27 Aug 2009 07:00
China Goldmines PLC ("CGM" or the "Company")
Proposed Disposal of the entire issued share capital of Westralian Resources Pty. Ltd.
Notice of General Meeting
Highlights
* Conditional agreement with Cosmos Castle Management Limited for the sale of the entire issued share capital of Westralian Resources Pty. Ltd.
* The gross consideration payable by Cosmos expressed in US Dollars is USD26,350,000 which is in respect of:
* USD10,000 for the Shares; and
* USD26,340,000 for the Shareholder Loan.
* Funds are already on deposit with custodian
* Of the Total Consideration USD2,900,000 is anticipated to cover outstanding liabilities of Westralian Resources Pty. Ltd. or its subsidiary Hunan Westralian Mining Co. Ltd. on Closing and certain costs incurred by CGM and its subsidiary GRV in fulfilling their respective commitments under the Share Purchase Agreement.
* Transaction is conditional on the approval of Company's shareholders at a general meeting of the Company.
Transaction rationale
* Project currently requires an injection of capital (estimated by the Directors to be in excess of USD15,000,000) in order to develop the underground infrastructure.
* Continued security breaches, theft and other local community issues have impacted on the decision to make further investment.
* A number of alternative solutions have been assessed and reviewed by the Directors who have ultimately concluded that the proposed disposal of the Project represents the best alternative to preserve shareholder value.
Forward strategy
* Following the Disposal the Company will be classified under the AIM Rules as an investing company.
* The Company proposes to identify and acquire holdings in natural resources, minerals and/or metals companies and/or assets which the Directors believe are undervalued.
* The Company's Investing Strategy is also subject to approval of the Company's shareholders at the General Meeting.
A Circular containing the notice of General Meeting is expected to be posted shortly to shareholders, and will also, once posted, be available on the Company's website (www.chinagoldmines.com), for the purpose of approving the Disposal and the Investing Strategy.
1. Introduction
The Company announces that it and its wholly owned subsidiary, Global Resource Ventures Limited ("GRV"), a company incorporated under Australian law, have entered into a conditional agreement (the "Share Purchase Agreement") with Cosmos Castle Management Limited ("Cosmos"), a company incorporated under the laws of the British Virgin Islands, for the sale by GRV of the entire issued share capital of Westralian Resources Pty. Ltd. ("WES"), a wholly owned subsidiary of GRV, incorporated under the laws of Western Australia, and the holder of CGM's interest in Hunan Westralian Mining Co. Ltd. ("HW"), a Chinese foreign co-operative joint venture company, whose share capital is held by WES and Brigade 407 of the Hunan Geology & Exploration Bureau (the "Disposal" or "Transaction"). Under the Share Purchase Agreement, GRV has also agreed, conditionally, to the sale to Cosmos of all outstanding indebtedness owing by WES to GRV. HW's only material assets comprise eight gold mines and associated infrastructure, permits and licences together with two exploration licences in the Guanzhuang Project, Hunan Province, China (the "Project").
Completion of the Transaction, whereupon the Company will have no trading activities, constitutes a fundamental change of business of the Company under Rule 15 of the AIM Rules for Companies (the "AIM Rules"). Accordingly, completion of the Transaction is conditional on the approval of Company's shareholders ("Shareholders") at a general meeting of the Company (the "General Meeting" or "GM").
Following the Disposal, the Company will be classified under the AIM Rules as an investing company. Accordingly, the investing strategy of the Company going forward (the "Investing Strategy"), details of which are set out below, is also subject to the approval of Shareholders at the General Meeting. The Company will be required to make an acquisition or acquisitions which constitute a reverse takeover under the AIM Rules or otherwise implement its Investing Strategy within 12 months of completion of the Disposal, failing which, the Company's Ordinary Shares would then be suspended from trading on AIM.
A circular setting out further details of the Disposal and including the notice of the General Meeting (the "Circular") is expected to be published shortly and will, once published, be posted to Shareholders and will also be available at the Company's website (www.chinagoldmines.com).
2. Reasons for the Transaction
China Goldmines commenced gold production in early 2008 and has more recently encountered a number of issues in developing and optimising the Project. Continued security breaches, theft and other local community issues have had a significant and detrimental impact on the Company's ability to develop and optimise the Project. Management have sought to address this situation by putting in place additional security arrangements and conducting a comprehensive review of its mining operations. The Company has also revised its business strategy, which has ultimately led the Board to consider the merits of selling the Project.
A number of alternative solutions have been assessed and reviewed by the Directors including Chinese and international joint venture partners, conventional equity raisings and a potential sale of the Project. The Directors estimate that the Project currently requires an injection of capital (estimated by the Directors to be in excess of USD15,000,000) in order to develop the underground infrastructure to achieve a higher and more sustainable gold production in order to become a profitable gold producer. Given the Directors perception of the level of uncertainty in the equity markets coupled with the operational and cultural difficulties experienced to date, the Directors have concluded that the proposed disposal of the Project represents the best alternative to preserve shareholder value.
3. Terms of the Disposal
The respective parties have entered into and will enter into a number of documents in order to conclude the Transaction. A summary of the key terms of the material documents is set out below.
Share Purchase Agreement between GRV, Cosmos, WES and CGM
Sale
Under the Share Purchase Agreement GRV has agreed, conditionally, to sell the entire issued share capital of WES (the "Shares") to Cosmos (or its nominee) together with all rights attaching thereto from, on or after closing, free from encumbrances. GRV has also agreed, conditionally, to sell all indebtedness owed by WES to GRV immediately before closing (the " Shareholder Loan") to Cosmos together with all rights attaching thereto on or after closing, free from encumbrances. The Share Purchase Agreement provides that closing ("Closing") is to take place on or before 3 October 2009 or such other date agreed by GRV and Cosmos (the "Closing Date").
Consideration
The consideration payable by Cosmos (which the Share Purchase Agreement provides is payable in Hong Kong Dollars), expressed in US Dollars is as follows (the "Total Consideration"):
* USD10,000 in respect of the Shares; and
* USD26,340,000 in respect of the Shareholder Loan.
The Share Purchase Agreement specifies exchange rates between Hong Kong Dollars and US Dollars and between US Dollars and Renminbi Yuan and the Hong Kong Dollar to US Dollar exchange rate specified in the Share Purchase Agreement has been used to calculate the above amounts. The amount payable for the Shares in sterling is £6,157 and the amount payable for the Shareholder Loan is £16,218,213, in each case using an exchange rate of USD1 = £0.62 (to the nearest pence).
Under the Share Purchase Agreement, USD1,467,000 of the Total Consideration was paid to Messrs Li & Partners, solicitors for Cosmos, acting as a custodian pursuant to the custodian agreement described below with the balance of the Total Consideration payable by Cosmos in the same manner within three business days of the Share Purchase Agreement.
The Company has received confirmation from Messrs Li & Partners that the sum of USD26,350,000 has already been remitted to Messrs Li & Partners in relation to the custodian arrangements.
The Total Consideration plus interest, minus a sum of USD2,900,000 on account of outstanding liabilities of WES and HW at Closing, costs associated with the termination of WES and HW employees, staff and officers after Closing at the request of Cosmos and costs associated with any claims and legal proceedings against WES and HW at Closing (the "Withheld Amounts") is to be released by Messrs Li & Partners, acting as custodians, at Closing, subject to the terms and conditions of the Share Purchase Agreement and the custodian agreement described below. CGM and GRV confirm in the Share Purchase Agreement to the best of their knowledge, information and belief that the amounts allocated to the matters which relate to the Withheld Amounts are fair and genuine and that the final settlement of such matters will not exceed such amounts. The matters which relate to the Withheld Amounts are to be discharged by CGM and GRV using their own funds, following which Cosmos will cause Messrs Li & Partners to release the USD2,900,000 to GRV as soon as reasonably practicable thereafter.
Conditions for Closing
The Share Purchase Agreement provides that Closing is conditional on the following being satisfied as soon as possible after its date:
* HW and WES providing to Cosmos a list of staff, employees and officers whose employment is to be terminated after Closing as Cosmos may request;
* HW having made arrangements to enter into or having entered into employment contracts, reasonably satisfactory to Cosmos, with employees and staff to be retained after Closing;
* GRV, WES and HW having materially complied with all terms of the Share Purchase Agreement prior to Closing;
* all third party consents and approvals required for the consummation of the Share Purchase Agreement having been obtained (including shareholder approval by CGM's shareholders), but excluding any consents which are to be obtained by Cosmos;
* no material adverse change having occurred in relation to WES and HW in the period between the date of the Share Purchase Agreement and Closing;
* the warranties in the Share Purchase Agreement remaining materially true and accurate and not misleading in any material respect;
* GRV providing documentary evidence showing that all liabilities, indebtedness due or owing and taxation of WES and HW have been repaid and fully discharged save and except all liability and matters relating to the Withheld Amounts;
* a renewal certificate of exploration rights in respect of HW's gold mines and exploration licences being obtained; and
* a lawful and valid resource reserve verification report, examination position paper of resource reserve verification report and mineral resource examination registration of resource reserve verification report (in each case of Guanzhuang Gold Mines in Yuangling County, Hunan Province) being obtained.
Cosmos may waive any of the above conditions, save in respect of the above relevant condition, so far as it relates to CGM shareholder approval, and may also extend the time within which the above conditions may be satisfied. In the event that the above conditions are not satisfied or waived, in addition to the rights of Cosmos to proceed to Closing (whilst requiring defaults to be remedied after Closing) and/or to terminate the Share Purchase Agreement (without prejudice to its rights and remedies) and/or to terminate the custodian arrangements and to require the refund of monies held pursuant to such arrangements, Cosmos can require GRV to pay to it the sum of USD660,000 (£406,378, using an exchange rate of USD1 = £0.62 (to the nearest pence)) as liquidated damages for GRV's material breach or non-fulfilment of the Share Purchase Agreement.
Under the Share Purchase Agreement, the failure by Cosmos to proceed to Closing, following the satisfaction or waiver of the above conditions (as the case may be) will permit GRV the right to terminate the Share Purchase Agreement (without prejudice to its rights and remedies) and/or to demand payment to it of USD660,000 (£406,378, using an exchange rate of USD1 = £0.62 (to the nearest pence)) from the monies held pursuant to the custodian arrangements as liquidated damages for Cosmos' breach and/or any non-fulfilment of the Share Purchase Agreement.
Restrictions Prior to Closing
In respect of the period from the date of the Share Purchase Agreement to Closing there are restrictions on WES and HW from passing director and shareholder resolutions without Cosmos' consent (save for those required pursuant to the Share Purchase Agreement or in the ordinary course of business (and, in the event thereof, Cosmos is required to be notified)), incurring indebtedness or creating or permitting to arise encumbrances (save in the ordinary and normal course of business), altering their share capital, incurring trade payables or capital commitments (save for those provided for in the Share Purchase Agreement), declaring, making or paying distributions or dividends to shareholders and altering the composition of their boards.
In addition, as directed by Cosmos, WES and HW are required to exercise their best endeavours to resolve or settle the matters which relate to the Withheld Amounts and engage in their ordinary and normal business or activity. GRV is required to seek Cosmos' approval or instructions before effecting payments and committing obligations of WES and HW, other than in the ordinary and normal course of business.
After Closing
After the Closing Date, GRV is required to use its reasonable endeavours and act regularly and diligently to:
* obtain the lawful and valid mining rights certificates of HW's eight gold mines, fully consolidating the eight mining rights certificates, and the lawful and valid certificates and licences for the operation and business of HW;
* settle or finally dispose of, by no later than 31 December 2009, the matters which relate to the Withheld Amounts; and
* provide the audited financial statements for HW for the financial year ending 30 June 2009 to Cosmos by 31 October 2009.
Warranties
CGM and GRV have provided warranties, jointly and severally, to Cosmos and its successors in title, subject to any matters disclosed. The warranties are repeated up until Closing. The warranties are concerned with the following matters:
* the authority and capacity of CGM and GRV to enter into the Share Purchase Agreement, which is binding upon them;
* the entering into and performance of the Share Purchase Agreement not breaching the constitutions of CGM and GRV and the agreements, licences etc and court orders and judgements which affect CGM and GRV;
* ownership and title to the Shares and the Shareholder Loan;
* the validity and terms of the Shareholder Loan and borrowings and indebtedness;
* commercial activities between the date of the Agreement and Closing not taking place without Cosmos' consent (save for certain specified activities);
* contractual arrangements;
* litigation and disputes pursued by and against GRV, HW and WES;
* the solvency of GRV, HW and WES;
* compliance by HW and WES with laws and regulations and official inquiries or investigations;
* the structure of the group and the information set out in the schedules to the Share Purchase Agreement;
* the accuracy of the books and records of HW and WES and that such books and records are in their possession or control;
* the validity of licences, permits and consents;
* ownership and control of assets and the condition of such assets;
* merchantable quality and adequacy of stock in trade;
* the standing of HW and its rights in relation to mining and exploration, including whether all relevant fees have been paid;
* the employment arrangements of HW and WES;
* the accuracy and completeness of information provided to Cosmos and also in the Share Purchase Agreement and disclosure letter;
* financial information and accounts of HW and WES;
* the financial position, standing and operation of HW and WES since 31 December 2008;
* the ownership of intellectual property rights and software and any claims in relation thereto;
* the ownership, title and use of equipment and real property;
* the insurance arrangements of HW and WES; and
* the taxation affairs of HW and WES.
The warranties expire 12 months from the Closing Date. The maximum liability of CGM and GRV under the warranties is USD10,000,000 (£6,157,256, using an exchange rate of USD1 = £0.62 (to the nearest pence)) with Cosmos permitted to select any basis of claiming damages available to it as well as any other rights or remedy which is available. In the event of a warranty being materially untrue, inaccurate or misleading prior to Closing, Cosmos is entitled to terminate the Share Purchase Agreement, without having waived any rights arising from such breach.
Indemnity
Under the Share Purchase Agreement, CGM and GRV have agreed to indemnify, jointly and severally, Cosmos, its officers, directors, affiliates, stockholders, shareholders, successors and assigns against all losses arising out of any untruth, inaccuracy or breach of warranty in the Share Purchase Agreement or in any certificate or other writing delivered in connection therewith at, before or after, Closing or any facts or circumstances constituting such untruth, inaccuracy or breach. The maximum liability of CGM and GRV under this indemnity is limited to USD10,000,000 in aggregate (£6,157,256, using an exchange rate of USD1 = £0.62 (to the nearest pence)). The indemnity expires 12 months following the Closing Date.
Guarantee
CGM has guaranteed, as principal obligor, in favour of Cosmos and its assigns or successors, the due and punctual performance and observance by GRV of its obligations, agreements, warranties and undertakings under the Share Purchase Agreement and the other documents relating to the Transaction and indemnifies Cosmos and its assigns or successors against all losses, damages, costs and expenses arising from any breach by GRV of its obligations, agreements, warranties and undertakings. This guarantee and indemnity expires 12 months from the Closing Date, save for any antecedent breaches claimed by Cosmos by that date which have not been resolved. Liability is limited to the sum of USD10,000,000 in aggregate (£6,157,256, using an exchange rate of USD1 = £0.62 (to the nearest pence)).
Access and Coordination
From the date of the Share Purchase Agreement, GRV, WES and HW are required to provide Cosmos access and information as Cosmos may request (with Cosmos permitted to take copies of any information) and WES and HW are required to use their reasonable endeavours to coordinate with Cosmos the administration and management of their business and not to carry out corporate acts materially affecting their affairs without first having informed and consulted with Cosmos. GRV is required, at its own cost, to use its best endeavours to procure that any necessary third party or governmental authority executes or provides such documents and does such acts as Cosmos may require to give Cosmos the benefit of the Share Purchase Agreement.
Restrictive Covenant
Under the Share Purchase Agreement, CGM and GRV covenant that GRV and its affiliates will not within 18 months of Closing solicit from HW or WES any person who is or has been an employee of HW or WES.
Further Undertakings
Within 12 months of Closing CGM and GRV are required, at the cost and expense of Cosmos, to use their reasonable endeavours, to procure that any necessary third party or governmental authority executes or provides such documents and does such acts and things as Cosmos may reasonably require to give effect to the Share Purchase Agreement and securing to Cosmos the full benefit of the Share Purchase Agreement.
The Share Purchase Agreement requires that all indebtedness and taxation of WES and HW existed or occurring at Closing are to be settled by GRV by Closing, save and except for all liabilities and the matters relating to the Withheld Amounts, which are to be settled by GRV no later than 31 December 2009, such that WES and HW are transferred to Cosmos at Closing on a nil-liability and nil-debt basis, but always subject to all liabilities and the matters relating to the Withheld Amounts.
In the event that Cosmos suffers or incurs any losses, damages or penalty, within 12 months of Closing in relation to any administrative or other punishment due to a lack of authorisation or permit issued by a relevant governmental authority in relation to HW's gold mines or its exploration licences, CGM and GRV have agreed, jointly and severally, to be responsible for payment of such losses, damages or penalty up to in aggregate USD 10,000,000 (£6,157,256, using an exchange rate of USD1 = £0.62 (to the nearest pence)) and to indemnify Cosmos against such losses, damages or penalty up to the same amount. These obligations expire 12 months from the Closing Date, save for any antecedent breaches claimed by Cosmos by that date, which have not been resolved.
All payments and service fees payable to service providers, including Brigade 407 and others, entrusted to apply on behalf of HW for renewals of the gold mining and exploration licences of HW are to be paid by GRV on behalf of HW.
Limitations
All obligations, liabilities or responsibilities of CGM and GRV under the Share Purchase Agreement expire after 12 months from Closing, save for any antecedent breaches claimed by Cosmos by that date which have not been resolved. The aggregate liability of GRV and CGM under the Share Purchase Agreement (including, but not limited to, under the warranties, indemnity and guarantee described above) is limited to USD10,000,000 (£6,157,256, using an exchange rate of USD1 = £0.62 (to the nearest pence)).
Law
The Share Purchase Agreement is governed by Hong Kong law, save that the provisions relating to the transfer of the Shares are governed by Western Australian law. Disputes relating to the Share Purchase Agreement are to be resolved by the courts of Hong Kong.
In addition to the Share Purchase Agreement, the following documents are also material to the Transaction:
Custodian Agreement between GRV, Cosmos and Messrs Li & Partners
The Custodian Agreement was entered into to regulate the basis upon which Messrs Li & Partners will hold the Total Consideration between the date of the Custodian Agreement and Closing but subject to the terms and conditions of the Custodian Agreement.
Monies held by Messrs Li & Partners as the custodian are to be held on trust for Cosmos and may only be released from the custodian arrangements as provided for in the Custodian Agreement (save in the event of a court order or pursuant to the terms governing the relevant bank account). Monies to be released by Messrs Li & Partners either on Closing or early termination of the Share Purchase Agreement require the joint instruction of GRV and Cosmos. Monies to be released by Messrs Li & Partners in respect of the Withheld Amounts require the sole instruction of Cosmos.
Messrs Li & Partners are not liable for the operation of the custodian arrangements, save for fraud, wilful misconduct or gross negligence, and GRV and Cosmos will indemnify, jointly and severally, Messrs Li & Partners and their agents or employees and will hold them harmless against any and all losses, claims, damages and liabilities which may arise in connection with the custodian arrangements.
The agreement is governed and construed in accordance with Hong Kong law. The parties submit to the non-exclusive jurisdiction of the Hong Kong courts.
Deed of Tax Indemnity between GRV, WES and Cosmos
The deed of tax indemnity is a document which was substantially in agreed form at the date of the Share Purchase Agreement and will be entered into on Closing. Under the deed, GRV covenants with and undertakes to Cosmos to indemnify Cosmos and WES against claims for taxation made against Cosmos or WES which relate to the period prior to Closing, including claims under section 35 of the Estate Duty Ordinance (cap. 111, the laws of Hong Kong) together with all costs, expenses and liabilities which Cosmos or WES may incur in the settlement of any claim under the deed, any legal proceedings in which Cosmos or WES claim under or in respect of the deed and in which judgement is given for them or the enforcement of any such settlement or judgement.
The indemnity from GRV does not extend to claims arising from acts or omissions of Cosmos or WES after Closing or for which WES is or becomes liable wholly or primarily as a result of transactions after Closing or to the extent the claim arises or is incurred as a result of retrospective changes in the law or rates of taxation. The expiry date for claims is the maximum permitted by law, that is, 12 years from the date of the deed of indemnity.
Payments under the deed are to be made gross, free of any rights of set-off and without any deductions or withholdings of any nature. GRV is to gross-up payments in the event that deductions or withholdings are required by law.
The deed is to be governed by and construed in accordance with Hong Kong law. The parties submit to the non-exclusive jurisdiction of the courts of Hong Kong as regards any claim or matter.
Deed of Assignment between GRV, Cosmos and WES
The deed of assignment is a document which was substantially in agreed form at the date of the Share Purchase Agreement and will be entered into on Closing. By the deed GRV will assign to Cosmos the Shareholder Loan together with all of GRV's rights in relation thereto.
Under the deed, GRV is to provide warranties to Cosmos relating to GRV's power and authority and ability to enter into the deed, the validity and binding obligations on GRV under the deed, GRV's title to the Shareholder Loan and the rights to be assigned by Cosmos, the validity of the Shareholder Loan, the terms of the Shareholder Loan, the solvency of GRV, judgements and court orders outstanding against GRV, disclosure of information to Cosmos and compliance with the terms of the Shareholder Loan.
The deed is governed and construed in accordance with Hong Kong law and the parties submit to the non-exclusive jurisdiction of the Hong Kong courts.
Shareholder Loan Agreement between GRV and WES
The loan agreement is a document which was substantially in agreed form at the date of the Share Purchase Agreement and will be entered into on Closing. It is required to confirm and restate the terms and conditions of the Shareholder Loan.
Warranties are provided by GRV and WES to each other about their power and authority to enter into the agreement. WES represents and undertakes to GRV about the purpose of the Shareholder Loan and GRV confirms to WES the absence of fees, commission or charges payable.
The agreement is governed and construed in accordance with Hong Kong law and the parties submit to the non-exclusive jurisdiction of the Hong Kong courts.
4. Existing Directors
All Directors of the Company intend to offer themselves for re-election at the next Annual General Meeting to be held prior to the end of January 2010. In addition, the Company will seek the appointment, at that time, of a UK-based independent non-executive Chairman, who has yet to be identified.
5. Use of Proceeds
As described above the Total Consideration is made up as follows:
* USD10,000 in respect of the Shares; and
* USD26,340,000 in respect of Shareholder Loan.
Estimated professional fees associated with lawyers, advisors and agents in Australia, London, China and Hong Kong are estimated at USD2,800,000. In addition, USD2,900,000 of the Total Consideration, in accordance with the Share Purchase Agreement, will be set aside to meet outstanding liabilities of WES and HW, costs associated with the termination of WES and HW employees, staff and officers after 31 August 2009 at the request of Cosmos and costs associated with any claims and legal proceedings against WES and HW.
The net funds available to CGM following the Disposal (of at least approximately USD20,650,000) will enable the Company to execute its proposed Investing Strategy and will provide working capital for the day-to-day running of the Company. Details of the proposed Investing Strategy are provided below.
The profit/loss attributed to the sale is as follows:
| 12 months to | 6 months to | |
| 30 June 2008 | 31 Dec 2008 | |
| USD | USD | |
| - Net Loss Hunan Westralian Mining Company | (2.3M) | (2.1M) |
| - Net Loss China Goldmines plc | (4.2M) | (19.3M) |
The Company has put a book value of approximately USD27,600,000 on the investment in HW (held by WES) in its last unaudited accounts for the six month period to 31 December 2008.
The accounting treatment of the Transaction would reflect:
* Sale of Shares - GRV will dispose of the Shares for USD10,000; their cost base is USD64,000, resulting in a loss of USD54,000;
* Repayment of the Shareholder Loan - the intercompany indebtedness in the last unaudited accounts of WES for the six month period to 31 December 2008 owing to GRV was USD30,300,000. This is anticipated to be extinguished fully with the repayment of USD26,300,000 and a write off of the outstanding balance, resulting in a loss of approximately USD4,000,000.
6. Information on Cosmos
Cosmos is a company incorporated in the British Virgin Islands, with company number 1447760 on 30 November 2007. The correspondence address of Cosmos is at Suite 2302-2306, 23rd Floor, Great Eagle Center, 23 Harbour Road, Wanchai, Hong Kong. Mr. Cheng Ziazhong is the sole director and sole shareholder of Cosmos and additionally holds the beneficial interest in the sole issued share of Cosmos.
The relevant parties to Cosmos, for the purposes of Schedule 4 (a) to the AIM Rules are Mr. Cheng Zaizhong, a registered foreign lawyer at Hong Kong law firm Li and Partners and a financing party (the "Financing Party"). It has been a stipulation that the identity of the Financing Party remains confidential to the Transaction. Aside from Mr. Cheng and the Financing Party the Directors are not aware of any other relevant parties to Cosmos. Li and Partners, the solicitors to Cosmos, have confirmed to the Company that to the best of their knowledge and belief the Financing Party is not a related party to the Company for the purposes of the AIM Rules.
7. The Investing Strategy
AIM Rule 15 states that where the effect of a proposed disposal is to divest an AIM company of all, or substantially all, of its trading business, activities or assets that company will be treated as an investing company and must therefore provide shareholders with details of its investing strategy.
The Company's Investing Strategy, to be implemented following the Disposal, is set out below and will require the approval of Shareholders at the GM.
As described above, the Company will have outstanding obligations under the terms of the Share Purchase Agreement in respect of the warranties, indemnities, undertakings, agreements and obligations entered into by the Company and also as guarantor to GRV of its own obligations, indemnities, agreements, warranties and undertakings. As also described above, the respective obligations of the Company and GRV expire 12 months from the Closing Date, save for any antecedent breaches claimed by Cosmos by that date which have not been resolved, and are limited to the sum of USD10,000,000 (£6,157,256, using an exchange rate of USD1 = £0.62 (to the nearest pence)).
The Company therefore intends to set aside net proceeds of at least USD10,000,000, until such time as its outstanding obligations under the Share Purchase Agreement expire.
The Company's proposed Investing Strategy is to create shareholder value by identifying and acquiring holdings in natural resources, minerals and/or metals companies and/or assets which the Directors believe are undervalued. The Company expects to be an active investor but it will depend on the terms of each transaction.
The Company will seek to acquire interests in natural resources, minerals and/or metals projects such as (without limit) exploration permits and licences, mining and production licences or processing and development projects, which may be achieved through acquisitions, partnerships or joint venture arrangements. Such investments may result in CGM acquiring the whole or part of a company or project. CGM's investments may take the form of equity, joint venture debt, convertible instruments, licence rights, or other financial instruments as the Directors deem appropriate.
The Directors believe that their collective experience in the areas of natural resources, acquisitions, corporate and financial management together with the opinion of consultant experts in the evaluation of natural resources, minerals or metals projects, will assist them in the identification and assessment of suitable opportunities. Where the Directors consider it necessary, competent persons will be commissioned to prepare reports on the projects being considered by the Company. The Directors may undertake the initial project assessments themselves with additional independent technical advice as required. If the strategy is approved, there is no limit on the number or location of projects into which the Company may invest.
The Directors are not, at this stage, engaged in any due diligence exercise nor have entered nor are negotiating any commitment in connection with any investments or acquisitions.
The Company is required to make an acquisition or acquisitions which constitute a reverse takeover under the AIM Rules or otherwise implement its Investing Strategy within 12 months of the General Meeting failing which, the Company's Ordinary Shares will then be suspended from trading on AIM. If the Company's Investing Strategy has not been implemented within 18 months of the General Meeting the admission to trading on AIM of the Company's Ordinary Shares would be cancelled and the Directors will convene a general meeting of the Shareholders to consider whether to continue seeking investment opportunities.
8. General Meeting
A Circular containing the notice of General Meeting is expected to be posted shortly to shareholders, and will also, once posted, be available on the Company's website (www.chinagoldmines.com), for the purpose of approving the Disposal and the Investing Strategy.
As explained above, the Disposal constitutes a transaction by the Company resulting in a fundamental change of business for the purposes of Rule 15 of the AIM Rules, and accordingly completion of the Disposal is conditional, additionally, on the consent of the Shareholders in general meeting.
9. Board Recommendation
The Board believes that the Transaction is in the best interests of the Company and the Shareholders. Accordingly, the Directors unanimously recommend that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting as they intend to do in respect of 11,650,004 Ordinary Shares, representing approximately 24.03 per cent. of the Company's issued Ordinary Share capital.
Brewin Dolphin Ltd, the Company's nominated adviser, has advised the Company only in connection with its regulatory obligations under the AIM Rules and not in respect of the commercial merits of the Disposal.
| China Goldmines plc Frank Vanspeybroeck (CEO) Marinko Vidovich (CFO) | +86 731 489 0755 +61 8 6216 5200 |
| Threadneedle Communications | |
| Laurence Read/Beth Harris | +44 (0)20 7653 9855 |
| Brewin Dolphin Ltd (Nomad) | |
|
Alex Dewar (Nominated Adviser) | +44 (0)131 529 0276 |