Robert Friedland, Executive Chairman of Ivanhoe Mines Ltd., and Lars-Eric Johansson, Chief Executive Officer, announced today that Ivanhoe and Zijin Mining Group Co., Ltd. have agreed to a strategic co-development of the Kamoa copper discovery in the Democratic Republic of Congo.
Under terms of agreements signed in Xiamen, Zijin - through its subsidiary, Gold Mountains (H.K.) International Mining Company Limited - will buy a 49.5% share interest in Kamoa Holding Limited (Kamoa Holding), an Ivanhoe subsidiary that presently owns 95% of the Kamoa Project, for an aggregate consideration of US$412 million (approximately C$506 million).
The purchase price will be satisfied by an initial payment of US$206 million in cash upon the closing of the transaction, which is expected on or about July 31, 2015, and is subject to Zijin's receipt of approvals by the government of the People's Republic of China, and certain other customary closing conditions.
The agreements specify that the remaining US$206 million will be paid in five equal installments, payable every 3.5 months from closing and continuing through the remainder of 2015 and into 2016.
In addition, Ivanhoe has agreed to sell 1% of its share interest in Kamoa Holding to Crystal River Global Limited (Crystal River) for US$8.32 million - which Crystal River will pay through a non-interest-bearing, 10-year promissory note. Crystal River is a private company incorporated in the British Virgin Islands but operated in Hong Kong and controlled by Mr. So Hon Chun. Mr. So is a Hong Kong permanent resident who had served in a number of senior capacities in natural resources development within the CITIC group for more than 10 years during the late 1990s to 2010/2011. Subsequent to his retirement, Mr. So set up his own consultancy and has been active in providing advice to large, international and People's Republic of China state-owned companies in the mining and oil and gas sectors. He also has had a long involvement with Ivanhoe Capital Corporation. In addition, Mr. So is also a long standing friend of Mr. Chen, the chairman of Zijin, and as a result, is the mutually agreeable and trusted choice of both parties to hold the 1% share interest.
Option to acquire an additional 1% share, project financing and offtake agreement
Zijin also has committed to use its best efforts to arrange or procure project financing for 65% of the capital required to develop the first phase of the Kamoa Project, as set out in the feasibility study, without any recourse, and on terms acceptable to Ivanhoe. Zijin will provide any and all required completion guarantees relating to the securing of project financing for the Kamoa Project.
Upon the successful arrangement or procurement of project financing, Zijin will have the right to acquire Crystal River's 1% share interest (the 1% Option) in Kamoa Holding. If the 1% Option has not been exercised within seven years from the delivery of the feasibility study (because, for example, the project financing has not been arranged by that time), the option will expire and each of Ivanhoe and Zijin then will have the right to buy one-half of the 1% share from Crystal River, which would then result in an equivalent 50%/50% ownership split between the parties.
The agreements also provide that upon exercise of the 1% Option, for an amount to be determined by an independent expert valuator, Zijin will be required to arrange or procure project financing for all subsequent phases of the Kamoa Project, without any recourse, and on terms acceptable to Ivanhoe. In addition, Zijin will provide any and all required completion guarantees relating to the securing of the subsequent project financing for Kamoa's development.
Upon closing of the transaction, each shareholder is required to fund Kamoa Holding in an amount equivalent to its proportionate shareholding interest.
In addition, since 65% of the pre-production capital required to develop the first phase of the Kamoa Project - as described in the feasibility study - is to be funded through project financing, the balance of 35% of the required capital will be funded pro rata by the shareholders. Therefore, Zijin and Ivanhoe each effectively will be required to fund 17.5% of the remaining first phase development costs.
Following Zijin's exercise of the 1% Option, Zijin will be entitled to negotiate an offtake agreement, on commercial, arm's-length terms acceptable to Ivanhoe, to acquire up to that portion of the total production from the Kamoa Project attributable to Kamoa Holding for at least the term of the project financing.
Source: http://www.ivanhoemines.com/