Asks Dolly Varden Board to Support the Offer
and Refrain from Shareholder Dilution and Further
Obstruction
Applies for Order to Stop Dolly Varden’s
Highly Dilutive Equity Financing
Hecla Mining Company (NYSE:HL) today announced that it is
formally commencing a takeover bid for all of the outstanding
shares of Dolly Varden Silver Corporation not owned by Hecla and
its affiliates for C$0.69 cash per share, following the initial
announcement of its bid on June 27, 2016.
Hecla is also filing a letter to shareholders of Dolly Varden
outlining the value of the premium cash offer and Hecla’s
opposition to a dilutive equity private placement proposed by Dolly
Varden. The text of Hecla’s letter is included below.
Dear Dolly Varden Shareholders
On behalf of Hecla Mining Company, the largest shareholder of
Dolly Varden Silver Corporation, I am writing to you on a matter
that has significant implications on the value of your Dolly Varden
shares.
Hecla is formally commencing its cash offer of C$0.69 per share
for Dolly Varden and I urge you to tender your shares for an
attractive premium of approximately 97%.(1) The formal offer
follows Hecla’s June 27, 2016, announcement of its bid.
Despite the attractive premium available, Dolly Varden’s board
of directors has chosen another path – a dilutive private placement
that is not in the interest of all shareholders. Hecla believes
that the private placement is an attempt to obstruct Hecla’s
premium cash offer. Hecla has asked Dolly Varden’s board of
directors to support its offer and refrain from obstructionist
tactics.
Hecla’s Offer Won’t Proceed if Private Placement Is
Completed
In addition to the other customary conditions for a takeover
bid, Hecla notes that it will not proceed with its premium cash
offer if the private placement is completed. Hecla is also applying
to the relevant regulatory authorities for an order to stop the
private placement on the grounds that it is an improper defensive
tactic.
Proposed Private Placement Could Dilute Existing Shareholders
by more than 57%
The private placement, as disclosed publicly by Dolly Varden on
July 5, 2016, could increase the number of Dolly Varden shares by
up to 43% and therefore is highly dilutive.(2) Worse, the private
placement includes an over-allotment option that Dolly Varden has
not publicly disclosed, and that would be even more dilutive,
increasing the total number of shares issued by more than 57%.(3)
In addition, the issuance of the proposed private placement,
flow-through and broker shares average C$0.60 per share, which is
15% lower than Hecla’s C$0.69 cash per share bid.
Don Birak, Tom Wharton and Rosie Moore, Dolly Varden’s directors
who collectively own or control about four percent of Dolly
Varden’s outstanding shares, seem intent on dilution that does not
benefit current Dolly Varden shareholders.
The proposed private placement is intended in part to repay the
new loan Dolly Varden agreed to on June 13, 2016. The new loan’s
repayment provisions require Dolly Varden to pay in full six
month’s interest (being C$50,000) even if the principal amount is
repaid prior to maturity. In addition, the lenders will receive
warrants with a value of C$687,500. Therefore, Dolly Varden is
obliged to pay and incur costs of up to C$737,500 in respect of the
new loan. When the C$31,250 finder’s fee for the loan is included,
the all-in cost of C$768,750 for what is effectively a two-week
loan of C$2.5 million is egregious.
Dolly Varden’s Share Price Might Plunge if Hecla’s Offer is
Obstructed
Dolly Varden’s share price has increased substantially since
Hecla announced its intention to bid, reflecting the bid premium,
but the share price could just as readily plunge back to its
pre-bid level if Hecla is prevented from proceeding with its
premium cash offer. Dolly Varden’s board, rather than act
obstructively, should abridge the 105-day mandated minimum offer
period so that shareholders can benefit from Hecla’s premium cash
offer without delay.
Dolly Varden securityholders who wish to review the offer
documents should:
- look under Dolly Varden’s issuer
profile on the SEDAR website at www.sedar.com; or
- visit Hecla’s website at
www.hecla-mining.com; or
- contact Laurel Hill Advisory Group,
Hecla’s information agent, at 1-877-452-7184 (toll free) or
416-304-0211 (collect) or by email at
assistance@laurelhill.com.
Sincerely,Phillips S. Baker, Jr.President Chief Executive
OfficerHecla Mining Company
(1) Premium is based on the volume-weighted
average price of the Dolly Varden shares on the TSX-V for the 20
trading days ended June 24, 2016, which was the last trading day
prior to Hecla’s announcement of its intention to bid. Formal
commencement is by way of an announcement today in the National
Post and Le Journal de Montréal and the filing of the takeover bid
circular and related documents with the relevant securities
regulatory authorities.
(2) Based on the terms disclosed by Dolly
Varden on July 5, 2016, the proposed private placement represents
potential dilution of up to 43%. Dolly Varden’s announcement
contemplates the issue of up to 10,545,621 shares, including
private placement, flow-through and broker shares. The dilution is
calculated based on 24,623,963 of current fully diluted issued and
outstanding shares.
(3) With the undisclosed over-allotment
option, potential dilution is increased to more than 57%. With the
over-allotment, a total of 14,158,525 shares, including private
placement, flow-through and broker shares might be issued as a
result of the financing. The dilution is calculated based on
24,623,963 of current fully diluted issued and outstanding shares.
Dolly Varden advised Hecla of the over-allotment option on July 5,
2016 in the Offering Notice, received under the Ancillary Rights
Agreement (ARA).
About Hecla
Founded in 1891, Hecla Mining Company (NYSE:HL) is a leading
low-cost U.S. silver producer with operating mines in Alaska, Idaho
and Mexico, and is a growing gold producer with an operating mine
in Quebec, Canada. The Company also has exploration and
pre-development properties in six world-class silver and gold
mining districts in the U.S., Canada, and Mexico, and an
exploration office and investments in early-stage silver
exploration projects in Canada.
Cautionary Note Regarding Forward-Looking Statements
Statements made or information provided in this news release
that are not historical facts, such as anticipated production,
sales of assets, exploration results and plans, costs, and prices
or sales performance, are “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995 and
“forward-looking information” within the meaning of Canadian
securities laws. Words such as “may,” “will,” “should,” “expects,”
“intends,” “projects,” “believes,” “estimates,” “targets,”
“anticipates” and similar expressions are used to identify these
forward-looking statements. Forward-looking statements involve a
number of risks and uncertainties that could cause actual results
to differ materially from those projected, anticipated, expected or
implied. These risks and uncertainties include, but are not limited
to, metals price volatility, volatility of metals production and
costs, litigation, regulatory and environmental risks, operating
risks, project development risks, political risks, labor issues,
ability to raise financing and exploration risks and results. Refer
to the company’s Form 10-K and 10-Q reports for a more detailed
discussion of factors that may impact expected future results. The
company undertakes no obligation and has no intention of updating
forward-looking statements other than as may be required by
law.
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version on businesswire.com: http://www.businesswire.com/news/home/20160708005121/en/
Hecla Mining CompanyMike Westerlund, 800-HECLA91
(800-432-5291)Vice President - Investor
Relationshmc-info@hecla-mining.com
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