Serbia mining: Dundee expected to take over Avala Resources copper-gold projects

11. March 2016. / Mining

Shareholders will be asked to approve Avala’s previously announced transaction with Dundee Precious Metals. Avala Resources is a mineral exploration company focused on the exploration and development of gold and copper projects in Serbia. The Company’s key projects are the Timok Gold Project, the Tulare Project and the Lenovac Project.

At the Meeting, Shareholders will be asked to approve Avala’s previously announced transaction with Dundee Precious Metals Inc., the controlling shareholder of Avala, whereby DPM proposes to acquire all of the issued and outstanding common shares of Avala that it does not already own by way of a plan of arrangement under the Business Corporations Act (British Columbia) . The Arrangement is being proposed under, and is subject to the terms and conditions of, an arrangement agreement dated February 11, 2016 between Avala and DPM. Assuming the Arrangement becomes effective, holders of common shares of Avala will receive 0.044 of a common share of Dundee for each Avala Share held.

On March 4, 2016, Avala was granted an interim order from the Supreme Court of British Columbia authorizing various matters, including the holding of the Meeting and the mailing of the Circular. Shareholders of record as of the close of business on February 25, 2016 will receive notice of and be entitled to vote at the Meeting. T

The Board of Directors of Avala recommends that the shareholders vote IN FAVOUR of the Arrangement.

Avala Resources Ltd. announced in february that it has entered into a definitive arrangement agreement (the “Agreement”) with Dundee Precious Metals Inc. (“DPM”) (TSX:DPM) the controlling shareholder of Avala, whereby DPM will acquire all of the issued and outstanding common shares of Avala that it does not already own by way of a plan of arrangement under the Business Corporations Act (British Columbia) (the “Arrangement”).

Under the Arrangement, each holder of Avala common shares, other than DPM, will receive 0.044 of a common share of DPM (the “Exchange Ratio”) in exchange for each Avala common share. The Exchange Ratio reflects a 25% premium for Avala shareholders based on the 10-day volume weighted average price of the Avala common shares on the TSX Venture Exchange (“TSXV”) and of the DPM common shares on the Toronto Stock Exchange (“TSX”), and a 24.5% premium based on the closing prices of both Avala and DPM common shares on February 11, 2016.

David Fennell, Executive Chairman of Avala, said “Our board and management believe that the Arrangement provides an opportunity for the Company’s shareholders to increase liquidity while retaining exposure to the upside potential of the Company’s properties through DPM shares, an organization with the strength and financial resources to continue unlocking value from our properties. Considering the low liquidity of our stock, the regulatory and administrative costs of maintaining Avala as a separate publicly traded company, and the generally challenging financial environment for junior mining companies, we believe that this transaction currently provides the best opportunity for our shareholders.”

As a result of the Arrangement, the Avala shareholders, other than DPM, will own approximately 956,340 shares of DPM, representing 0.68 % of the issued and outstanding common shares of DPM following completion of the Arrangement. Completion of the Arrangement is subject to, amongst other things, applicable regulatory approvals, including approvals of the TSX for the issuance of common shares of DPM, the satisfaction of certain closing conditions customary in transactions of this nature, including the approval of the Supreme Court (British Columbia), and all required Shareholder approvals. In this regard, the Arrangement must be approved by (i) a majority of the Avala common shares voted at a meeting of shareholders to be convened to approve the Arrangement (the “Meeting”), other than common shares held by DPM and any other interested parties to the Arrangement in accordance with Multilateral Instrument 61-101 (Protection of Minority Security Holders in Special Transactions); and (ii) no less than 66 2/3% of holders of common shares voted at the Meeting.

The Agreement includes customary representations, warranties and covenants and deal protection provisions. Avala has agreed not to solicit any alternative transactions and to pay a break fee equal to $300,000 in certain specified circumstances. In addition, Avala has granted DPM a right to match any competing offer. Directors, officers and a shareholder of Avala holding an aggregate of 1,242,740 common shares have entered into voting support agreements with DPM pursuant to which they have agreed, among other things, to vote their Avala common shares in favour of the Arrangement, subject to certain permitted exceptions.

In accordance with the Agreement, the closing of the transaction must occur by no later than April 30, 2016.

As DPM is the controlling shareholder of Avala, owning approximately 50.1% of the outstanding Avala common shares, the board of directors of Avala formed a special committee of independent directors which considered the fairness of the Arrangement to Shareholders of Avala, other than DPM, and recommended that the board of directors of Avala approve the Arrangement, which approval was given. Primary Capital Inc. was retained by the special committee as financial advisor. There is no finder’s fee payable in connection with the Arrangement. Avala and DPM had entered into a non-binding exclusivity letter agreement on December 23, 2015.

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