TORONTO, May 7, 2018 /CNW/ - Anaconda Mining
Inc. ("Anaconda" or the "Company") – (TSX:ANX) today has issued a
letter to the shareholders of Maritime Resources Corp. (TSX-V:MAE)
("Maritime") concerning Anaconda's previously announced offer (the
"Offer") to acquire all of the outstanding common shares of
Maritime ("Maritime Shares"), together with the associated rights
issued under the shareholder rights plan of Maritime, for
consideration of 0.390 of an Anaconda share per Maritime Share.
Anaconda's letter to Maritime shareholders highlights the
significant benefits of accepting the Offer, while addressing
misleading and factually incorrect statements in Maritime's
Directors' Circular (the "Circular") filed on SEDAR on April 30, 2018. Anaconda believes that
there is nothing in the Circular that detracts from its compelling
Offer which allows Maritime shareholders to immediately benefit
from a significant purchase premium, while maintaining the ability
to participate in the creation of an emerging Atlantic Canadian
gold producer with a significant growth profile.
Anaconda is concerned and disappointed by the numerous
misleading and factually incorrect statements made by the Directors
and Management of Maritime in the Circular, which highlights their
underlying motivation of personal entrenchment, rather than any
meaningful consideration of this compelling Offer.
Anaconda has highlighted some of these statements below, and
addresses them fully in the letter to shareholders:
Maritime
Assertion
|
Anaconda
Response
|
Anaconda's
assets are depleting and fast
|
|
- Maritime's
allegation that the Point Rousse Project has only five months of
ore remaining is patently and demonstrably false.
- Per Anaconda's NI
43-101 Technical Report dated February 26, 2018, the Company has in
excess of two years of ore supply from the Pine Cove and Stog'er
Tight mines at the Point Rousse Project.
- The Argyle Deposit
will be the next available feed source to the Pine Cove Mill, with
the process already underway to permit a mine in an area that will
not infringe on any protected watershed area.
- The Goldboro Gold
Project, a long-life high-grade Mineral Resource, is projected to
begin production in 2021; The Preliminary Economic Assessment,
filed on March 2, 2018, estimates production of approximately
376,000 ounces of gold over nearly 9 years.
|
Maritime
Shareholders would contribute 83% of the Mineral Reserves but only
receive a 23% interest in Anaconda
|
|
- Anaconda is
contributing a 1,300 tonne-per-day mill, 15+ years of tailings
capacity, generation of operating cash flow that has averaged $4.7
million after corporate G&A, 61% of the Measured and Indicated
Mineral Resources, and an experienced workforce and senior
management team; Maritime did not include these important business
attributes in its evaluation and, thereby, presented information to
Maritime shareholders that is incomplete.
- Maritime's proven
and probable reserves are not actually Mineral Reserves, as they
are not quoted on a diluted and recoverable basis; Anaconda's
proven and probable reserves include a dilution and recovery
factor, in keeping with industry reporting standards.
- Maritime
incorrectly stated Anaconda's Inferred Resources in their Circular
– Anaconda has 456,390 ounces of Inferred Resources between Point
Rousse, Goldboro and the Great Northern Project.
|
Anaconda is
spending more than it's making
|
|
- Anaconda generated
earnings before interest, taxes, depreciation and amortization
("EBITDA") of $5.6 million from its Point Rousse Project during the
seven months ended December 31, 2017, and generated operating cash
flow of $2.0 million, after corporate and other
costs. In the first quarter of 2018, the Company generated $3.3
million of EBITDA at Point Rousse, and generated operating cash
flow of $1.0 million, after corporate
costs.
- Comparatively, over
the past 2 years Maritime has raised almost $4.7 million in
dilutive financing with almost 50% spent on corporate
G&A.
|
Offer not a
good value
|
|
- Despite claiming
the Offer is not fair, Maritime concurrently announced a
below-market financing of less than $0.10 per Maritime
Share.
- The Offer provides
for an immediate purchase premium, a clear and accelerated path to
production for Hammerdown, while offering Maritime's investors a
continued participation in the growth of the combined entity with
the potential for a significant re-rating and the associated stock
price appreciation.
- Upon closing of the
transaction, the pro forma Company will have an enterprise value
per Measured and Indicated Mineral Resources of $43 per ounce, with
a significant re-rating potential to a peer group average of $119
per ounce, which can only be generated if the Offer is
accepted.
- Maritime suggests
Anaconda and the market has not adequately valued its asset. The
valuation gap between any resource estimate and the market value of
Maritime is a clear and unbiased reflection of the capital markets'
view of Maritime Management's ability to realize the company's
inherent value.
|
Maritime's
"View to Production"
|
|
- The Circular does
not actually outline a plan to develop Hammerdown with any
meaningful milestones.
- Maritime does not
have the management team to execute on the development of
Hammerdown. Anaconda has a complete senior staff with development
and production experience in Newfoundland.
- The Nugget Pond
Mill will not be available in the near-term, if at all. Anaconda's
Pine Cove Mill is available now.
- Nugget Pond has no
spare tailings capacity. Anaconda has 15+ years of fully permitted
tailings capacity now.
- Nugget Pond does
not have spare crushing and grinding capacity. Anaconda's Pine Cove
Mill has spare capacity now.
|
Board's
Unanimously Recommends Rejecting the Offer
|
|
- Maritime has only
one independent director, and two of the four Board members are the
CEO and COO, who retain more value in their salaries and benefits
than in equity.
- Under proper
governance conditions, Maritime would establish a special committee
of independent directors to review the Offer, which obviously has
not occurred.
- Since the beginning
of 2017, the Board has awarded its CEO and COO (also Board members)
33.3% raises in base salary, despite a declining share price and no
tangible value creation – the inverse of the "pay for performance"
principle.
- All actions to date
have served to further entrench management at the expense of
Maritime shareholders.
|
Anaconda can offer Maritime shareholders a clear and achievable
plan to develop Maritime's Hammerdown deposit, providing for a
meaningful upfront purchase premium and the ability to participate
not only in the advancement of Hammerdown, but the positive cash
flow from Anaconda's existing operations and an enlarged mineral
resource and reserve portfolio in two historic mining areas within
Newfoundland and Nova Scotia.
The Anaconda team is ready to begin the development process as
soon as the transaction closes. It has the in-house resources to do
the permitting work and, ultimately, Anaconda's goal would be to
have all necessary permits within two years or less.
Anaconda would employ an underground contract miner (and use
Anaconda personnel for oversight) to reduce the upfront capital
cost. It already has vendor relationships through its development
of the Goldboro Gold Project. The Company would truck the whole ore
to the Pine Cove Mill (closer than the Nugget Pond Mill). It
expects that it would batch process the ore, circumvent the
flotation circuit and do a whole ore leach process to achieve
similar recovery rates as the Nugget Pond Mill.
Anaconda has already had preliminary discussions with several
financing sources to fund the development of Hammerdown. It has
already received a letter of intent from a financing source to fund
a significant portion of the development and is expecting another
term sheet by mid-May. The overwhelming response from investors is
that they would be interested in financing Hammerdown because
Anaconda would be involved and would bring a management team with a
track record in developing and operating mines as well as the mill
and tailings infrastructure.
The pro forma Company, with the Point Rousse Project, the
Hammerdown Mine, and the Goldboro Gold Project, would provide the
mineral resources to achieve Anaconda's vision of becoming the next
100,000 ounce per annum gold producer in Canada, at high grades and with low costs.
Maritime Shareholders are encouraged to tender their Maritime
Shares prior to the deadline on July 27,
2018 at 5:00 p.m. EST.
For assistance, please contact Kingsdale Advisors at 1.855.682.2031
or contactus@kingsdaleadvisors.com.
The full text of the letter to Maritime shareholders is included
below.
Dear Maritime Resources Shareholder,
You have likely recently received Maritime Resources Corp.'s
("Maritime") Directors' Circular (the "Circular") in which Maritime
recommends that shareholders reject Anaconda Mining Inc.'s
("Anaconda" or the "Company") offer to acquire all of the
outstanding common shares of Maritime ("Maritime Shares"), together
with the associated rights issued under the shareholder rights plan
of Maritime, for consideration of 0.390 of a common share of
Anaconda per each Maritime Share (the "Offer").
The choice before you is important, yet simple:
By tendering to the Offer, Maritime shareholders receive an
immediate and significant purchase premium, meaningful
participation in the pro forma company with a vision to becoming a
gold producer with production of 100,000 ounces per annum, a
potential re-rating opportunity with the associated stock price
appreciation, enhanced liquidity, and the opportunity to accelerate
the development of Hammerdown with improved project cash
flow.
OR
By not tendering, Maritime shareholders face continued chronic
ownership dilution as management continues its history of share
issuances to fund Management salaries and corporate overhead, with
no concrete plan to develop Hammerdown, and no ability to fund the
project. By not acting and not tendering your shares, you
will be agreeing to continued stagnation and chronic dilution, as
you have experienced over the last few years.
Following a careful review of the Circular, Anaconda is
concerned and disappointed by the numerous misleading and factually
incorrect statements made by the Maritime Board of Directors and
Management. It is clear that Management and the Board are afraid of
any change to the status quo and is attempting to instill fear of
the premium Offer by presenting an incoherent assemblage of
innuendo, half-truths and blatant factual inaccuracies. In so
doing, their Circular serves to highlight their underlying
motivation of personal entrenchment, rather than any meaningful
consideration of our Offer or sincere concern for Maritime's
shareholders.
Anaconda, along with the Maritime shareholders who have already
tendered their Maritime Shares, continue to believe the combination
of Maritime and Anaconda is in the best interest of both companies
and all shareholders. We are confident Maritime shareholders will
see through the smoke screen of the Circular provided by Maritime
and will see the clear benefits to them of this unique
opportunity. Anaconda stands alone in its interest in
Maritime and there are no known alternative suitors, past or
present.
Maritime's Management and Board are Not Aligned with Maritime
Shareholders
The Board of Directors is obligated to provide management
oversight and represent your interests as a shareholder. In
an important corporate event like this, they should be giving you
an unbiased opinion and evaluation of Maritime's strategic
options. Proper governance procedures, when in receipt of
such an Offer, would be for the Board to form a special committee
of Independent Directors to evaluate the Offer and make a
recommendation to the Board. The problem is, Maritime only has one
Independent Director and two of the four Board members are the CEO
and COO, who own little equity and are more incentivized to protect
their jobs and maintain the status quo. You must question whose
interests are being represented in the Circular and whether any of
their opinions can truly be unbundled from their conflicted
personal interests.
Maritime's Board and Management are small owners but big
takers. Owning less than 2.5% of the outstanding Maritime
Shares collectively, Maritime's insiders take out over $700,000 annually in compensation and related
costs. Moreover since 2016, over a period of significant
Maritime Share price decline and continued dilution, the CEO and
COO (who are also directors) have recently awarded themselves
salary increases of 33.3%, despite the lack of any meaningful
progress on Maritime's assets.
Maritime Shareholders Have Suffered Chronic Dilution
Indeed, over the past three years, Maritime has raised almost
$4.7 million in dilutive equity
financing, with almost 50% of the proceeds spent on corporate
overhead. As shareholders you have suffered chronic dilution which
is magnified by equity funds being used to sustain the lifestyles
of insiders, rather than on value creation at your main asset, the
Hammerdown mine.
Against this backdrop, ask yourself, are the interests of
Maritime Management and Board aligned with you the beleaguered
Maritime shareholder?
Maritime Proposes Another Dilutive Financing
Despite completing an equity financing as recently as
March 2018, you are likely aware your
Management has announced a further private placement of
$1.0 million at an offer price below
market and well below our premium Offer. This reckless act is
a thinly veiled attempt to disrupt the Offer, alter the Offer
process and deprive you, the shareholders, of a unique opportunity
to realize an immediate premium whilst also preserving your
economic upside. This upside includes your ongoing
participation in a combined entity with significant commercial and
financial potential, and a management team with a clear,
demonstrable plan to create value for all shareholders. Ask
yourself, where will the $1.0 million
go; will it advance your key asset and add value to your shares or
will it be squandered to pay the CEO and COO a combined
$440,000 this year?
Lack of Strategic Alternatives to Enhance Shareholder
Value
Maritime's Board is asking shareholders to reject our compelling
Offer, suggesting that the Board is "considering strategic
opportunities to enhance shareholder value in the near-term." Ask
yourself, in the last three years has Management demonstrated a
track record of continuous progress to move the Hammerdown project
toward production? If they had insights on how to deliver
strategic value, should they not have outlined those opportunities
in the Circular?
In its Circular, Maritime makes several perplexing comments
about Anaconda, contrary to publicly filed information, and then
overlays this with innuendo, all transparently aimed at creating
fear about Anaconda's intentions. Let's set the record
straight. For the past two years, we have attempted to engage
Maritime in a meaningful discussion about combining our two
companies to create value and synergies for shareholders of both
companies. Simply, the combined entity will be worth more than the
sum of its parts. With peers trading at an enterprise value per
Measured and Indicated Mineral Resources ("EV/Ounce") of
$119 per ounce and an initial
EV/Ounce of $43 for the pro forma
combined company, there is a tremendous opportunity to create value
for all shareholders.
The sole reason we launched this tender Offer is that Management
refused to engage in this discussion, so we brought our Offer
directly to you, the longstanding and enduring owners of Maritime.
There is nothing hostile about our Offer - it is intentionally a
shareholder friendly equity offer, which will allow all
shareholders to participate in an exciting value enhancing
opportunity. Only those defending the status quo, whose interests
are not aligned with their shareholders, would perceive it as
hostile. Ask yourself, do "opportunists" persist for two years to
make a friendly deal and then increase their initial offer and
increase their premium?
Management and Board's Misdirection Cannot Hide Valuation
Realities
Management and the Board either do not understand or are
intentionally attempting to mislead shareholders on fundamental
valuation matters – neither of which is acceptable. On one hand,
they claim that our premium Offer undervalues Maritime citing
pre-tax estimates on a pre-feasibility study, as though we
were buying bullion, in a world where taxes were not required to be
paid. At the same time, they arrange a below-market equity
financing that values Maritime at less than $10 million. As shareholders you should be
incensed.
Recent equity financings have likewise been well below what
Anaconda is offering Maritime shareholders. The Board can't
have it both ways. As investors you know that the significant
gap between any resource estimate and the current market valuation
of the Company reflects the capital markets' unbiased view of
management's capability of advancing the project towards
production. Ask yourself, who do you hold accountable for
Maritime's market valuation? Next ask yourself, who is more likely
to deliver accelerated production at Hammerdown? The answer is
unequivocal: Anaconda with its track record of generating positive
cash flow, fully-permitted and operating mill and tailings facility
within trucking distance of Hammerdown, and superior access to
capital. Maritime's Management has no credible plan to advance
Hammerdown in any meaningful way.
The Real Mine Plan for Anaconda
In attempting to create fear about the Offer, Maritime has used
patently false assertions about production at Point Rousse. Our
public disclosure makes it clear that Anaconda has in excess of two
years of ore to supply to our mill without factoring in ongoing
development initiatives at Argyle. By conveniently focusing on the
market-guided completion of mining in one part of our operation,
remaining silent on the fact that this pit will then convert to a
fully-permitted tailings facility with a 15+-year life, and
ignoring the remainder of our deposits, we guess that Maritime's
Management hoped you would be misled.
Based on the publicly available Point Rousse Technical Report
(as defined below), filed on February 26,
2018, Anaconda explicitly states, as it has been
consistently guiding all along in its public disclosure record,
that it expected to complete mining in the main pit at Pine Cove
late in the first quarter of 2018, with two additional pushbacks
scheduled for 2019. The Point Rousse Technical Report also states
that the Stog'er Tight deposit, which also feeds the Pine Cove
Mill, has approximately 191,500 tonnes of higher grade reserves,
and that together with Pine Cove stockpiles and material from
pushbacks of the Pine Cove pit, would provide for at least two
years of ore supply to the mill. The table below summarizes the
Probable Mineral Reserves, which will be blended to ensure
consistent production over the next two years.
Point Rousse
Probable Mineral Reserves(1)(2)
|
Deposit
|
Cut-off (g/t)
(3)
|
Probable
Tonnes(4)
|
Au
(g/t)
|
Ounces
|
Pine Cove
|
0.5
|
696,200
|
0.96
|
21,440
|
Stog'er
Tight
|
1.0
|
191,500
|
2.39
|
14,740
|
Total
|
|
887,700
|
|
36,180
|
(1) The mineral
reserve estimates for the Point Rousse Project have been calculated
as of December 31, 2017. There have been no material changes
to the mineral reserves since the filing of the Technical Report
prepared for Anaconda titled, "NI 43-101 Technical Report, Mineral
Resource and Mineral Reserve Update on the Point Rousse Project,
Baie Verte, Newfoundland and Labrador, Canada" with an effective
date of December 31, 2017 (the "Point Rousse Technical Report"),
other than from depletion due to mine operations.
|
(2) The Pine Cove
and Stog'er Tight Mineral Resource statement is inclusive of
Mineral Reserves
|
(3) Grams per
tonne
|
(4) Mineral
reserves have been rounded to 100 tonnes, ounces to 0.01 g/t Au and
10 ounces. Minor discrepancies in summation may occur due to
rounding.
|
Furthermore, the Point Rousse Technical Report highlights the
Argyle deposit, discovered two years ago, as the next available
source of mill feed. The deposit remains open for expansion
with the potential to increase in size over the next year, because
of an improved geological understanding of the mineralized areas
leading to more efficient drilling. Recent exploration
results have also opened up the possibility of underground
development at Argyle.
In addition, the Argyle Environmental Registration document,
which includes a proposed mine plan and layout is publicly
available. The Argyle mine plan is not located within a protected
watershed, as Maritime asserted, and Anaconda has received clear
community support for its activities within the Argyle area.
Overall, the project would not introduce any significant
environmental concern to the area and would not infringe on local
watershed areas.
Anaconda's proposition is clear: We are offering you a
compelling opportunity for both an immediate significant purchase
premium and the ability to participate in a combined entity capable
of accelerating the Hammerdown project and delivering
important synergies between the companies, without
being exposed to single-asset risk.
Our Offer Presents Maritime Shareholders with a Clear Path
Forward to Increased Shareholder Value
The choice before you is simple: Benefit from this unique
opportunity to be part of a stronger combined entity and to improve
the performance of your investment by tendering your Maritime
Shares, OR ignore your past experience with Maritime, roll the dice
on Maritime Management having newfound but undeclared insights for
unlocking shareholder value, and bet on the status quo while being
exposed to ongoing shareholder dilution.
The benefits of Anaconda's premium Offer to Maritime
shareholders are laid out in our recent Offer documents to
you. In short, they include:
- Continued participation in Maritime's assets without the single
asset permitting, development, and financing risks you currently
face. Indeed, there is a real opportunity to accelerate the
Hammerdown project.
- Exposure to Anaconda's producing assets, cash flow generation,
and Mineral Resource and Reserve portfolio, including the Goldboro
Gold Project in Nova Scotia, where
the Company has demonstrated the opportunity to significantly
expand the Mineral Resource.
- A proforma Company with an initial EV/Ounce of $43, with an opportunity to re-rate to the peer
average of $119 per ounce,
significantly increasing returns for shareholders of Maritime and
Anaconda alike.
- Enhanced capital markets profile, increased liquidity, lower
capital costs, and more financing opportunities.
- A combined company with meaningful synergies that translate
into cash flow and value creation.
- A management team and Board with deep experience in financing
and developing mines in Atlantic
Canada.
In stark contrast, the "go it alone" choice offered by Maritime
is, based on a poor track record, likely to remain one of continued
chronic dilution used in large part to fund the lifestyles of the
incumbent Management and Board rather than invested in advancing
your asset. Your Management and Board's interests are not aligned
with yours and we are confident you will see past their simplistic
attempts to misdirect you as you make your decision.
We believe the choice is an easy one.
Maritime Shareholders are encouraged to tender their shares
prior to the deadline on July 27,
2018 at 5:00 p.m.
EST.
For assistance, please contact Kingsdale Advisors at
1.855.682.2031 or contactus@kingsdaleadvisors.com
Sincerely,
Jonathan W. Fitzgerald
Chairman of the Board of Directors
APPENDIX – CORRECTION OF DIRECTOR'S CIRCULAR ERRORS AND
OMISSIONS
Anaconda believes that the benefits of its premium Offer speaks
for itself and have already received significant support from
Maritime shareholders. However, we realize that shareholders
expect their Board of Directors to fulfil its fiduciary duty and
provide independent, unbiased information in shareholders' best
interests. Unfortunately, there is only one truly independent
Director on the Maritime Board and one half of the Board has a huge
conflict of interest as they are Management representatives and
incentivized to preserve their jobs along with their newly declared
pay raises. In this context, it is not surprising the Circular
contains misleading statements and factual and contextual errors.
We have included this Appendix to our Letter to Shareholders to
ensure you have meaningful information when making this important
decision, and to clarify misleading and false statements. In
many cases, you can refer to the public record yourself, which
demonstrates the false claims.
Offer and Financial Information
What Maritime Directors' Circular Says
"Anaconda wants to use your money for their agenda"
The Facts
Anaconda's "agenda" is to
accelerate the development of Hammerdown and improve its
financial metrics through operating synergies and leveraging
existing infrastructure. The Offer is intentionally a share
deal so that shareholders of both companies participate in the
upside. By tendering to the premium Offer, Maritime
shareholders receive an immediate premium, participation in a pro
forma company with a vision to becoming a gold producer with
production of 100,000 ounces per annum, increased liquidity, and a
significant re-rating opportunity. Maritime shareholders will
no longer be subject to single asset risk and will participate in
Anaconda's cash flow generation at Point Rousse and the ongoing
exploration and development at the high-grade, long life Goldboro
Gold Project.
It is not clear to us how this "agenda" to create significant
shareholder is not aligned with Maritime shareholders, which should
make you question what Maritime's Board and Management's
motivations truly are.
What Maritime Directors' Circular Says
"Low-ball, opportunistic offer"
The Facts
Low-ball, opportunistic offers
generally occur when an external event creates a temporary downward
pressure on a company's stock and the offer is made at a recent
historical low to take advantage of the depressed price.
That's not what happened here. We remind you that (1) we have
tried in good faith for two years to engage in meaningful
discussion and reach a friendly deal, and (2) we announced our
intention to make an offer at a level above where Maritime has
traded in the past 12 months, which we then increased it when we
formally announced the Offer. The Offer Consideration
represents $0.16 per Maritime Share
and represents a premium of approximately 64%, based on the 20-day
volume weighted average prices of the Maritime Shares on the TSX-V
and the Anaconda Shares on the TSX immediately preceding the date
Anaconda announced its intention to make an offer to Maritime
Shareholders.
We also find it hypocritical that we are accused of a low-ball
offer when your own Management undertook a reckless, below-market
private placement only days before the release of the Circular,
which was far below our Offer, at less than $0.10 per Maritime Share. There is no commercial
justification for that and you should question (1) whether it was
done to frustrate your ability to consider this Offer, and (2)
whether any of this dilutive capital raise will be spent on
Hammerdown.
What Maritime Directors' Circular
Says
"Anaconda's shares may be
inflated"
The Facts
It is difficult to rebut
an argument that is neither substantiated nor logically consistent
throughout the grab bag of "indicators" the Circular uses to try
and support their theory – but we'll try:
The suggestion that our recent share consolidation is inflating
our stock demonstrates a worrisome lack of capital markets
understanding by Maritime Management and its advisors. A share
consolidation simply reduces the shares outstanding at an
established ratio, the underlying market value does not change. A
consolidation is no different to exchanging four quarters for a
loonie. In fact, it is generally viewed that a share consolidation
can create the opposite effect and place downward pressure on share
price.
Finally, and most difficult to respond to, given the lack of
logical consistency, is Maritime's reference to project
valuations. On one hand, they suggest that Hammerdown is
worth over $70 million and that
somehow the market valuation of their stock doesn't include that –
however they mislead readers by using pre-tax
figures, ignoring the combined Federal and Provincial tax
rate of 30% and the Provincial mining tax of 15%. If we wish to be
consistent and use their logic, Anaconda's Goldboro Gold Project
alone is worth over $75 million
after tax at current gold prices, according to the technical
report entitled "Goldboro Project Preliminary Economic Assessment"
prepared for Anaconda, dated March 2,
2018, which does not incorporate any of the significant
high-grade results recently published. Therefore, if the
market values Anaconda the same way it does Maritime, perhaps the
answer is that the market rewards achievement and progress at
Anaconda that is lacking at Maritime. That is not inflation;
that is fundamental market valuation and one of the many reasons to
tender and become part of the new Anaconda.
What Maritime Directors' Circular Says
"Cash will be required to develop Hammerdown"
The Facts
This is a fact equally true of
Maritime and Anaconda, and in no way a reason to reject the
transaction. On the contrary, with Anaconda's cash flow
generation, higher market capitalization, liquidity, resource base
and operating experience – we have far more access to capital and
at a lower cost than Maritime to finance Hammerdown. To look
at it the other way, for Maritime to finance their estimated
$67.8 million development costs would
require massive shareholder dilution far below their proforma
ownership under our Offer, if you are even willing to accept
the premise that Maritime actually has access to the capital at
all. Based on past record and the fact that Maritime would need to
raise roughly seven times its market capitalization, its
development assumptions may be stretched.
What Maritime Directors' Circular
Says
"Maritime has the capacity to restart Hammerdown
without excessive dilution"
The Facts
That would require financial alchemy
that simply is not possible. As a non-producing company,
Maritime likely cannot access debt capital so its only option is
more of the chronic dilution that shareholders have experienced for
years.
What Maritime Directors' Circular Says
"If the
bid is successful, Maritime Shareholders' ability to participate in
the benefits of Maritime's assets will be reduced."
The Facts
Quite the opposite is true. By
tendering to the premium Offer, Maritime shareholders will receive
an immediate premium and the opportunity to accelerate the
development of Hammerdown plus the improved financial metrics of
synergies that only exist if the Offer is successful.
Maritime shareholders will gain additional benefits including
greater market presence, increased liquidity, participation in a
pro forma company with a vision to becoming a gold producer with
production of 100,000 ounces per annum, and a significant re-rating
opportunity. Maritime shareholders will no longer be subject
to single asset risk and will participate in Anaconda's cash flow
generation at Point Rousse and the ongoing exploration and
development at the high-grade, long life Goldboro Gold Project.
What Maritime Directors' Circular
Says
"Anaconda is spending more than it's making"
The Facts
Management's statements that Anaconda
cannot cover its own operating costs is patently false and
intentionally omits material information in a feeble attempt to
prop up its tenuous claim. The facts are Anaconda generated
earnings before interest, taxes, depreciation and amortization
("EBITDA") of $5.6 million from its
Point Rousse Project during the seven months ended December 31, 2017, generating operating cash flow
of $2.0 million, which is
after paying for corporate and other costs. In the
first quarter of 2018, the Company generated $3.3 million of EBITDA at Point Rousse, and
generated operating cash flow of $1.0
million, again after paying corporate and
other costs. We not only cover our costs, our operational
performance, cost management, and resulting cash flow generation
enables us to invest in our projects to create shareholder
value. During our most recent quarter alone we invested
$1.5 million into developing our
assets, which included exciting high-grade results at the Goldboro
Gold Project.
How much of Maritime's dilutive financings were used to advance
Hammerdown? Recently, instead of investing scarce cash into
Hammerdown, Management instead spent critical development capital
on speculative optioning and exploration of the greenfield Whisker
Valley project. One of the many advantages to tendering to the
premium Offer is that you will benefit from Anaconda's experienced
management team being focused on key assets such as Hammerdown,
which will create shareholder value that has not been delivered by
Maritime.
Technical Information
What Maritime Directors' Circular Says
"Mining
at Anaconda's Operations will end before July 2018"
The Facts
Most of Management's comments with
respect to Anaconda's operations are patently and demonstrably
false based on publicly available information filed by
Anaconda.
The statement that Anaconda has only five months of ore mill
feed is categorically false. Based on the updated Point
Rousse Technical Report, Anaconda explicitly stated, as it has been
guiding the market all along, that it expects to complete mining in
the main pit at Pine Cove late in the first quarter of 2018.
Anaconda has already publicly confirmed mining from the bottom of
the Pine Cove pit is complete in its April
12, 2018 press release.
The pit is now being converted into a fully-permitted tailings
facility with 15+ years of capacity at current throughput rates,
with two pushbacks of the pit scheduled for production in 2019.
The Point Rousse Technical Report indicates that the Stog'er
Tight deposit, which also feeds the Pine Cove Mill, has
approximately 191,500 tonnes of higher grade reserves, that
together with Pine Cove Stockpiles and other Pine Cove Material,
would provide for at least two years of ore supply to the mill.
Point Rousse
Mineral Resources(1)(2)(5)
(Effective
December 31, 2017)
|
Deposit
|
Cut-off (g/t)
(3)
|
Indicated
Tonnes(4)
|
Au
(g/t)
|
Ounces
|
Pine Cove
|
0.5
|
863,500
|
2.07
|
57,730
|
Stog'er
Tight
|
0.8
|
204,100
|
3.59
|
23,540
|
Argyle
|
0.5
|
543,000
|
2.19
|
38,300
|
Total Point
Rousse
|
|
1,610,600
|
2.30
|
119,570
|
Deposit
|
Cut-off (g/t)
(3)
|
Inferred
Tonnes(4)
|
Au
(g/t)
|
Ounces
|
Pine Cove
|
0.5
|
476,300
|
1.39
|
21,330
|
Stog'er
Tight
|
0.8
|
252,000
|
3.30
|
26,460
|
Argyle
|
0.5
|
517,000
|
1.80
|
30,300
|
Total Point
Rousse
|
|
1,245,300
|
1.95
|
78,090
|
Point Rousse
Probable Mineral Reserves
|
Deposit
|
Cut-off (g/t)
(3)
|
Probable
Tonnes(4)
|
Au
(g/t)
|
Ounces
|
Pine Cove
|
0.5
|
696,200
|
0.96
|
21,440
|
Stog'er
Tight
|
1.0
|
191,500
|
2.39
|
14,740
|
Total Point
Rousse
|
|
887,700
|
1.27
|
36,180
|
(1) The
mineral reserve estimates for the Point Rousse Project have been
calculated as of December 31, 2017. There have been no
material changes to the mineral reserves since the filing of the
Technical Report prepared for Anaconda titled, "NI 43-101 Technical
Report, Mineral Resource and Mineral Reserve Update on the Point
Rousse Project, Baie Verte, Newfoundland and Labrador, Canada" with
an effective date of December 31, 2017 (the "Point Rousse Technical
Report"), other than from depletion due to mine
operations.
|
(2) The Pine Cove
and Stog'er Tight Mineral Resource statement is inclusive of
Mineral Reserves
|
(3) Grams per
tonne
|
(4) Mineral
reserves have been rounded to 100 tonnes, ounces to 0.01 g/t Au and
10 ounces. Minor discrepancies in summation may occur due to
rounding.
|
(5) This table is
based on the Point Rousse Technical Report.
|
What Maritime Directors' Circular
Says
"Maritime questions Anaconda's Future
Production"
The Facts
In the updated Point Rousse Technical
Report, Anaconda provides the list of reserves outlining the mining
and milling plan for the next two years. Anaconda has clearly
outlined its production plan at the Point Rousse Project through
the development and mining of Stog'er Tight and the development of
the Argyle Resource.
The Point Rousse Technical Report clearly highlights the Argyle
deposit, discovered two years ago, as the next available source of
mill feed. The Company has commenced the permitting process with
the submission of an Environmental Registration document, which
includes a proposed mine plan and layout, and is publicly available
at
http://www.mae.gov.nl.ca/env_assessment/projects/Y2018/1959/index.html.
Further details will be disclosed in Development Rehabilitation and
Closure plans which will be submitted to Department of Natural
Resources by end of May and July respectively.
The proposed Argyle mine is not located within a protected
watershed as Maritime suggests, and Anaconda has received clear
community support for its activities within the Argyle area. The
deposit remains open for expansion with the potential to increase
in size in the next year, with continued drilling, and recent
geological understanding and drill results, have opened up the
possibility of underground development at Argyle.
Maritime's suggestion that Argyle's proximity to a watershed
boundary makes it un-mineable is false, and we direct interested
parties to the link to our publicly available Environmental
Registration document. The mine plan as submitted does not
impact on proximate watershed areas, and overall the project would
not introduce any significant environmental concern to the area,
consisting only of the open pit mine and related infrastructure.
There would be no presence of processing or tailings, as ore would
be shipped and processed at Pine Cove.
What Maritime Directors' Circular
Says
"Maritime Shareholders would contribute 83% of the
Mineral Reserves but only receive a 23% interest in Anaconda"
The Facts
Once again, Maritime has attempted to
make a misleading statement by omitting important facts.
Anaconda is contributing a 1,300 tonne-per-day mill, 15+ years of
tailings capacity, current project operating cash flow that
averages approximately [$8M] per
year, 61% of the Measured and Indicated Mineral Resources, and an
experienced workforce and senior management team. Maritime has not
included these highly important attributes in its evaluation, and
therefore their assertion should be highly discounted.
Maritime's proven and probable reserves are not actually Mineral
Reserves, as they are not quoted on a diluted and recoverable
basis. Anaconda's proven and probable reserves include a dilution
and recovery factor.
Maritime has incorrectly stated Anaconda's Inferred Resources in
their Circular. Anaconda has 456,390 ounces of Inferred Resources
between Point Rousse, Goldboro and
the Great Northern Project.
What Maritime Directors' Circular
Says
"Anaconda claims they have a 145,000-tonne
stockpile, however they do not disclose the grade, nor the economic
viability of that ore"
The Facts
This claim is completely false.
It is fully disclosed in the Company's updated Point Rousse
Technical Report. The Company has been mining at the Pine
Cove open pit mine continuously since 2008 and has extracted
118,028 ounces of gold. Table 44 of the Point Rousse Technical
Report and replicated below are estimates of probable reserves
remaining (including stockpiles) in the Pine Cove pit as of
December 31, 2017 of approximately
696,200 tonnes of ore at a diluted grade of 0.96 g/t.
Push
Back
|
Total
Materials
|
Waste
Tonnes
|
Cut-off g/t
gold
|
Diluted Ore
Tonnes
|
Diluted Ore grade
g/t gold
|
Ounces
Oz
|
Pine Cove Main
Pit
|
229,500
|
126,400
|
0.5
|
108,300
|
1.24
|
4,330
|
North Western
Extension
|
513,200
|
464,800
|
0.5
|
51,700
|
0.96
|
1,600
|
Pine Cove
Pond
|
645,000
|
532,500
|
0.5
|
118,100
|
1.14
|
4,340
|
Marginal
Pile
|
88,800
|
0
|
0.5
|
88,800
|
0.80
|
2,290
|
Marginal Pile_low
1
|
179,700
|
0
|
0.5
|
179,700
|
0.50
|
2,890
|
ROM Pile
|
149,500
|
0
|
0.5
|
149,500
|
1.25
|
6,010
|
Total Approved
Reserves
|
1,805,700
|
1,123,700
|
0.5
|
696,200
|
0.96
|
21,440
|
It should be concerning to all Maritime shareholders that its
Management and Board would make such a patently false
statement.
What Maritime Directors' Circular
Says
"Anaconda will need to raise $89 million in capital to advance Goldboro Gold
Project"
The Facts
Of course, the Goldboro Gold Project
will require capital to develop, and the same is true for Maritime
and the Hammerdown mine. Under Maritime's pre-feasibility
study for Hammerdown, it will take four years of pre-production and
development and $68 million in
capital cost, for a project with half the mine life of Goldboro, at a production profile that is
10,000 ounces less per annum. Furthermore, the stated
$68 million capital cost
ignores capital requirements to implement a crushing
and grinding circuit at Nugget Pond, let alone any costs associated
with Rambler allowing Maritime to use the facility, and is
completely silent on the requirement for tailings capacity.
Anaconda has clearly laid out a plan to leverage existing
infrastructure to reduce capital and operating costs, allowing
Maritime shareholders the opportunity to both accelerate the
development of Hammerdown and improve its financial
metrics.
What Maritime Directors' Circular Says
Recovery
comparisons between the Pine Cove Mill and Nugget Pond Mill
The Facts
The continued comparison of the Pine
Cove Mill's average recovery of 85%-87% to historical Nugget Pond
recovery of Hammerdown ore is completely misleading and technically
incorrect. Previously, Hammerdown ore was processed using a whole
ore leach (grinding and leaching). Anaconda will use this
same technique to process Hammerdown ore at Pine Cove, since the
ore does not require floatation, and anticipates similar recoveries
as historical processing. Consequently, the comparison of the
recoveries from Pine Cove ore, which requires flotation, with the
recovery of Hammerdown ore is misleading and technically
incorrect.
To compare the two mills, the flotation recovery must be taken
out of the Pine Cove Mill circuit. On that consistent basis,
and before any optimization efforts, the Pine Cove Mill would
produce similar recoveries to the Nugget Pond mill, utilizing its
current circuits.
Furthermore, not only does Anaconda expect to achieve similar
recovery rates, it expects to be able to achieve cost savings above
the pre-feasibility study projections. Milling costs at the
Company's Pine Cove Mill have averaged just over $20 per tonne, which is approximately 40% lower
than the processing cost of $32.89
per tonne quoted in the Green Bay Property Technical Report (which
doesn't include a toll milling charge which will be payable to
Rambler Metals and Mining, the owner of the Nugget Pond
Mill). In addition, haulage and associated transportation
costs should be materially reduced by using the Pine Cove Mill
rather than the Nugget Pond Mill for processing ore. Pine Cove Mill
is the closest operating mill to the Green Bay Property and is
located approximately 50 kilometres on a round trip basis than the
Nugget Pond Mill.
What Maritime Directors' Circular Says
Use of
Nugget Pond
The Facts
Maritime Management has also stated
that the Nugget Pond mill would require "only modest capital to
construct an additional grinding circuit, and Rambler could easily
place the gold stream into production." The costs associated with
these capital expenditures are not disclosed in the pre-feasibility
study, and for the existing Nugget Pond Mill to be available to
process ore from the Green Bay Property, Rambler Metals would have
to either divert its current processing operations to another mill
or build a new grinding circuit. In addition, Maritime has no
control over Rambler Metals and there is no current agreement in
place that provides Maritime with guaranteed access to Nugget
Pond.
Critically, the processing of Hammerdown ore would require
tailings capacity, for which Rambler is not yet permitted, and
whose permit application does not contemplate ore from other
sources, as evident from Rambler's public tailings permit
application.
The Negotiation Process Information
What Maritime Directors' Circular
Says
"Unanimous Board recommendation"
The Facts
It is worth noting the Maritime has a
Board of four, two of whom are the CEO and COO and are therefore
conflicted. Proper governance would see a committee of independent
directors established to review the Offer and make a recommendation
to the Board for approval. That was not done and is not possible.
Half of the Board is trying to protect their jobs and is not
representing shareholders' best interests.
What Maritime Directors' Circular Says
Maritime
is "considering strategic opportunities to enhance shareholder
value in the near-term"
The Facts
The fact pattern is that Maritime
Management has resisted every attempt to engage in a constructive
dialogue and each of their actions have been defensive, first with
an advance notice by-law, then with a shareholder rights plan,
after receiving a bona fide offer, and then with a reckless and
unnecessary private placement below market. The natural
synergies between Anaconda and Maritime are a clear strategic
opportunity to create value. Shareholders should ask if
Management's track record indicates any likelihood of near-term
value creation.
What Maritime Directors' Circular
Says
"Anaconda rejected Request for Due Diligence"
The Facts
This is a blatantly misleading
statement as it conveniently omits that Maritime insisted on a
non-market standstill (once again, seeking to entrench their roles
at the expense of Maritime shareholders) and refused to enter a
standard non-binding Letter of Intent, subject to due diligence.
The reality is that we wished to engage in discussions towards a
friendly deal to combine these two companies and were more than
willing to sign a confidentiality agreement and open our books as
part of a process – this is standard protocol. It should be
surprising that Maritime's Management was not able to assess the
value proposition from Anaconda; as a TSX-listed company, all our
key information is publicly available in any case, including
updated technical reports for Point Rousse and Goldboro.
Normal course for a transaction of this kind would be to establish
an agreement on at least the parameters of valuation before
proceeding into due diligence. What is absurd is being asked
for assurances we would not pursue a transaction as a condition of
confidentiality – when we didn't even have agreement on valuation
parameters.
QUALIFIED PERSON
Gordana Slepcev, P. Eng., Chief Operating Officer, Anaconda, is
a "qualified person" as such term is defined in National Instrument
43-101 and has reviewed and approved the technical information and
data included in this letter.
NOTICE TO MARITIME SHAREHOLDERS IN THE UNITED STATES
The Offer is made for the securities of a foreign company.
The Offer is subject to disclosure requirements of a foreign
country that are different from those of the United States. Financial statements
included in, or incorporated by reference into, the Offer to
Purchase and Circular, if any, have been prepared in accordance
with foreign accounting standards that may not be comparable to the
financial statements of United
States companies.
It may be difficult for you to enforce your rights and any
claim you may have arising under the federal securities laws, since
the Company is located in a foreign country, and some or all of its
officers and directors may be residents of a foreign country. You
may not be able to sue a foreign company or its officers or
directors in a foreign court for violations of the U.S. securities
laws. It may be difficult to compel a foreign company and its
affiliates to subject themselves to a U.S. court's
judgment.
You should be aware that the Company may purchase securities
otherwise than under the Offer, such as in open market or privately
negotiated purchases.
The Offer will not be made in, nor will deposits of
securities be accepted from a person in, any jurisdiction in which
the making or acceptance thereof would not be in compliance with
the laws of such jurisdiction.
NON-IFRS MEASURES
Anaconda has included certain non-IFRS performance measures
as detailed below. In the gold mining industry, these are common
performance measures but may not be comparable to similar measures
presented by other issuers. The Company believes that, in addition
to conventional measures prepared in accordance with IFRS, certain
investors use this information to evaluate the Company's
performance and ability to generate cash flow. Accordingly, it is
intended to provide additional information and should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS.
FORWARD-LOOKING INFORMATION
This letter contains "forward-looking information" within the
meaning of applicable Canadian and United
States securities legislation. Forward-looking information
includes, but is not limited to, the Offer, the value of the common
shares of Anaconda received under the Offer, the completion of the
Offer and related transactions, the Company's future exploration,
development and operational plans, including the development of
Hammerdown, the ability to leverage synergies, potential increases
in the Company's value and production growth profile, the
estimation minerals reserves and mineral resources, the timing,
costs and amount of future production. Generally, forward-looking
information can be identified by the use of forward-looking
terminology such as "plans", "expects", or "does not expect", "is
expected", "budget", "scheduled", "estimates", "forecasts",
"intends", "anticipates", or "does not anticipate", or "believes"
or variations of such words and phrases or state that certain
actions, events or results "may", "could", "would", "might", or
"will be taken", "occur", or "be achieved". Forward-looking
information is based on the opinions and estimates of management at
the date the information is made, and is based on a number of
assumptions and is subject to known and unknown risks,
uncertainties and other factors that may cause the actual results,
level of activity, performance or achievements of Anaconda to be
materially different from those expressed or implied by such
forward-looking information, including risks associated with the
exploration, development and mining such as economic factors as
they effect exploration, future commodity prices, changes in
foreign exchange and interest rates, actual results of current
production, development and exploration activities, government
regulation, political or economic developments, environmental
risks, permitting timelines, capital expenditures, operating or
technical difficulties in connection with development activities,
employee relations, the speculative nature of gold exploration and
development, including the risks of diminishing quantities of
grades of resources, contests over title to properties, and changes
in project parameters as plans continue to be refined as well as
those risk factors discussed in the Offer to Purchase and Circular
of Anaconda and annual information form for the seven month period
ended December 31, 2017, both
available on www.sedar.com. Although Anaconda has attempted
to identify important factors that could cause actual results to
differ materially from those contained in forward-looking
information, there may be other factors that cause results not to
be as anticipated, estimated or intended. There can be no assurance
that such information will prove to be accurate, as actual results
and future events could differ materially from those anticipated in
such information. Accordingly, readers should not place undue
reliance on forward-looking information. Anaconda does not
undertake to update any forward-looking information, except in
accordance with applicable securities laws.
ABOUT ANACONDA MINING INC.
Anaconda is a TSX-listed gold mining, exploration and
development company, focused in the prospective Atlantic Canadian
jurisdictions of Newfoundland and
Nova Scotia. The Company operates
the Point Rousse Project located in the Baie Verte Mining District
in Newfoundland, comprised of the
Pine Cove open pit mine, the fully-permitted Pine Cove Mill and
tailings facility, the Stog'er Tight Mine and the Argyle deposit,
as well as approximately 5,800 hectares of prospective gold-bearing
property. Anaconda is also developing the Goldboro Project in
Nova Scotia, a high-grade Mineral
Resource.
The Company also has a pipeline of organic growth opportunities,
including the Great Northern Project on the Northern Peninsula and
the Tilt Cove Property on the Baie Verte Peninsula.
SOURCE Anaconda Mining Inc.