Aquila Resources and REBgold Corporation announce business combination and acquisition of 100% interest in the Back Forty Project

- Secured $4.5 million of committed capital from strategic investor -
- Hudbay agrees to sell its 51% stake in Back Forty to merged entity - 

TORONTO, Nov. 7, 2013 /CNW/ - Aquila Resources Inc. (TSX: AQA) (OTCQX: AQARF) (FKT: JM4A) ("Aquila") and REBgold Corporation (TSX.V: RBG) ("REBgold") announced today that they have entered into a definitive agreement to complete a business combination whereby Aquila will acquire all of the outstanding shares of REBgold in exchange for Aquila shares on a 1-for-1 basis ("the Business Combination"). The companies also announced that they have:

  • reached an agreement with Baker Steel Capital Managers LLP, on behalf of investment funds managed or controlled by it ("Baker Steel", REBgold's largest shareholder) for Baker Steel to invest $4.5 million in the combined entity as part of a private placement financing (the "Financing"); and
  • entered into a binding agreement with Hudbay Minerals Inc. ("Hudbay") to acquire its 51% interest in the Back Forty Project, a poly-metallic asset located in Michigan, in exchange for shares of Aquila, future milestone payments tied to the development of the project and a 1% net smelter return royalty on production from certain land parcels in the project (the "Back Forty Acquisition").

Upon completion of the Business Combination, the Financing and the Back Forty Acquisition (collectively, the "Proposed Transaction"), the combined entity, which will continue to operate as Aquila, will own 100% of the Back Forty Project, have a strengthened balance sheet and be focused on advancing development of Back Forty.

"Our plans to merge and advance the development of Back Forty have received strong support from our partners and a reputable investor in the resource sector who have all subscribed at a premium to current market price," said Barry Hildred, CEO of Aquila. "By bringing together two management teams that have significant mining sector and capital markets experience, we believe we will expedite the development of Back Forty and create significant value for the shareholders of both Aquila and REBgold."

"Our merger with Aquila is consistent with our strategy of identifying advanced stage but under-valued projects," commented Mark Burridge, Chairman of REBgold.  "We believe that Back Forty represents an opportunity to develop a significant project with the potential for both lower initial capital requirements and ultimately greater production than previously envisioned."

Benefits of the Transactions

Upon completion of the Proposed Transaction, Aquila and REBgold shareholders will benefit from:

  • a strong board and leadership team with experience in mine development, operations, and capital markets;
  • strategic investor backing from Baker Steel Capital and a supportive significant shareholder in Hudbay;
  • 100% ownership of the high-grade, poly-metallic Back Forty Project, located in the Great Lakes Region, which contains approximately 1 million oz of gold and 1 billion lbs of zinc in the M&I categories, with additional upside potential;
  • 100% ownership of the Bend Copper-Gold Project, a VMS deposit located in the Great Lakes Region;
  • 100% ownership of the Reef Gold Project, a high-grade deposit potentially amenable to open-pit mining;
  • a highly prospective joint venture in Finland with established resources; and
  • REBgold's metallurgical capabilities and proprietary bioleaching technology.

The Business Combination  

Aquila and REBgold have entered into an arrangement agreement whereby Aquila will acquire 100% of the outstanding shares of REBgold in exchange for Aquila shares on a 1-for-1 basis by way of a statutory plan of arrangement pursuant to the Canada Business Corporations Act. Completion of the Business Combination is subject to completion of the Financing (described below) and the Back Forty Acquisition, the receipt of all necessary court, shareholder and stock exchange approvals and other customary conditions.

The board of directors of Aquila and REBgold have unanimously approved the Business Combination and resolved to recommend that the Aquila shareholders and REBgold shareholders, respectively, vote in favour of the Business Combination. In connection with its consideration of the Business Combination, the REBgold board of directors received an opinion from Clarus Securities Inc. to the effect that the Business Combination and related transactions are fair, from a financial point of view, to the REBgold shareholders.

The Back Forty Acquisition

Aquila and REBgold have entered into a purchase agreement with Hudbay to acquire 100% of the shares of Hudbay Michigan Inc., Hudbay's wholly-owned subsidiary which holds its 51% interest in the Back Forty Project, in exchange for consideration consisting of:

  • $2.25 million - up to a maximum of $2.5 million worth of Aquila common shares (based on 50% of the Financing) issued upon closing of the Back Forty Acquisition;
  • up to $9 million in post-closing milestone payments tied to development of the Back Forty Project as follows:
    • $3 million payable upon completion of any form of financing for purposes including the commencement of construction of Back Forty (up to 50% of such amount to be payable, at Aquila's option, in Aquila shares with the balance payable in cash);
    • $2 million in cash payable 90 days after the commencement of commercial production;
    • $2 million in cash payable 270 days after commencement of commercial production; and
    • $2 million in cash 450 days after commencement of commercial production;
  • a 1% net smelter return (NSR) royalty on production from certain land parcels on the Back Forty property, capped at $7M.

"We fully support this transaction as it allows us to focus on our core strategy while maintaining the ability to participate in the potential upside at Back Forty through our increased equity holding in an invigorated Aquila," said Hudbay's CEO David Garofalo.

If Hudbay has not received any milestone payments or received at least $2.5 million in proceeds from the sale of the Aquila shares it receives on closing within 10 years, it will have the right to repurchase a 51% interest in the Back Forty Project in exchange for its initial consideration shares or $2.5 million in cash.

Completion of the Back Forty Acquisition is subject to completion of the transactions, the receipt of all necessary shareholder and stock exchange approvals and other customary conditions.

The boards of directors of each of Hudbay, Aquila and REBgold have unanimously approved the Back Forty Acquisition and the board of directors of Aquila has unanimously resolved to recommend that the Aquila shareholders vote in favour of the Proposed Transaction. In connection with its consideration of the Back Forty Acquisition, the Aquila board of directors received a formal valuation from Jennings Capital Inc. in accordance with National Instrument 61-101 - Protection of Minority Security Holders in Special Transactions. Jennings Capital Inc. also provided its opinion to the Aquila board of directors that the Proposed Transaction is fair, from a financial point of view, to Aquila.

The Financing

In connection with the Business Combination and the Back Forty Acquisition, Aquila and REBgold intend to complete the Financing by way of a non-brokered private placement of up to $6 million at a price of $0.13 per share.  The Financing will be structured as a sale of REBgold common shares which will be issued immediately prior to closing of the Business Combination and be exchanged for Aquila shares on a 1-for-1 basis in accordance with the terms of the Business Combination.  Baker Steel has committed to purchase $4.5 million of REBgold shares under the Financing. Completion of the Financing will be subject to the concurrent completion of the Business Combination and the Back Forty Acquisition, receipt of stock exchange approval and other customary closing conditions.

Voting Agreements

Aquila shareholders holding approximately 23% of the outstanding Aquila shares have agreed to vote in favour of the resolutions to be considered by Aquila shareholders relating to the Business Combination and Back Forty Acquisition.

REBgold shareholders holding approximately 50% of the outstanding REBgold shares have agreed to vote in favour of the Business Combination.

Post Closing Capitalization

Prior to the Proposed Transaction, Aquila had 98,099,896 outstanding common shares and upon its completion, assuming that the entire $6 million private placement is subscribed for, Aquila is expected to have:

  • approximately 192,604,694 million shares issued and outstanding, of which Baker Steel will own approximately 23.6% and Hudbay will own approximately 17.4%.; and
  • outstanding stock options, convertible debentures and warrants that will collectively be exercisable for or convertible into an aggregate of approximately 24,000,000 shares.

Post Closing Directors and Management

Upon completion of the Business Combination, Aquila's board of directors and management team will be comprised of select individuals from the existing leadership teams of both Aquila and REBgold, chosen for their proven track records and industry expertise.

The board of directors will be led by Mark Burridge, who will serve as Chairman of Aquila. Barry Hildred will continue to serve as Chief Executive Officer. Mr. Hildred will also be appointed a director of Aquila.

Two additional directors from the existing board of directors of each Aquila and REBgold will be nominated to serve on the Aquila board and a seventh director will be jointly nominated. Details on board nominations and composition will be included in the joint management information circular that will be distributed to shareholders of record in advance of the shareholder meeting.

Shareholder Meetings

Aquila and REBgold will each be calling a special meeting of its shareholder for purposes of seeking approval of the Proposed Transaction. A joint management information circular containing further information with respect to the Proposed Transaction, the matters to be considered at the meeting and the combined entity will be mailed to Aquila and REBgold shareholders in due course.

About Aquila Resources

Aquila Resources Inc. (TSX: AQA) (OTCQX: AQARF) (Frankfurt: JM4A) is a mineral exploration Company focused on the discovery and development of high grade base and precious metal projects in highly prospective regions of North America. The Company is led by an experienced management team that has identified significant ore deposits over the last 30 years.

About REBgold Corporation

REBgold (TSX.V:RBG) is a public mining company whose primary objective is to acquire and develop economic interests in gold assets, in particular assets where it can utilize its competitive advantages to create shareholder value. The Company's key competitive advantages include an experienced board and management team, strategic investor backing and proprietary technology.

About the Back Forty Project

The Back Forty Project is a high-grade, poly-metallic deposit located in the Penokean Volcanic Belt in the Great Lakes Region. A 2012 preliminary economic assessment, based on a 2010 resource estimate, provided encouraging project economics, including a $73.6M net present value @ 8% and an internal rate of return of 18.2%. Results from the 2012 drilling program demonstrate potential for continued resource expansion at Back Forty. A 2013 updated resource estimate delineated a Measured and Indicated (M+I) resource of 15.1 million tonnes (Mt) and an Inferred Resource of 2.3Mt. The updated M+I resource estimate contains 987,236oz Au, 11.91Moz Ag, 1.02Blbs Zn, 74.3Mlbs Pb and 110.4Mlbs Cu. An additional 155,885oz Au, 1.99Moz Ag, 113.3Mlbs Zn, 17.2Mlbs Pb and 18.6Mlbs Cu are included in the Inferred category.

Open Pit Resource
Category Tonnes Au (ppm) Ag (ppm) Cu (%) Pb (%) Zn (%)
Meas. 4,720,716 2.24 26.77 0.55 0.13 3.49
Ind. 4,926,783 1.90 18.30 0.14 0.21 1.49
Meas. + Ind. 9,647,498 2.07 22.45 0.34 0.17 2.47
Inf. 152,488 2.76 34.56 0.19 0.39 2.86

Underground Resource
Category Tonnes Au (ppm) Ag (ppm) Cu (%) Pb (%) Zn (%)
Meas. 1,982,087 1.97 28.56 0.29 0.31 5.04
Ind. 3,504,462 1.96 27.78 0.33 0.32 3.57
Meas. + Ind. 5,486,549 1.97 28.06 0.32 0.32 4.10
Inf. 2,184,246 2.03 25.96 0.37 0.33 2.15

About Baker Steel Capital Managers

Baker Steel manages approximately $540M of assets on behalf of a broad range of financial institutions, wealth managers and professional investors. Baker Steel's range of funds are focused on the natural resources, precious metals, and commodities sectors. Baker Steel is led by a management team with strong technical backgrounds in the geo-sciences, mining, geology and engineering fields and covers projects across North America, Asia, Australia, and Africa.

The Toronto Stock Exchange neither approves nor disapproves the information contained in this News Release.  Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Thomas O. Quigley is the Qualified Person for Aquila Resources as described in National Instrument 43-101.

This press release contains certain forward-looking statements. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking statements and information include, but are not limited to, statements with respect to the transactions contemplated under the arrangement agreement, the Back Forty purchase agreement and the private placement financing and the receipt of the requisite regulatory, court and shareholder approvals in respect thereof. Forward-looking statements and information are subject to various known and unknown risks and uncertainties, many of which are beyond the ability of Aquila and REBgold to control or predict, that may cause their actual results, performance or achievements may be materially different from those expressed or implied thereby, and are developed based on assumptions about such risks, uncertainties and other factors set out here in, including but not limited to: the risk that the transactions described in the press release will not be approved by the TSX, the TSXV, the court and the shareholders of Aquila or REBgold , as applicable; risks and uncertainties related to the transactions not being completed in the event that the conditions precedent thereto are not satisfied and other related risks and uncertainties. Neither Aquila nor REBgold undertakes any obligation to update forward-looking information except as required by applicable law. Such forward-looking information represents Aquila's and REBgold's best judgment based on information currently available. No forward-looking statement can be guaranteed and actual future results may vary materially. Accordingly, readers are advised not to place undue reliance on forward-looking statements or information. Furthermore, mineral resources that are not mineral reserves do not have demonstrated economic viability.  

SOURCE: Aquila Resources Inc.

For further information:

Aquila Resources Inc. 
Barry Hildred, CEO 
Tel:  416-203-1404 
Email: bhildred@level2advisors.com

REBgold Corporation                                 
Mark Burridge, Chairman
Tel: 416-646-1850                         
Email: mburridge@reb-gold.com


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