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Moly Mines Enters into Offer Implementation Agreement to Acquire Gulf Alumina

The Board of Moly Mines Limited ("Moly") is pleased to announce that it has entered into an Offer Implementation Agreement ("Implementation Agreement") with Gulf Alumina Limited ("Gulf"), under which it is proposed that Moly will acquire all the issued ordinary shares in Gulf (the "Offer"). The Offer will be extended to all ordinary shares in Gulf which are issued as a result of exercise of Gulf options.

Gulf shareholders who accept the Offer will receive a combination of A$0.46 cash plus 1.4 Moly options ("Moly Options") for each Gulf share they hold.

Strategic Rationale for the Offer

The proposed acquisition provides Moly with the ideal opportunity to develop a low-cost mining operation at Skardon River and position itself as a leading independent supplier of low temperature Direct Shipping Ore ("DSO") bauxite into the expanding seaborne Asian markets.

  • Acquisition of a high quality DSO bauxite development project located ~90km north of the world class Weipa bauxite mine
  • Gulf undertook a Definitive Feasibility Study ("DFS") in early 2016 which has highlighted the potential for commercial extraction of the bauxite
  • Control of key onsite infrastructure in particular the existing Skardon River port
  • Significant exposure to the expanding Chinese based alumina markets, with clear focus on the more energy efficient "low temperature" alumina refineries
  • Key environmental Commonwealth and Queensland approvals are at an advanced stage
  • Leverage off Moly's previous experience in operating and developing low cost DSO operations following its successful development and mining of the Spinifex Ridge iron ore mine
  • Reinstatement of quotation of Moly shares on the ASX subject to ASX and Moly shareholder approvals

The Offer

The Offer will be made by way of a private, contractual offer from Moly to each Gulf shareholder. Each offer will be made on the same terms to each Gulf shareholder.

The Board of Directors of Gulf have unanimously recommended to all Gulf shareholders that they ACCEPT the Offer, in the absence of a superior proposal.

The Moly Options issued to Gulf shareholders who accept the Offer will not be quoted on the ASX and will be exercisable at A$0.16 expiring on the date that is 3 years after the issue date.

The Offer is conditional on:

  • minimum acceptances of 50.1% of the issued capital of Gulf;
  • FIRB approval of the Offer, including the acquisition of Gulf shares;
  • approval by Moly shareholders at an EGM of resolutions under ASX Listing Rules 11.1 and 7.1 and such other resolutions as Moly considers necessary to facilitate the Offer and the reinstatement of quotation of Moly shares on the ASX following re-compliance with Chapters 1 and 2 of the ASX Listing Rules;
  • all necessary regulatory and other approvals, consents and waivers being obtained, including ASX approval for the shares of Moly to be reinstated for quotation on the ASX; and,
  • satisfaction of other customary conditions as detailed in the Annexure to this announcement.

A summary of the key terms of the Implementation Agreement is contained in the Annexure to this announcement.

Under the Implementation Agreement, Gulf has agreed to various exclusivity arrangements with Moly for a period of 6 months. These arrangements include 'no talk' and 'no shop' obligations, and Gulf must notify Moly if it receives a competing proposal. Gulf has also granted Moly a right to provide a matching or superior proposal if Gulf receives a competing proposal.

In connection with the Offer, Moly has agreed to provide Gulf with a A$1.9 million unsecured loan facility to assist Gulf meet general working capital requirements during the Offer period. Interest is payable on amounts drawn under the loan facility at 8% p.a. A summary of the key terms of the loan facility is contained in the Annexure to this announcement.

In addition, Moly has entered into Pre-Offer Agreements with Gulf shareholders representing 55.6% of the issued capital of Gulf, requiring those Gulf shareholders to accept the Offer in respect of all their shares held (including any shares issued resulting from the exercise of their Gulf options (if any)) in the absence of a superior proposal. Each Director of Gulf who has a relevant interest in Gulf shares has entered into a Pre-Offer Agreement. A summary of the key terms of the Pre-Offer Agreements is contained in the Annexure to this announcement.

Moly will fund the cash portion of the Offer from its existing cash balance.

Indicative Timetable for implementing the Offer and Moly shareholder meeting

Despatch of Moly Notice of Meeting late October 2016
Despatch of Offer materials and Prospectus to Gulf shareholders late October 2016
Date of Moly General Meeting late November 2016
Close of Offer to Gulf Shareholders early December 2016
Reinstatement of quotation of Moly shares on ASX mid December 2016

The timetable set out above is indicative only and may, subject to the ASX Listing Rules and any laws, be varied by Moly in its sole discretion.

Moly will be required to re-comply with Chapters 1 and 2 of the ASX Listing Rules before ASX will reinstate quotation of its shares on ASX.

If the Offer terminates or is otherwise unsuccessful, and Moly is unable to complete another transaction which enables Moly to re-comply with Chapters 1 and 2 of the ASX Listing Rules by 23 April 2017, ASX has advised Moly that it will be removed from the ASX Official List.

About Gulf Alumina

Gulf is an Australian unlisted public company with 45 shareholders which was established in 2004 to develop bauxite deposits for export to China's rapidly expanding merchant alumina refining markets.

Skardon River Project

The Skardon River project has been the subject of extensive exploration and economic studies over the past five years which resulted in Gulf undertaking a DFS in 2015. The results of the studies highlighted the potential for commercial extraction of DSO bauxite ore.

The bauxite occurs as a laterally extensive horizontal layer ranging from 0.5 to 4.0m thickness, directly below a relatively thin surface soil profile generally less than 1.0m thick. The bauxite has developed as a result of weathering and comprises a high percentage of "Gibbsitic" bauxite which is the key type of bauxite feed for "low temperature" alumina refineries many of which are located on the east coast of China. The DFS considers a mine operation based on free-dig mining of bauxite using front end loader; transport of bauxite by haul trucks between 5 and 15km to the wharf loading and stockpiling facility; transhipment down the Skardon River using self-propelled barges to the ocean going vessels located off-shore for shipment to the customer.

The current mining leases within the Skardon River Project include existing infrastructure and improvements comprising of an airstrip, port wharf, haulage and access roads, as well as civil works associated with the village services and power distribution. The DFS proposes that there will be upgrading of the infrastructure to accommodate the proposed mining and shipment operation.

Moly will provide additional information relating the work completed by Gulf at Skardon River in the coming weeks and in the Prospectus to be lodged in late October.

To view Figure 1 Skardon River Project tenement location and photos of existing infrastructure: http://media3.marketwire.com/docs/1070276-F1.pdf

Environmental Approvals

Proposed amendments to the existing Environmental Authority ("EA") at Skardon River required Gulf to submit a full EIS in late 2015. Following an extensive public consultation period, the Queensland Government (DEHP) approved the EIS and has issued draft Conditions for review prior to final approval of the EA.

Commonwealth approval under the EPBC Act has progressed in line with the bilateral agreement between the Commonwealth and Queensland governments. Final approval for the Skardon River Project is currently being determined by the Minister for the Environment.

Importantly, these approvals cover key project requirements including mining of the bauxite resource, upgrades to the existing infrastructure such as the wharf and port facilities, haulage and transhipment operations.

Bauxite Market

Moly believes, on the basis of analysis of reports by industry experts and commissioned by Moly, that there is growing demand for seaborne bauxite in China as local resources are depleted. Moly believes that Gulf is well positioned to take advantage of this increased demand especially in light of recent bans on the DSO exports from Malaysia, Indonesia and the Philippines.

Moly intentions if the Offer is successful

If the Offer is successful, Gulf will become a subsidiary of Moly and Moly will control the composition of Gulf's Board of Directors.

No changes are presently contemplated to the Board or senior management of Moly as a consequence of the Offer.

Upon completion of the Offer, Moly intends to continue to pursue the necessary project development activities required to progress the Skardon River Project into production as soon as possible.

Effect on Moly if the Offer is successful

If Moly acquires 100% of Gulf under the Offer, the combined group is expected to have pro forma total consolidated assets of A$88.5 million2 and pro forma total equity interests of A$71.8 million3.

The transaction is not expected to have any material impact on Moly's consolidated annual revenue until such time as production commences at the Skardon River Project. Moly's budgeted expenditure, exclusive of any acquisition costs, for the 12 months to 30 June 2017 is A$4.02 million. The combined group is expected to have pro forma budgeted expenditure of A$12.72 million over the same period4, an increase of approximately A$8.7 million.

Effect on the total issued capital of Moly if the Offer is successful

As mentioned above, in addition to A$0.46 cash per Gulf share, Gulf shareholders who accept the Offer will also receive 1.4 Moly Options for each Gulf share they hold.
2  Pro forma as at 30 June 2016. Moly's standalone total consolidated assets at 30 June 2016 were A$75.5 million.
3  Pro forma as at 30 June 2016. Moly's standalone total equity interests at 30 June 2016 were A$59.9 million.
4  Based on Gulf's budgeted expenditure.

The following table summarises the expected changes to the capital structure of Moly if the Offer is successful:

Ordinary shares Warrants Moly Options
Issued capital at date of this announcement 384,893,989 4,832,157 with an exercise price of A$0.0001 and an expiry date of 15/2/20 Nil
Maximum number of Moly securities to be issued under the Offer (assuming 100% acceptance of the Offer and all Gulf options are exercised5) Nil Nil 128,117,045
Total issued capital post Offer (assuming 100% acceptance of the Offer) 384,893,989 4,832,157 with an exercise price of A$0.0001 and an expiry date of 15/2/20 128,117,045

5 Includes Gulf options which remain subject to Gulf shareholder approval

No funds will be raised under the Offer.

Additional information about the companies is available on the Moly and Gulf websites (see www.molymines.com and www.gulfalumina.com.au)

Yours sincerely

For and on behalf of the Board of Moly Mines Limited

Graeme Kininmonth, Chief Executive Officer

Source: http://www.molymines.com/

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