Elemental Minerals receives all cash takeover offer

"Certain annexures referenced in this announcement will be available in full with the form of this announcement lodged at asx.com.au, under Elemental's profile at www.sedar.com, and on the Company's website. Accordingly, this announcement should be read in conjunction with that full documentation."

PERTH, Australia, July 1, 2013 /CNW/ - Elemental Minerals Ltd. (ASX, TSX: ELM) ("Elemental" or the "Company") and Dingyi Group Investment Limited ("Dingyi"), a company incorporated in Bermuda and listed on the Hong Kong Stock Exchange ("SEHK") have today, following the successful completion of a thorough technical and financial due diligence exercise by Dingyi, executed a bid implementation agreement ("Bid Implementation Agreement"), under which Dingyi will make an off-market takeover offer for 100% of the fully paid ordinary shares of Elemental ("Dingyi Offer").

Highlights

• Dingyi to make an all cash takeover offer for Elemental at A$0.66 per share, valuing Elemental at approximately A$190 million¹.
  
  
• The Dingyi Offer price represents a significant premium to recent trading prices of Elemental shares including a 126% premium to the volume weighted average price per Elemental share over the 20 trading days prior to the announcement in relation to the Dingyi Offer made on 12 April 2013.
  
  
• The Dingyi Offer is subject to a number of conditions (including Dingyi acquiring at least 50.1% of Elemental's shares and Dingyi shareholder approval requiring certain confirmations from the SEHK) but importantly is not conditional upon finance, Chinese regulatory or Foreign Investment Review Board approvals.
  
  
• The majority of Elemental's Directors recommend Elemental shareholders accept the offer (subject to the qualifications detailed below).
  
  
• The independent expert engaged by Elemental, BDO Corporate Finance, has confirmed that in its view the transaction is fair and reasonable to Elemental shareholders in the absence of a superior offer.
  
  
• In support of the Dingyi Offer, Elemental Director Mr Ian Stalker and Fiducs Limited (an entity controlled by Mr Stalker) and Elemental's largest shareholder, Pala Investments Limited, have entered into pre-bid purchase agreements with Dingyi, over an aggregate of 13.6% of Elemental's current issued share capital.
  
  
• Dingyi has agreed to subscribe for A$5 million of Elemental shares at an issue price of A$0.3407 per share and also provide Elemental with additional financing of up to A$15 million through a secured convertible loan facility to provide working capital subject to satisfaction of all necessary shareholder approvals and other conditions.

Takeover Offer

The Dingyi Offer price is A$0.66 per Elemental share, valuing Elemental at approximately A$190 million. The Dingyi Offer price represents a:

• 126% premium to the volume weighted average price per Elemental share over the 20 trading days prior to the announcement in relation to the Dingyi Offer made on 12 April 2013;
  
  
• 52% premium to the volume weighted average price per Elemental share over the 20 trading days to 28 June 2013, the last trading day prior to this announcement; and
  
  
• 45% premium to the closing price of Elemental shares on 28 June 2013.

Dingyi proposes to enter into private treaty arrangements with Elemental's option holders to acquire or cause to be cancelled their options in exchange for agreed cash consideration in the event that Dingyi acquires more than 90% of the issued shares of Elemental pursuant to the Dingyi Offer.

The Dingyi Offer will be made in accordance with the requirements of the Australian Corporations Act 2001 (Cth). While Elemental is listed on the Toronto Stock Exchange, the Dingyi Offer is being made in and to residents of Canada on the basis of an exemption from the formal take-over requirements of applicable Canadian provincial securities laws.

Offer conditions and funding

The Dingyi Offer is subject to a number of conditions, a summary of which is set out in Annexure A to this announcement. These include:

• Dingyi acquiring at least 50.1% of Elemental's shares;
  
  
• Dingyi shareholders approving the transaction in accordance with the SEHK Listing Rules, which will require Dingyi to obtain the necessary confirmations from the SEHK to enable the Dingyi shareholder approval to be obtained by the shareholder approval long stop date in the Bid Implementation Agreement (the "Shareholder Approval Long Stop Date");
  
  
• no prescribed circumstances occurring; and
  
  
• no material adverse change in respect of Elemental during the offer period.

The Dingyi shareholder meeting to approve the Dingyi Offer is expected to be held in September 2013.  Mr Li Kwong Yuk, the Chairman and an Executive Director of Dingyi and Wincon Capital Investment Limited ("Wincon"), a company beneficially owned by Mr Li Kwong Yuk and which holds 50.3% of the voting shares in Dingyi, has undertaken to vote the shares owned and controlled by him in favour of the resolutions the subject of Dingyi's shareholder approval referenced above. The voting undertaking does not require Wincon or Mr Li Kwong Yuk to vote on the resolutions if precluded from doing so by law or SEHK requirements.

Elemental or Dingyi may terminate the Bid Implementation Agreement if by 1 August 2013 (or such later date as is agreed) the SEHK has not provided certain confirmations that are reasonably required to achieve the receipt of Dingyi shareholder approval by the Shareholder Approval Long Stop Date. There is no guarantee that the SEHK will provide this confirmation within this timeframe.

Elemental or Dingyi may also terminate the Bid Implementation Agreement if Dingyi has not satisfied, or is not reasonably expected to be able to satisfy, the Dingyi shareholder approval condition by the Shareholder Approval Long Stop Date.

Importantly, the Dingyi Offer is not conditional upon finance, Chinese regulatory or Australian Foreign Investment Review Board approvals.

Board recommendation

Your Directors are unanimous in the view that the Dingyi Offer should be considered by shareholders given that it represents a significant premium to the Elemental share price both prior to the announcement made on 12 April 2013 and prior to this announcement. 

Having considered the advantages and disadvantages of the Dingyi Offer, each of Messr Sam Middlemas, John Ian Stalker, Michael Barton, and Robert Franklyn consider that the Dingyi Offer is in the best interests of Elemental shareholders and accordingly recommend that shareholders accept the Dingyi Offer unless:

• a superior proposal emerges; and
  
  
• the Dingyi shareholder approval condition has not been satisfied or waived by the Shareholder Approval Long Stop Date.

The recommendation of Elemental's chief executive officer, Mr Iain Macpherson, differs from the majority of the Board and he has informed Elemental that his current intention is to recommend that shareholders reject the Dingyi Offer on its current terms. Mr Iain Macpherson reserves the right to reconsider his recommendation, including in the event that control passes to Dingyi.

The full reasons of the views of all Directors will be set out in the Target's Statement.

Commenting on the Dingyi Offer, Mr Sam Middlemas, the Elemental Chairman, said:

"The Elemental Board has carefully considered the Dingyi Offer and the majority of the Board supports and recommends the Dingyi Offer, subject to the stated qualifications. It provides Elemental shareholders with an opportunity for an immediate liquidity event at an attractive premium and at a time when capital markets are depressed and access to capital is proving difficult, even for companies like Elemental with a world class asset. Importantly, the Dingyi Offer is not subject to funding and does not require Chinese government approvals or FIRB approval. "

Opinion of the Independent Expert

Elemental appointed BDO Corporate Finance (WA) Pty Ltd as its Independent Expert to undertake an independent assessment of the Dingyi Offer.

The Independent Expert has concluded that in the absence of a superior offer, the Dingyi Offer is fair and reasonable to Elemental shareholders for reasons that include:

• the Dingyi Offer price is above the top end of the Independent Expert's range of values for an Elemental share of A$0.29 to A$0.65 and is significantly higher than the Independent Expert's preferred value of A$0.47 per share;
  
  
• the Dingyi Offer provides a certain cash return on investment in Elemental shares and avoids the funding uncertainty inherent with an ongoing investment in Elemental.

Further information supporting the Independent Expert's conclusions is set out in the Independent Expert's Report, which is being released to ASX concurrently with this announcement.

Bid Implementation Agreement

Elemental and Dingyi have entered into a Bid Implementation Agreement intended to facilitate the making of the Dingyi Offer. The Implementation Agreement contains customary provisions including:

• exclusivity arrangements including "no shop", "no talk" clauses together with notification and matching rights;
  
  
• a reciprocal break fee of A$1.9 million payable in certain prescribed circumstances; and
  
  
• certain representations and warranties and restrictions on the conduct of business.

A complete copy of the Bid Implementation Deed is attached as Annexure B.

Pre-bid purchase agreements

In support of the Dingyi Offer, Elemental Director Mr Ian Stalker and Fiducs Limited (an entity controlled by Mr Stalker) and Elemental's largest shareholder, Pala Investments Limited, have entered into pre-bid purchase agreements with Dingyi over an aggregate of 13.6% of Elemental's current issued share capital.

Dingyi funding announcements

Dingyi has advised that Wincon has agreed to provide an unconditional bridging debt facility for US$160,000,000 to Dingyi for its possible investments, including the proposed acquisition of Elemental ("Wincon Facility").  With Dingyi's existing cash reserves and the Wincon Facility, Dingyi now has unconditional funding in place for an acquisition of Elemental.

On 20 June 2013, Dingyi announced that it had signed a conditional subscription agreement with Hantang Resources Investment Limited ("Hantang") and China Africa Development Fund ("CAD Fund") to raise HK$620,000,000 (approximately US$80,000,000) through the issue of convertible bonds. CAD Fund is a Chinese Government backed investment fund established to facilitate Chinese investments in Africa. As mentioned in the announcement, CAD Fund and Hantang will provide assistance with arranging funding (including introducing strategic investors) for the development of the Sintoukola Project and coordinating the governmental relationships between the PRC and the Republic of Congo if the proposed acquisition of Elemental proceeds. Given the Wincon Facility, the CAD Fund agreement is not required to close for the acquisition of Elemental to proceed. A copy of the announcements relevant to Dingyi's funding arrangements are attached as Annexure C.

Interim Funding from Dingyi

Dingyi has agreed to subscribe for 14,676,163 fully paid ordinary shares in Elemental to raise A$5 million at A$0.3407 per share ("Subscription Shares").  The issue of the Subscription Shares is subject to Elemental shareholder approval under the ASX Listing Rules, no competing proposal being recommended by a majority of the Elemental Board and certain other conditions. It is expected that a meeting to approve the issue of the Subscription Shares will be held in early August 2013.

Elemental has also entered into a conditional secured convertible note financing facility under which Dingyi has agreed to provide Elemental with up to A$15 million (the "Convertible Note Facility").

Drawdown under the Convertible Note Facility is subject to a number of conditions, including Elemental shareholder approval as well as to agreeing final security documentation and a budget for use of funds advanced under that facility with Dingyi. The Board will convene a shareholders meeting to approve the Convertible Note Facility if it is considered likely to need to draw on the facility. Subject to satisfaction of the drawdown down conditions, funds can be drawn down in 3 tranches of A$5 million each.

The key terms of the Facility are summarised in Annexure D to this announcement.

The provision of funding will assist with the provision of working capital during the bid period. An issue of shares or other securities by Elemental prior to the close of the offer other than as agreed would breach a condition of the Dingyi Offer and enable termination of the offer by Dingyi.

Indicative timetable

The indicative timetable in relation to the Dingyi Offer is set out below:

Advisers

Elemental's lead legal adviser is Corrs Chambers Westgarth, with further legal advice from Deacons and Stikeman Elliott LLP and financial advice by BMO Capital Markets.

Dingyi's financial adviser is RBC Capital Markets, with legal advice being provided by Norton Rose Fulbright.

About Elemental Minerals

Elemental Minerals Limited is an advanced mining exploration and development company that aims to grow shareholder value through its 93%-owned Sintoukola Potash Project on the Republic of Congo coastline. Elemental Minerals is dual listed on the Australian Stock Exchange and the Toronto Stock Exchange under the symbol ELM. For more information, visit www.elementalminerals.com

About Dingyi Group Investment

Dingyi Group Investment Limited is a company incorporated in Bermuda and listed on the Hong Kong Stock Exchange. Dingyi is an investment company with interests based primarily in Hong Kong and Mainland China. Dingyi is a company controlled by Mr. Li Kwong Yuk, a Chinese entrepreneur.  Mr. Li also controls a number of other substantial Mainland Chinese and international business interests in sectors including infrastructure, real estate, financial institutions and natural resource, among others.

Forward Looking Statements

No representation or warranty, express or implied, is made or given by or on behalf of the Company or any of their subsidiary undertakings or any of the directors, officers or employees of any such entities as to the accuracy, completeness or fairness of the information or opinions contained in this Release and no responsibility or liability is accepted by any person for such information or opinions.  In furnishing this Release, the Company does not undertake or agree to any obligation to provide the attendees with access to any additional information or to update this Release or to correct any inaccuracies in, or omissions from, this Release that may become apparent. The information and opinions contained in this Release are provided as at the date of this Release. The contents of this Release are not to be construed as legal, financial or tax advice. Each prospective investor should contact his, her or its own legal adviser, independent financial adviser or tax adviser for legal, financial or tax advice.

"Certain annexures referenced in this announcement will be available in full with the form of this announcement lodged at asx.com.au, under Elemental's profile at www.sedar.com, and on the Company's website. Accordingly, this announcement should be read in conjunction with that full documentation."

Annexure A - Conditions to the Dingyi Offer

Set out below is a summary of the conditions to the Dingyi Offer that apply during the offer period, the full text of which is set out in the Bid Implementation Agreement, which is being released to the ASX concurrently with this announcement.

• Dingyi shareholder approval:  Dingyi obtains the approval of its shareholders under the SEHK Listing Rules for the purposes of implementing the Dingyi Offer. For these purposes, the parties have agreed that Dingyi needs to obtain the required confirmations from the SEHK in relation to the Dingyi Offer by 1 August 2013 (or such later date as is agreed) for Dingyi to be able to achieve the deadlines for obtaining the Dingyi shareholder approval.
  
  
• Minimum acceptance of 50.1%:  Dingyi obtains a relevant interest in at least 50.1% of Elemental shares.
  
  
• No material adverse change: There is no event giving rise to a material adverse change in respect of Elemental.
  
  
• No untrue statements to ASX and ASIC:  Neither Elemental or Dingyi becomes aware that any information filed or lodged by Elemental with ASX or ASIC prior to 1 July 2013 (being the date of announcement of the Dingyi Offer) is untrue, incomplete or misleading in a material respect.
  
  
• No regulatory action:  No government agency or other regulatory authority takes any action to restrain the Dingyi Offer or require the divestiture by Dingyi of any shares or assets of Elemental.
  
  
• No prescribed occurrences:   No event that is a "Prescribed Occurrence" occurs (as defined in the Bid Implementation Agreement).
  
  
• Conduct of business:   Elemental conducts its business, assets and operations and manages its issued capital and human capital in the ordinary course.
  
  
• No material acquisitions, disposals or new commitment or change of control conditions being triggered: There are no material acquisitions, disposals or new commitments by Elemental group and no person exercises or purports to exercise a right or has any rights under a material contract as a result of the Dingyi Offer.
  
  
• No litigation against Elemental being commenced or threatened:  No material litigation against Elemental is commenced or threatened after 1 July 2013 but before the close of the Dingyi Offer.
  
  
• Exploitation Mining Convention: If Elemental enters into the Exploitation Mining Convention, it does so on terms which have been approved by Dingyi.
  
  
• Status of key tenements: There not being a material adverse change in the status or terms of Elemental's key tenements.

Annexure B - Bid Implementation Agreement

Available in full with the form of this announcement lodged at asx.com.au, under Elemental's profile at www.sedar.com, and on the Company's website.

Annexure C - Dingyi Announcements

Available in full with the form of this announcement lodged at asx.com.au, under Elemental's profile at www.sedar.com, and on the Company's website.

Annexure D - Summary of the Convertible Note Facility

Under the Convertible Note Facility, Dingyi has agreed to provide Elemental with a A$15 million secured convertible note facility. A summary of the terms of the Convertible Note Facility is set out below. This summary is not exhaustive and does not constitute a definitive statement of the rights and liabilities of each of Dingyi and Elemental under the Convertible Note Facility.

• Convertible Note Facility: Subject to satisfaction of the various conditions, funds under the facility are to be advanced in 3 tranches of A$5 million each, with the first tranche expected to be available for drawdown once Elemental shareholder approval has been obtained. The second and third tranche are expected to be available in December 2013 and March 2014 respectively, provided the Dingyi Offer remains open.
• Use of funds: Funds drawn down under the Convertible Note Facility are only to be used in accordance with a budget agreed with Dingyi prior to draw down of those funds.
• Conditions to drawdown: Drawdown of each tranche of funding under the Convertible Note Facility is subject to various conditions including:
• Elemental shareholder approval to the extent required under Listing Rules 7.1 and 10.1;
• Exchange of binding security documentation to secure moneys drawn down under the Convertible Note Facility;
• Agreeing with Dingyi a budget governing the use of funds drawn down under the Convertible Note Facility;
• Various conditions in relation to the Dingyi Offer, including the Bid Implementation Agreement not being terminated and no defeating condition to the Dingyi Offer having been breached (other than breaches which Dingyi decides to waive).
• Security: The Convertible Note Facility is intended to be secured by a (amongst other things) first ranking security over Elemental's 93% shareholding in Sintoukola, the owner of the Sintoukola Potash Project.
• Interest:  Interest will be payable quarterly at 7% per annum. Elemental may elect to capitalise all interest which would otherwise be payable prior to the maturity date.
• Conversion: Convertible notes issued on drawdown of a tranche under the Convertible Note Facility may be converted at Dingyi's election into Elemental shares at a conversion price of A$0.3407.
• Maturity date: The maturity date of convertible notes issued under the Convertible Note Facility is 6 months after the close of Dingyi's Offer, although Dingyi has the ability to unilaterally extend the maturity date for additional periods of not more than 6 months in limited circumstances. Elemental may redeem convertible notes issued under the Convertible Note Facility without penalty at any time after the date that is 90 days after the first tranche is drawn down.
  
  
  Dingyi may require any convertible notes on issue to be redeemed earlier than their maturity date where an event of default occurs or in the majority of circumstances where a break fee is required to be paid by Elemental under the Bid Implementation Agreement. In these circumstances, all (or any part) of the convertible notes on issue must be redeemed:
  
  (a)     within 5 business days of an event giving rise to the obligation by Elemental to pay a break fee (other than in circumstances where a third party acquires a relevant interest or voting power in Elemental where the relevant trigger for repayment of the convertible notes is acquiring a relevant interest of more than 50%) or the occurrence of insolvency-related or certain other fundamental events of default;
  
  (b)     within 6 months of being notified of any other event of default not the subject of paragraph (a) above.

• Default events: It is a default event under the Convertible Note Facility if:
• Elemental fails to pay an amount due under the Convertible Note Facility within an agreed cure period;
• Elemental does not give effect to a valid conversion notice;
• Elemental otherwise fails to comply with a facility document constituting a material adverse event and that event is not cured within an agreed period;
• Elemental ceases to own its 93% shareholding in Sintoukola, or Elemental or Sintoukola are required by a government agency to dispose of all or a substantial part of their assets;
• Other customary events of default occur (eg insolvency, provisions of the facility documentation become void etc).
• Other terms:  Elemental has provided representations, warranties and undertakings which are customary for a facility of this nature.

¹ Based on the offer price of A$0.66 per share and an issued share capital of 288,587,228 fully paid ordinary shares.

SOURCE: Elemental Minerals Limited