ZOE.L Regulatory News (ZOE)

Highlands Natural Resources plc ("Highlands" or "the Company")

Helios Two Transaction

Highlands, the London listed natural resources company, is pleased to announce that it has reached a heads of terms with London listed Opera Investments Plc ("Opera") by which Opera will acquire all of the issued share capital of Highlands' subsidiary, Highlands Helium Development Limited, the owner of Highlands' Helios Two helium and natural gas project in Montana, USA..

Background

Opera was listed in April 2015 in order to undertake one or more acquisitions of target companies or businesses in the natural resources sector within a defined investment strategy.

Opera and Highlands have conditionally agreed that Opera will acquire all of the issued share capital of Highlands Helium Development Limited which owns Highlands' Helios Two helium and natural gas project in Montana, USA for a consideration of approximately £4.0 million (the "Acquisition"). The heads of terms provide that the Acquisition will be satisfied by the issuance of new ordinary shares of £0.01 each in Opera ("Opera Shares") to Highlands at a price of £0.15 per Opera Share (the "Consideration Shares"), valuing the existing issued share capital of Opera at £2.5 million. In addition, it is envisaged that, in conjunction with completion of the Acquisition, there will be an equity financing raising net proceeds of not less than US$750,000 to fund certain future investment and working capital requirements of Helios Two. The heads of terms also stipulate that Opera will reimburse Highlands all of the professional costs incurred by Highlands on this project as well as any costs of further leases that could be acquired for the project (with any such further leases also being the subject of the Acquisition).

Both parties believe that the Helios Two assets represent a significant opportunity to take advantage of a potentially significant helium resource, at a time of global concerns around helium scarcity and helium price increases. It is the intention to establish a team dedicated to the development and commercialisation of the Helios Two project, which consists of exploration licences covering 59,033.82 acres in Custer, Carter and Fallon Counties, Montana. Numerous shows of gas have been encountered across the Helios Two target region. Historic gas analysis confirmed the gas contains elevated concentrations of helium (0.36 per cent) similar to the producing US Hugoton helium field, which is the largest natural accumulation of helium in the United States. Consequently, Highlands and Opera believe that a significant volume of gas containing helium could exist in this region which, if correct, would represent a significant helium resource in North America. Highlands has commissioned RPS Knowledge Reservoir to prepare a competent person's report in this regard.

Helium

The United States Bureau of Land Management (BLM) sold helium for US$104.00 per thousand cubic feet in 2015 compared to current natural gas prices of approximately US$2.40 per thousand cubic feet. Privately negotiated sales of Grade A helium priced for approximately $200.00 per thousand cubic feet in 2015 according to the United States Geological Survey (USGS). Due to worldwide demand, Highlands believes that helium prices could rise significantly. The strong price environment is due to dwindling helium resources which could lead to potential shortages of helium feedstocks globally. The Federal Helium Reserve at the Cliffside Gas Field near Amarillo, Texas was established in 1925 to conserve scarce helium resources and the helium refining capacity connected to it currently requires approximately 2.3 billion cubic feet per annum, representing around 30% of global supply. However, the Federal Helium Reserve's extensive resources are expected to become significantly depleted if not exhausted by 2020, meaning that the requirement to develop new fields into production is strong.

Helium is an essential feedstock for numerous industrial, medical, scientific and commercial applications including nuclear power generation, magnetic resonance imaging ('MRI'), industrial fabrication and welding, fundamental sciences and research, fiber optics, space and defence applications, semiconductor manufacturing, and many other applications. Significantly, helium currently has no substitute in cryogenic applications requiring temperatures below -220 degrees Celsius. Highlands believes that helium's role as a critical and presently irreplaceable component of numerous modern industries will underpin future global demand.

Highlands CEO Robert Price said, "This transaction reflects Highlands' intention to generate value for shareholders from its exciting asset base in tandem with focussing on its DT Ultravert business that is looking to transform the global re-fracking business. As a result of this transaction, Highlands would become majority shareholder in a company developing a potentially significant helium and natural gas business precisely as global concerns around helium scarcity rise. Highlands has been able to develop the Helios Two project extremely efficiently, and now Highlands' shareholders can benefit from value creation without any capital commitments.

"We are excited to work with the Opera team. We have been impressed with Opera's management throughout the negotiation and preliminary diligence process and together, we believe that the development Helios Two can generate significant value for shareholders of both companies."

Opera Chairman Paul Dudley said. "These heads of terms with Highlands move Opera one important step closer to acquiring a valuable development-ready asset. Given broad concerns around helium scarcity and price increases, the Opera management team views the Helios Two assets as a highly compelling development opportunity that fits well with its existing strategy and core competencies. This transaction has the potential to position Opera as one of the only publicly-traded investment vehicles offering shareholders dedicated exposure to helium assets. Together with Highlands' management and advisors, we feel well-equipped to develop and commercialise the Helios Two project and to deliver value to shareholders."

The Acquisition remains conditional on a number of matters, including:

· The Acquisition will be considered a reverse takeover for Opera in accordance with the FCA Listing Rules and, consequently, will be subject to the publication of a prospectus by Opera and its shareholders' approval.

· New directors will be appointed to the board of Opera including, in particular, a non-executive director with experience of helium. In due course, but expected to be after completion of the Acquisition, Opera also expects to appoint a chief executive who is experienced in this industry. Highlands and Opera will also enter into a relationship agreement pursuant to which, amongst other things, Highlands will be entitled to nominate two directors to the Opera board.

· At the time of announcing the full terms of the Acquisition, Opera will also carry out a fundraising by way of the issue of new ordinary shares in Opera (the "Fundraising"), the purpose of which will be to put the company in funds to carry out the first stage of the development plan for Helios Two, namely the drilling of the first two wells and their associated injection well.

· Following the issue of the Consideration Shares, Highlands will be a majority shareholder in Opera and, accordingly, the Acquisition will be subject to a Takeover Code whitewash (the "Whitewash") and Opera shareholder approval in respect of the provisions of Rule 9 of the Takeover Code. Details of the Whitewash will be contained in Opera's prospectus.

· Finally, the Acquisition will be subject to conclusion of the parties' due diligence, and the parties entering into final documentation including an acquisition agreement. It is expected that for the first 12 months following the Acquisition, Highlands will provide its expertise and management services to Opera in return for a management fee of £20,000 per month.

Timetable

Highlands and Opera have already commenced work on the matters above and, in particular, the competent persons report commissioned with RPS Knowledge Reservoir is already well advanced. The parties will update their respective shareholders in due course but, at the present time, they expect that Opera will publish its shareholder documentation during the summer with its shareholder meeting being convened, and the Acquisition completing, shortly thereafter.

**ENDS**

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