Sale of 9 Licences for US$3m & Subscription

RNS Number : 8320M
Galileo Resources PLC
26 January 2021

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 (“MAR”), and is disclosed in accordance with the Company’s obligations under Article 17 of MAR.

Galileo Resources Plc

(“Galileo” or “the Company”)

 

Sale of 9 Kalahari Copper Belt Licences for US$3 million

to Sandfire Resources Ltd (“Sandfire”) and

US$1.5 million subscription into Galileo by Sandfire

 

Galileo Resources plc (“Galileo” or the “Company”) is pleased to announce that on 25 January 2021 it entered into two legally binding agreements with ASX listed Sandfire Resources Limited ( ASX:SFR) (“Sandfire”).

The first agreement is a conditional licence sale agreement (the “Licence Sale Agreement”) which provides for;

i)    The Sale of licences and right of first refusal: the sale to Sandfire of 9 of the Company’s Kalahari Copper Belt Licences (the “Included Licences”) which the Company acquired in May and October 2020. Sandfire to have a first right of refusal in relation to the acquisition of the 15 Kalahari Copper Belt Licences being retained by the Company (the “Excluded Licences”) (“ROFR: Excluded Licences”) for an aggregate consideration of US$3 million payable on the Settlement Date of which US$1.5 million will be paid in cash and US$1.5 million by the issue of 370,477 Sandfire ordinary shares to the Company (the “Consideration Shares”) at an issue price of A$5.227 per share, being the VWAP of the Sandfire share price for the 10 trading days prior to the date of signing the Licence Sale Agreement;

ii)   An Exploration Commitment: Sandfire to spend US$4 million on the Included Licences (the “Exploration Commitment”) within two years of settlement (the “Exploration Period”) and if the US$4 million is not spent, any shortfall will be paid to the Company; and

iii)  A Success Payment: a one-off success payment to be paid to the Company for the first ore reserve reported under JORC Code 2012 edition on the Included Licences which exceeds 200,000 tonnes of contained copper (the “First Ore Reserve”) in the range of US$10 million to US$80 million depending on the amount of contained copper in the First Ore Reserve (the “Success Payment”). US$2 million of the Success Payment will be held in escrow for up to three years pending any claim by Sandfire under the Licence Sale Agreement. Note: given the limited exploration conducted on the Included Licences to date and the many years that it could take to establish an Ore Reserve, there can be no guarantee that any such Success Payment will be forthcoming.

 

The second agreement is a share subscription agreement (the “Share Subscription Agreement”) which provides for;

i)    Sandfire’s Share Subscription: Sandfire to acquire US$1.5 million 41,100,124 ordinary shares of 0.1 p in the Company (“Galileo Shares”) (“Sandfire’s Shares”) at a subscription price of 2.68 pence per Galileo Share, being a 25% premium to the 10 day VWAP of the Company’s share price as at  22 January 2021, being the day before the signing of the Share Subscription Agreement. Sandfire’s Shares will be issued at a premium of 17% to the closing mid-price of the Galileo Shares on 25 January 2021, being the last practical date before the issue of this announcement. This will represent a 4.62% interest in Galileo.

ii)   Sandfire to have participation rights: Sandfire’s Shares will represent 4.62% of the Company’s issued shares as enlarged by the issue of Sandfire’s Shares (“Initial Voting Power”). Whilst Sandfire’s shareholding percentage is equal to or greater than the Initial Voting Power, Sandfire will have participation rights (the “Participation Rights”) to participate in new Galileo share issues / issues of rights to acquire Galileo shares by the Company on the same terms as other participants in a new Galileo share issue / issues of rights to acquire Galileo shares to at least maintain Sandfire’s shareholding save that the Participation Rights cannot increase Sandfire’s shareholding over 20%; and

iii)  Sandfire to have a right to nominate a director: If Sandfire’s percentage Galileo shareholding increases to 15% then it will have the right to nominate a director to the Board of Galileo, whose appointment would be subject to customary due diligence on them prior to their appointment.

 

Colin Bird Chairman & CEO said:

“This transaction with Sandfire represents a major step forward for Galileo in its Kalahari Copper Belt endeavours.

We are pleased to be working with Sandfire Resources, who are an Australian listed company and have an enviable track record of copper/gold discovery, development execution and operation.  They have a commanding position in the Kalahari Copper Belt and hence we feel that this arrangement will benefit both parties to further enhance their positions.  The transaction allows Sandfire to explore the Included Licences, which are in close proximity to their major mine build, and also allows Galileo to carry out exploration on the Excluded Licences.

We look forward to implementing the transaction and working alongside Sandfire in a region, where in my opinion, discovery and mine build has only just started.”

 

Overview of transactions with Sandfire 

Upon completion of the Licence Sale Agreement the Company will have in aggregate an additional US$3.0 million cash (including the Sandfire Share Subscription) to invest in the Excluded Licences which include the highly prospective PL 039/2018 and PL 040/2018, the Company’s other projects and other opportunities plus will have secured a US$4 million investment by Sandfire in the Included Licences with the prospect of a very significant Success Payment if the First Ore Reserve is greater than 200,000 tonnes of contained copper.  US$2 million of the Success Payment will be held in escrow for up to three years pending any claim by Sandfire under the Licence Sale Agreement. Note: given the limited exploration conducted on the Included Licences to date and the many years that it could take to establish an Ore Reserve, there can be no guarantee that any such Success Payment will be forthcoming or if it is the amount.

Under the Share Subscription Agreement, Sandfire will make a US$1.5 million strategic equity investment at a 25% premium with participation rights to retain their shareholding but not to increase it beyond 20%, and the right to nominate a director to the Galileo Board were they to increase their shareholding to 15% whose appointment would be subject to customary due diligence on them prior to their appointment.

Application to trading on AIM: Application will be made to the London Stock Exchange for a total of 41,100,124 new Galileo Shares to be admitted to trading on AIM, being Sandfire’s Shares (“Admission”) which will rank pari passu to the existing ordinary shares in the Company. It is expected that Admission will become effective and that dealings in the new Galileo Shares will commence at 8.00 a.m. on Tuesday 9 February 2021. The issue of the shares will be made under the Company’s existing share authorities.

Total Voting Rights after Share Issue: Following the issue of Sandfire’s Shares, the Company’s total issued share capital will consist of 889,801,317 Galileo Shares with voting rights.  The Company does not hold any Ordinary Shares in treasury and accordingly there are no voting rights in respect of any treasury shares.

On Admission, the abovementioned figure of 889,801,317  Galileo Shares (the “Enlarged Share Capital”) may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, Galileo under the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules.

Significant Shareholder Notification: Sandfire will on Admission own 41,100,124 Galileo Shares representing 4.62% of the Enlarged Share Capital.

 

Further Information on Assets being sold and purchaser

The Company acquired all its Kalahari Copper Belt Licences which includes the Included Licences and Excluded Licences (as shown in the tables below) on 21 May 2020 by acquiring Crocus-Serv Resources  Pty Ltd and Virgo Business Solutions Pty Ltd for £173,848 and on 16 October 2020 by acquiring Africibum Co. Pty Ltd (“Africibum”) for £290,220, the issue of 10,000,000 2 year warrants with an exercise price of 2 pence and the granting of a 1.5% Net Smelter Royalty (NSR) to the sellers of Africibum to the Company ( the “Sellers”) which the Company has the right to acquire from the Sellers at any time for total consideration of £1.5 million, which can be payable in Galileo Shares or cash at the absolute election of the Company. The Company will remain liable to pay the NSR. In the event that the Company chooses to buy back the NSR by the issue of Galileo Shares, it shall do so by issuing Galileo Shares calculated at a price per share equal to the volume weighted average price of Galileo Shares during the period of 30 days prior to the date upon which the Galileo Shares are to be issued.

 

Included Licences Title Holder
PL 044/2018 Virgo Business Solutions Pty Ltd
PL 045/2018 Virgo Business Solutions Pty Ltd
PL 122/2020 Africibum Co Pty Ltd
PL 154/2020 Africibum Co Pty Ltd
PL 250/2018 Crocus-Serv Resources Pty Ltd
PL 251/2018 Crocus-Serv Resources Pty Ltd
PL 366/2018 Africibum Co Pty Ltd
PL 367/2018 Africibum Co Pty Ltd
PL 368/2018 Africibum Co Pty Ltd

 

Excluded Licence Title Holder
PL 039/2018 Virgo Business Solutions Pty Ltd
PL 040/2018 Virgo Business Solutions Pty Ltd
PL 001/2018 Crocus-Serv Resources Pty Ltd
PL 002/2018 Crocus-Serv Resources Pty Ltd
PL 003/2018 Crocus-Serv Resources Pty Ltd
PL 004/2018 Crocus-Serv Resources Pty Ltd
PL 005/2018 Crocus-Serv Resources Pty Ltd
PL 041/2018 Virgo Business Solutions Pty Ltd
PL 042/2018 Virgo Business Solutions Pty Ltd
PL 046/2018 Virgo Business Solutions Pty Ltd
PL 047/2018 Virgo Business Solutions Pty Ltd
PL 123/2020 Africibum Co Pty Ltd
PL 252/2018 Crocus-Serv Resources Pty Ltd
PL 253/2018 Crocus-Serv Resources Pty Ltd
PL 254/2018 Crocus-Serv Resources Pty Ltd

 

Approximately £10,000 was spent on the Included Licences in the six months to 30 September 2020 and no income has been generated from the Included Licences. The Company will record a profit on disposal of the Included Licences and this will be reported in the audited accounts for the year ended 31 March 2021.

Sandfire Resources Ltd is an ASX-listed company which, as at 30 June 2020, had net assets of A$750.2 million, declared a final 30 June 2020 dividend of A$14 cents per share, and as at 25 January 2021 had a market capitalisation of approximately A$900 million.

 

Summary of Licence Sale Agreement:

Parties On the one part the Company and its three wholly owned subsidiaries  Virgo Business Solutions Pty Ltd, Africibum Co Pty Ltd,  Crocus-Serv Resources Pty Ltd  and on the other part Sandfire Resources Ltd and its wholly owned subsidiary Tshukudu Metals Botswana (Pty) Ltd.

 

Consideration US$1.5M for the sale of the Included Licences payable in cash (the “Licence Purchase Price”) and US$1.5M for the right of first refusal granted to Sandfire in relation to the Excluded Licences (the “Right of First Refusal Fee”) payable by the issue of the Consideration Shares to the Company, both amounts are payable on the Settlement Date as defined below.

 

Settlement Date The latter of:

1.    30 Business Days after execution of the Licence Sale Agreement; or

2.    5 Business Days after the Condition Precedents are met,

or such later date as is agreed between the Parties.

Consideration Shares

 

The issue by Sandfire of 370,477 of its ordinary shares to the Company as settlement of the Right of First Refusal Fee at an issue price of A$5.227 per share, being the 10 day VWAP of the Sandfire share price as at the date before the signing of the Licence Sale Agreement. The Consideration Shares are not subject to any sale restrictions.

 

Exploration Commitment Sandfire, through its 100% owned Botswana subsidiary Tshukudu Metals Botswana (Pty) Ltd, to spend US$4 million on exploration activities within the Exploration Period, with a minimum of 60% on drilling and assay costs on the Included Licences (the “Qualifying Exploration Expenditure”) of which a minimum if US$1 million, of the Exploration Commitment is to be spent on PL 250/2018 and PL 251/2018 (“Agreed Licence Expenditure”).

 

If Sandfire fails to meet the Exploration Commitment within the Exploration Period, it will pay any remaining shortfall amount of the Exploration Commitment to the Company, in Immediately Available Funds, at the expiry of the Exploration Period.

Technical Committee During the Exploration Period there will be a technical committee chaired by Sandfire with two representatives from Sandfire and two from the Company to provide advice on the exploration of the Included Licences and collaboratively review technical data at quarterly technical meetings, or more frequently as decided by the technical committee. This will provide the Company with an active participation in the exploration strategy for the Included Licences, working closely with Sandfire who are experienced in the Kalahari Copper Belt where they have two projects: i) the T3 (Motheo) Copper-Silver Project, which announced a Definitive Feasibility Study (DFS) in December 2020 on an initial Base Case 3.2Mtpa processing capacity and open pit development of the T3 Deposit; and ii) the A4 discovery, for which Sandfire have announced a maiden Inferred Mineral Resource containing 100,000 tonnes of copper at an average grade of 1.5% Cu.

 

Success Payment The Success Payment is only triggered if the First Ore Reserve is > 200,000 tonnes of contained copper. Given the Included Licences have had limited exploration to date, if an Ore Reserve is determined this may take several years and there is no certainty that an Ore Reserve would be established or that any such reserve would exceed 200,000 tonnes of contained copper. The one-off Success Payment will be calculated in accordance with the table below and US$2 million of the Success Payment will be held in escrow for up to three years pending any claim by Sandfire under the Licence Sale Agreement.

 

 

Contained copper (Cu) in first Ore Reserve

Between the following:

Success Payment (USD)

payable

>200Kt Cu and <400Kt Cu $10,000,000
>400Kt Cu and <600Kt Cu $20,000,000
>600Kt Cu and <750Kt Cu $40,000,000
>750Kt Cu $80,000,000

 

The Success Payment is due to be paid in cash within 30 days from the date Sandfire announces an Ore Reserve which triggers the payment of the Success Payment (the “Success Payment Completion Date”). Sandfire have the option to elect to settle the Success Payment by the issue by Sandfire of its ordinary shares to the Company based on the 10 day VWAP for Sandfire shares prior to, but excluding the Success Payment Completion Date.

 

First Ore Reserve Means the first ore reserve defined on the Licences, which is compliant with the Australasian Code for Reporting of Ore Reserves (JORC Code, 2012 edition) and results in a declared ore reserve for a single Deposit containing at least 200,000 tonnes of contained copper.

 

Conditions Precedent Settlement is conditional upon:

1.    The parties having executed the Share Subscription Agreement (which has been done);

2.    ministerial consent for the transfer of the Included Licences by the Botswana Minister of the Ministry of Minerals, Energy and Water Resources (“Ministerial Consent”) ;

3.    all ASX and AIM regulatory approvals;

4.    approval of the acquisition of the Included Licences by the Competition Authority of Botswana (or confirmation from such authority or from either party’s Botswana legal counsel that such approval is not required) (“Competition Approval”) ; and

5.    duly executed transfers of the Included Licences in the form required by the Mining Act under which a 100% interest in the Included Licences may be transferred.

If the Ministerial Consent and / or the Competition Approval is not granted by the Long Stop Date the agreement shall automatically terminate and cease to have effect and no Party shall have any obligation or liability to any other Party.

 

Long Stop Date 31 July 2021 or such later date is agreed to be the parties to the Licence Sale Agreement.

 

Included Licences to be sold PL 044/2018

PL 045/2018

PL 122/2020

PL 154/2020

PL 250/2018

PL 251/2018

PL 366/2018

PL 367/2018

PL 368/2018

 

Excluded Licences not to be sold PL 039/2018

PL 040/2018

PL 001/2018

PL 002/2018

PL 003/2018

 

PL 004/2018

PL 005/2018

PL 041/2018

PL 042/2018

PL 046/2018

PL 047/2018

PL 123/2020

PL 252/2018

PL 253/2018

PL 254/2018

 

Included Licences Right of First refusal If Sandfire wishes to transfer or sell part of or one or more of the Included Licences then the Company has a right of first refusal to buy the Included Licence (s) on the term of the Included Licence Right of First Refusal which has to be exercised by the Company within 30 days.

 

ROFR: Excluded Licences If the Company wishes to transfer or sell part of or one or more of the Excluded Licences then Sandfire  has a right of first refusal to buy the Excluded Licence (s) on the term of the Excluded Licence Right of First Refusal which has to be exercised by Sandfire within 30 days.

 

Governing Law The agreement is governed by and construed under the law in the State of Western Australia.

 

Disputes Where a dispute occurs in relation to the First Ore Reserve or any other matter the Company and Sandfire shall within 21 days each nominate one person (a “Nominated Representative”) to represent them to resolve the dispute and the Nominated Representative shall be empowered by their own Board to negotiate terms of a settlement of the dispute which shall be binding on all the parties. If after 30 days of their appointment the Nominated Representatives have been unable to reach an agreement then in relation to a dispute in respect of the First Ore Reserve it shall be referred to an expert and a dispute if respect of any matter other than the First Ore Reserve the parties are free to direct it to an expert or take legal or any other action to resolve the matter.

 

Representations & Warranties The parties have given customary representations and warranties for an agreement of this nature.

 

Further information in relation to the Share Subscription Agreement

 

Parties The Company and Sandfire Resources Limited

 

Share Subscription

 

Sandfire will acquire US$1.5 million 41,100,124 ordinary shares of 0.1 p in the Company (“Galileo Shares”) (“Sandfire’s Shares”) at a subscription price of 2.68 pence per Galileo Share, being a 25% premium to the 10 day VWAP of the Company’s share price as at 22 January 2021 being the day before the signing of the Share Subscription Agreement. Sandfire’s Shares will be issued at a premium of 17% to the closing mid-price of the Galileo Shares on 25 January 2021, being the last practical date before the issue of this announcement. Sandfire’s Shares are not subject to any sale restrictions.

 

Participation Rights Sandfire’s Shares will represent 4.62% of the Company’s issued shares as enlarged by the issue of Sandfire’s Shares (“Sandfire’s Initial Voting Power”). Whilst Sandfire’s shareholding percentage is equal to or greater than the Initial Voting Power Sandfire will have participation rights (the “Participation Rights”) to participate in new Share issues/ issues of rights to acquire Galileo Shares  by the Company on the same terms as other participants in a new Galileo share issue / issues of rights to acquire Galileo shares to at least maintain its shareholding save that the Participation Rights cannot increase its shareholding over 20%.

 

Right to Nominate a director If Sandfire’s percentage shareholding increases to 15% then it will have the right to nominate a director to the Board of Galileo whilst its shareholding equals or exceeds 15% whose appointment would be subject to customary due diligence on them prior to their appointment.

 

Conditions Precedent The only condition precedent to the Share Subscription Agreement is that the parties enter into the Licence Sale Agreement and this condition has been met.

 

Governing Law The agreement is governed by and construed under the law in the State of Western Australia.

 

Representations & Warranties The parties have given customary representations and warranties for an agreement of this nature.

 

 

The information on Sandfire referred to in this announcement t was sources from its public announcements and website at https://www.sandfire.com.au/site/content/

 

 

You can also follow Galileo on Twitter: @GalileoResource

 

For further information, please contact: Galileo Resources PLC

 

Colin Bird, Chairman Tel +44 (0) 20 7581 4477
Beaumont Cornish Limited – Nomad

Roland Cornish/James Biddle

Tel +44 (0) 20 7628 3396
Novum Securities Limited – Joint Broker

Colin Rowbury /Jon Belliss

+44 (0) 20 7399 9400
Shard Capital Partners LLP – Joint Broker

Damon Heath

Tel +44 (0) 20 7186 9952

 

Technical Glossary:

An ‘Ore Reserve’ is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified.

A ‘Mineral Resource’ is a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade (or quality), and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade (or quality), continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories.

 

 

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