. Kazzinc will also contribute approximately US$13million which represents 50 per cent. of the capital expenditure budget for Novoto the end of 2007; • a new debt facility the details of which are currently underdiscussion; and • the proceeds of an equity placing. The timing and level of suchplacing will ultimately depend upon market conditions. The Board currently considers that it is appropriate to raise approximatelyUS$50 million through an equity placing. Barrick has undertaken in theCo-operation Agreement that, if an equity placing of up to US$50 million islaunched, it will participate to maintain its shareholding in the Company atapproximately 34 per cent.; the balance of the cash to be raised pursuant to theequity placing will then be raised from the subscription for ordinary shares byinstitutional investors. Authority for the Directors to issue ordinary sharespursuant to such a placing and generally is to be sought at the EGM. 11. Takeover Code Although the Company has its registered office in Jersey, the place of centralmanagement and control of the Company is currently located outside the UK, theChannel Islands or the Isle of Man. Accordingly, the Takeover Panel hasconfirmed that the Company is not subject to the City Code on Takeovers andMergers (the "Code") and shareholders will not be afforded any protections underthe Code. If circumstances change, including if further changes to the Board are made, theCompany will consult with the Takeover Panel to ascertain whether this willaffect the central management and control of the Company. If the Takeover Paneldetermines that, as a result of such changes, the place of central managementand control of the Company is located in the UK, the Channel Islands or the Isleof Man, such that the Code then becomes applicable to the Company, anannouncement will be made. As the Company is not currently a company subject to the Code, investors shouldbe aware that shareholders (including Barrick) are currently able to increasetheir interests in voting rights in the Company to 30 per cent. or more withouthaving to make a mandatory offer under the Code. For further information please contact: Highland Gold Moscow: +7 (495) 777 5529 E-mail: info@highlandgold.com Henry Horne, Managing Director Dmitry Yakushkin, Director of Communications JPMorgan Cazenove London: +44 (207) 588 2828 Michael Wentworth-Stanley Sam Critchlow 26 New Street, St Helier, Jersey, Channel Islands JE2 3RA Tel: +44 (0) 1534 814202 fax: +44 (0) 1534 814815 http://www.highlandgold.com This information is provided by RNS The company news service from the London Stock Exchange