SHANDONG, China, June 9, 2016 /CNW/ - Shandong Xiangguang Group Co., Ltd ("XGC') wishes, in light of the disingenuous press release by Nevsun Resources Ltd ("Nevsun") yesterday, to clarify certain key points of its financing proposal to Reservoir Minerals Inc ("Reservoir'), and to reiterate its stance against the merger proposal made by Nevsun for Reservoir.
XGC was surprised and deeply disappointed by the misleading information and groundless accusations in Nevsun's press release on June 8, 2016, concerning the financing proposal XGC has provided to Reservoir.
XGC would like to remind Reservoir's shareholders that it is not the first part of the transaction Nevsun announced on April 24, 2016 ("the Nevsun Transaction") that XGC is against. In the first part of the Nevsun Transaction, Nevsun provided US$135 million through a private placement and a loan to facilitate Reservoir's exercise of its right of first offer in relation to Freeport's proposed sale to Lundin Mining Corporation of part of its interest in the Timok copper and gold project in Serbia. This has now been successfully completed and is irreversible.
It is the second part of the Nevsun Transaction that XGC is against, which is for Nevsun to take over Reservoir through a merger, at a price which we believe significantly undervalues Timok project. XGC wants to highlight that the second part is not linked to the first part. Now that the first part is done, Reservoir's shareholders are not bound to vote for the merger and they have the right to pursue better financing alternatives. The comparison is simply between the second part of the Nevsun Transaction, which is the merger, and other alternative financing options.
Nevsun's press release raised a concern that Reservoir's shareholders should worry about the potential share price fall if the merger is not approved. However, we believe that the increase in Reservoir's share price rise is so far largely reflective of Reservoir's 100% ownership of Timok project. We also believe that the rise in the share price has been constrained by the market realizing that under the Nevsun proposed merger terms, Reservoir's existing shareholders will lose 67% of the Timok project. Under XGC's financing proposal, Reservoir's existing shareholders will retain up to 80% of the Timok project. Therefore we believe the market and the Reservoir share price will respond most favorably if the Reservoir shareholders reject Nevsun's merger proposal in favor of XGC's alternative financing,.
Although the Nevsun private placement price of CAD9.40/per share is attractive, it is irrelevant in case of a merger, as Reservoir's shareholders will receive two Nevsun shares for one Reservoir share. A fair reference value of Nevsun's share price should be CAD4.37, the volume-weighted average price of Nevsun's share price since April 24th, 2016. This represents a much smaller premium of 25% than the 35% premium to the prior day's closing as claimed by Nevsun.
XGC's proposed equity placement price of CAD8.00/per share for US$80 million together with a US$50 million loan, is only for a minority interest in Reservoir. The dilution effect of less than 20% is totally different from a takeover by Nevsun. Nevsun's merger proposal will result in a loss of 67% of the ownership of the Timok project for existing Reservoir shareholders
In addition, by taking XGC's alternative financing plan, Reservoir should save the success fee of many millions of dollars to the financial advisor hired by Reservoir's board for the Nevsun Transaction.
Additionally, what is especially misleading in Nevsun's press release is the part about XGC's proposed loan facility to Reservoir, "Nevsun believes there is significant risk to Reservoir under the proposed alternative financing, including the risk of a loan default that could cost Reservoir its entire interest in Timok". XGC's proposed financing to Reservoir is for a 5 year term at a competitive interest rate of Libor plus 6% p.a with bullet repayment at the maturity of the loan. This is specifically designed to accommodate Reservoir's development plan of Timok project, which gives Reservoir sufficient flexibility either to repay the loan with project generated cash flow or to refinance with another debt facility.
This compares in sharp contrast to the acquisition loan provided by Nevsun which bears an interest rate of 12% p.a subject to a 10% pre-payment fee.
The accusation of XGC's "self-interested offtake motivations" is completely groundless. XGC has not requested any offtake rights linked to its financing proposal. XGC fully understands and respects that any potential future offtake will have to be negotiated with Reservoir on an arms-length basis, and subject to mutual agreement.
Nevsun's principal asset, the Bisha mine in Eritrea is 40% owned by the Eritrean government. In view of yesterday's scathing report by the United Nations Commission of Inquiry on Human Rights in Eritrea (which charged the Eritrean government with crimes against humanity), it is possible that UN sanctions may be imposed on the Eritrean government or on Eritrean government owned companies. XGC has serious concerns that Nevsun may be affected by such sanctions with the resultant potential negative impact this might have on the development of the Timok project, including but not limited to, the securing of project finance from banks, if the Timok project is controlled by Nevsun.
Reservoir shareholders should vote against the merger part of the Nevsun Transaction to ensure they stay as the owners of the unique and incomparable Timok project and embrace a better future.
XGC URGES RESERVOIR SHAREHOLDERS TO EXERCISE THEIR PROXY VOTES AS SOON AS POSSIBLE TO REJECT THE NEVSUN MERGER
SOURCE Shandong Xiangguang Group Co., Ltd
For further information: For any questions or enquiries related to XGC's financing proposal, XGC suggests you contact Reservoir at the following: Name:Simon Ingram, Email: [email protected]