The Boards of Directors of Kenai Resources Ltd (TSX VENTURE:KAI) and Serabi Gold
plc. (AIM:SRB)(TSX:SBI) announce that they have entered into an agreement ("the
Transaction"), subject to the approval of shareholders of Kenai and other
conditions precedent, whereby Serabi will acquire all the issued and outstanding
common shares of Kenai ("Kenai Shares") by way of a Plan of Arrangement ("the
Arrangement").
Significant Benefits of the transaction:
-- Kenai's wholly owned subsidiary Gold Aura do Brasil Mineracao Ltda
("GOAB") owns the high-grade Sao Chico gold deposit, some 23 kilometres
from Serabi's Palito gold mine. Sao Chico hosts a NI 43-101 compliant
combined Measured and Indicated Mineral Resource of 25,275 ounces of
gold at 29.77 grams per tonne ("g/t") and an Inferred Mineral Resource
of 71,385 ounces gold at 26.03 g/t.
-- Serabi's nearby Palito mine is set to recommence gold production by the
end of 2013, with average annual production of 24,000 ounces(1) with an
average ore grade of 9 g/t.
-- The existing Palito gold recovery plant is currently being refurbished
and upgraded, and Sao Chico is expected to be the first satellite gold
resource to supplement Palito mine production with high grade material,
taking advantage of the excess plant capacity available to quickly
expand Serabi's future gold production.
-- An exploration programme at Sao Chico including an approximate 6,000
metre drill campaign is expected to start mid-2013, with strong
potential to increase the current mineral resource.
(1) Production estimates for the Palito Mine are derived from the Preliminary
Economic Assessment NI 43-101 Technical report 13 June 2012 (the "PEA") which
partially utilises Inferred Mineral Resources. Inferred Mineral Resources are
considered too speculative geologically to have the economic considerations
applied to them that would enable them to be categorized as mineral reserves and
there is no certainty that the preliminary economic assessment will be realized.
Mineral resources that are not mineral reserves do not have demonstrated
economic viability.
Highlights of the Arrangement include:
-- Shareholders of Kenai will receive 0.85 of one new ordinary share of 5
pence par value of Serabi (a "Serabi Share") in exchange for each Kenai
Share held (the "Exchange Ratio").
-- Based on the closing price of the Kenai Shares and Serabi Shares on May
3, 2013, the Exchange Ratio represents:
-- an implied price of C$0.0936 per Kenai share;
-- a premium of 87% and 152% based respectively on the May 3, 2013
closing prices and 30-day volume-weighted average share prices of
both companies;
-- Upon completion of the Transaction, Kenai shareholders will own
approximately 20.8% of Serabi's enlarged issued share capital (and 22.1%
on a fully diluted basis);
-- An opportunity for Kenai shareholders to benefit from Serabi's near term
gold production, its exploration potential, expertise, ability to
finance exploration and improved trading liquidity.
Daniel Kunz, Chairman of Kenai will join the Serabi board on closing (subject to
satisfactory regulatory enquiries in compliance with the AIM Rules).
Announcing the details of the Transaction, Michael Hodgson the CEO of Serabi,
said: "This is a very exciting development for Serabi. The Transaction will
combine Kenai's high grade Sao Chico gold property with our Palito operation
just 23 kilometres away. With the Palito plant currently under remediation, we
see Sao Chico as the first satellite deposit to augment Palito mine production
with further high grade feed, taking advantage of the excess plant capacity
available. It therefore provides real potential to quickly expand and grow
Serabi's future gold production. By completing this transaction at this time
ensures that we are able to consider the processing of Sao Chico ore into our
current plant remediation plans.
Whilst I remain excited by the value accretion that this transaction is expected
to bring to Serabi, we are on schedule for, and fully focussed on, bringing the
Palito mine into production by the end of 2013. Underground development and
rehabilitation work continues to progress well at Palito. Development ore is
currently being stockpiled on surface and the remaining underground mining fleet
is scheduled to be at site in early Q3 2013.
Sao Chico has a current resource of approximately 25,000 Measured and Indicated
ounces, and 71,000 Inferred ounces, both averaging over 26 g/t. However, the
property is far from fully explored and we are very confident that in the near
future we can increase the resource by commencing an exploration programme in
the near term including a planned approx. 6,000 metre drill programme.
The current Sao Chico resource comprises just 3 veins and, with 10 more veins
identified, we hope to add gold ounces by drilling these areas. This work will
also support the upcoming application for a long term Mining Licence for the
property. Both Boards consider the combination to be highly accretive and
beneficial for both sets of shareholders as it unlocks value neither could have
realised on their own."
Greg Starr the CEO of Kenai commented "The 152% premium over recent trading that
Serabi is paying for Kenai is a very good outcome for Kenai shareholders in this
very difficult environment for junior explorers. This transaction enables Kenai
shareholders to have exposure to a near term gold producing asset at Serabi's
Palito project, while maintaining the significant exploration exposure to the
demonstrated high grade Sao Chico deposit.
The Kenai Board explored a number of alternatives to develop the Sao Chico
project independently, however none matched the ability of the Serabi offer to
realise the project's value in a timely manner.
Serabi's experience in Brazil, and more specifically within the Tapajos region,
makes them an ideal partner to develop Sao Chico. With Palito's pending gold
production and cash flow plus Serabi's strong shareholder base, Kenai Directors
believe that the proposed acquisition will ensure the eventual production of
gold from Sao Chico and give Kenai shareholders access to more immediate gold
production. Kenai Directors also consider that the proposal represents the most
viable alternative in the current market conditions, which are not favourable
for junior gold miners seeking to obtain both/either exploration and/or
production financing".
DETAILS OF THE TRANSACTION
The acquisition of Kenai shares under the Arrangement will result in Kenai
shareholders receiving 0.85 of one Serabi Share in exchange for each Kenai Share
held. The Arrangement will provide for the issuance by Serabi of replacement
warrants to holders of 17,288,500 outstanding Kenai warrants on similar terms as
adjusted by the Exchange Ratio. The Arrangement also provides for the issuance
of replacement options to holders of 2,980,000 outstanding Kenai options as
adjusted by the Exchange Ratio with expiry on similar terms or 12 months from
the date from which the holder is no longer involved with the Company. The
completion of the Arrangement will be subject to usual terms and conditions,
including the following:
a. Approval of the Arrangement by special resolution of Kenai's
shareholders requiring two-thirds of the votes cast to be in favour of
the resolution;
b. Court approval of the Arrangement;
c. Receipt of any required third party approvals and consents;
d. Receipt of all required regulatory approvals, including acceptance by
the TSX Venture Exchange; and
e. Admission of the new Serabi Shares to trading on AIM.
Key provisions of the Agreement include a non-solicitation covenant on the part
of Kenai, the right in favour of Serabi to match any superior proposal and the
payment of a termination fee of $500,000 to Serabi in certain circumstances
including if Kenai accepts a superior proposal.
In aggregate it is currently anticipated that 90,020,724 new Serabi Shares will
be issued to Kenai shareholders to acquire the 105,906,734 Kenai Shares
currently in issue. In the event that any of the existing warrants or options to
acquire Kenai Shares is exercised prior to completion additional Serabi Shares
will be required to be issued. In addition and pursuant to a Share Purchase
Agreement between Kenai and Gold Anomaly Limited ("GAL") whereby Kenai acquired
the Sao Chico project, Serabi will issue to GAL 5,100,000 new Serabi Shares in
satisfaction of additional consideration commitments made by Kenai to GAL under
this Share Purchase Agreement. The new shares being issued pursuant to the
Transaction will, on issue, rank pari passu with the existing ordinary shares of
Serabi in issue and application will be made for the new Serabi Share to be
admitted to trading on AIM and listed on the TSX.
Concurrently with the execution of the Acquisition Agreement, Serabi and Kenai
have entered into a secured loan agreement (the "Loan Agreement") pursuant to
which Serabi will make available a facility of up to US$2,750,000 (the
"Principal") to Kenai. The loan will be used by Kenai to finance the
commencement of an estimated 6,000 metre diamond drilling programme at the Sao
Chico project and for general working capital purposes. The Principal shall be
payable in full following the termination of the Acquisition Agreement by either
party thereto in accordance with the provisions of the Acquisition Agreement
(the "Repayment Date"). Up to the Repayment Date, interest shall be calculated
on the Principal outstanding at the rate of 12% per annum and upon and after the
Repayment Date and until the Principal is repaid in full, interest shall be
calculated on the Principal outstanding at the rate of 18% per annum. Unless the
Acquisition Agreement is terminated earlier the Repayment Date is 31 August
2013.
Serabi will provide the loan to Kenai from its existing cash resources. Serabi's
board will on completion of the Transaction and based on the results of the
exploration drilling consider what further funding commitments are required at
Sao Chico. If the Board of Serabi determines, in light of the progress and
commitments at Palito and the anticipated commitments for Sao Chico, that
further funding is required, it will consider the options available to it at
that time.
Documents relating to the Arrangement, including the information circular
required in connection with Kenai's special shareholder meeting, scheduled to
take place in early July 2013, are expected to be mailed to Kenai shareholders
during May 2013.
Board Recommendation
Kenai's Board of Directors has determined that the Arrangement is fair, and has
unanimously recommended that Kenai's shareholders vote in favour of the
Arrangement.
Executive officers and directors of Kenai as well as shareholders representing
approximately 27% of the outstanding Kenai Shares have entered into lock-up and
support agreements with Serabi under which they have agreed to vote in favour of
the Arrangement.
Advisors
Heenan Blaikie LLP is acting as Canadian legal counsel and Farrer & Co LLP is
acting as UK legal counsel to Serabi and its Board of Directors. Owen Bird Law
Corporation is acting as Canadian legal counsel to Kenai. FFA Legal is acting as
Brazilian local counsel to Serabi and Pinheiro Neto is acting as Brazilian local
counsel to Kenai. Beaumont Cornish Limited, as Nominated Adviser to Serabi in
accordance with the AIM Rules, has advised Serabi in respect of its obligations
under the AIM Rules.
Additional disclosures pursuant to the AIM Rules
Kenai reported an audited consolidated loss before taxation of C$(1,579,815) for
the year ended 31 December 2012 (2011: C$(1,028,449)) after a write-down of its
mineral properties of C$(789,738). Kenai had no revenues. As at 31 December 2012
total assets and shareholders' equity amounted to C$8,756,433 and C$8,554,238
respectively. The balance sheet carrying value of the Sao Chico project as at 31
December 2012 amounted to C$8,016,158. As at 31 December 2012 Kenai had net cash
and cash equivalents of C$637,097 and no borrowings.
Daniel Kunz (the current Chairman of Kenai), who will join the Serabi board as a
non-executive director on closing of the Transaction (subject to satisfactory
completion of standard regulatory checks in compliance with the AIM Rules), will
be entitled to receive a fee of C$20,000 per annum and a further C$500 in
respect of each Serabi board meeting that he attends. His proposed appointment
as a director does not provide for any minimum period of service or for the
provision of any period of notice of termination by either party.
This press release does not constitute an offer to buy or an invitation to sell,
or the solicitation of an offer to buy or invitation to sell, any securities of
Serabi or Kenai. Subject to the terms and conditions set forth in the Agreement,
as amended, Kenai intends to file a notice of meeting, management information
circular and related materials with Canadian securities regulatory authorities
relating to the proposed transaction. Investors and security holders are urged
to read these documents, as well as any amendments and supplements to these
documents, when they become available because they will contain important
information. At that time, investors and security holders may obtain a free copy
of the Kenai management information circular and related documents at the
Canadian securities regulators' website at www.sedar.com. At that time, free
copies of these documents can also be obtained by directing a request to Kenai
at 625 Howe Street, Suite 530, Vancouver, BC, Canada, V6C 2T6. KENAI
SHAREHOLDERS SHOULD READ THE MANAGEMENT INFORMATION CIRCULAR AND RELATED
MATERIALS CAREFULLY BEFORE MAKING A DECISION CONCERNING THE PROPOSED
TRANSACTION.
About the Sao Chico Property
The Sao Chico gold project comprises a single exploration permit, AP12836 with
an area of 1,416 hectares, located approximately 23 kilometres to the south west
of the Palito mine and accessed by road from Palito along the Transgarimpeiro
Highway via the town of Jardim do Ouro.
On October 15, 2012, Kenai filed a Technical Report entitled "Mineral Resource
Estimate on the Sao Chico Gold Project, Brazil" dated October 15, 2012 and
authored by Mr A.J. Tunningley, MGEOL (Hons), MAusIMM (CP), MSEG, and Mr B.
Ackroyd, BSc (Geo), MAIG in accordance with Canadian National Instrument 43-101
relating to the Sao Chico gold project ("the Sao Chico Technical Report"). The
Sao Chico Technical Report has been reviewed on behalf of Serabi by Michael J
Hodgson, a Qualified Person for the purposes of Canadian National Instrument
43-101. To the best of Serabi's knowledge and belief, there is no new material
scientific or technical information that would make the disclosure of the
mineral resources in the Sao Chico Technical Report inaccurate or misleading.
The Sao Chico Technical Report established an independent mineral resource based
on the results of 22 diamond drill holes totalling 3,268 metres undertaken by
Kenai in late 2011. The NI 43-101 mineral resources are as follows:
Tonnes Grade Au Ounces
g/t
----------------------------------------------------------------------------
Measured Resources 5,064 32.46 5,269
Indicated Resources 21,423 29.14 20,006
Total measured and Indicated Resources 26,487 29.77 25,275
----------------------------------------------------------------------------
Inferred Resources 85,577 26.03 71,385
----------------------------------------------------------------------------
Metallurgical testwork has demonstrated the mineralisation at Sao Chico to be
amenable to a variety of process routes including cyanidation leaching, gravity
separation and flotation, with gold recoveries being reported of up to 99%. All
of these potential process routes can be accommodated at the Palito processing
operation.
The main area of focus for the Sao Chico project is an area of some 200
artisanal workings, close to the Sao Chico village, in the form of shallow pits
and shafts. The current resources are identified in three vein structures namely
the Main Vein, the Parallel Vein and the Highway Vein covering a strike length
of some 600 metres. Artisanal activity at the Main Vein includes a shaft
extending some 18 metres below surface giving access to a 58 metre long
exploration drive.
The Main Vein comprises a gold-rich quartz/sulphide lens striking over 100
metres and with true widths between 0.9 metres and 2.9 metres wide. The lens is
open along strike to the east and down dip to the west. The Parallel Vein is
located 60 metres south of the Main Vein and has been defined over a strike
length of 80 metres and to a depth of 75 metres, dipping steeply to the south.
Surface workings in the form of small open pits exist 350 metres along strike
from the known mineralisation at the Main Vein. Previous trenching has yielded
high grades in this area which has not been thoroughly drill tested.
The Highway Vein is located 400 metres east along strike from the Main Vein and
characterised by a number of artisanal workings in shallow (less than 15 metre
deep) shafts and small open pits clustered in the area. One sub vertical
west-northwest trending vein zone has been identified between 1.6 and 2.9 metres
wide to a depth of 75 metres below surface.
The potential for discovery of blind sub parallel vein deposits has been
demonstrated through the definition of inferred mineral resources in the
Parallel Vein. Further exploration is also warranted in the immediate area
around Sao Chico where some areas with artisanal workings on surface remain
untested by drilling.
Exploration of the wider licence area outside of the Sao Chico prospect has
located the Pedro and Paulo Arara prospects, located 1.7 and 1.1 kilometres
north of the Sao Chico prospect respectively. These prospects are currently
defined by artisanal surface workings and rare shafts exploiting similar styles
of mineralisation to that observed at Sao Chico. Further work is warranted to
advance the Pedro and Paulo Arara prospects given the successful drilling
programme at Sao Chico. It is possible that given their proximity to each other,
the Pedro and Paulo Arara prospects are related to the same mineralising event
or structural control.
Kenai has an agreement, which will continue following the acquisition of Kenai
by Serabi, with the original Brazilian vendors of the Sao Chico property,
whereby Gold Aura do Brasil Mineracao Limitada (Kenai's wholly owned Brazilian
subsidiary) will make the following payments:
I. Unconditional Payment
Property acquisition payment
-- US$600,000 (US$75,000 per quarter from December 2012 to September 2014)
of which US$150,000 has already been paid.
II. Conditional on the Procurement of Project Finance for not less than $15m
("Project Finance")
Property acquisition payment
Total amount payable - US$3,500,000
-- US$1,500,000 payable 30 days after Project Finance is obtained plus
-- US$2,000,000 payable over 36 equal monthly instalments starting 11
months after Project Finance is obtained
III. Conditional on Production
Production based royalties
-- 3% Net Smelter Royalty (NSR) to a maximum of US$10,000,000 (i.e. this
NSR would cease after some 200,000 ounces of production at a US$1600
gold price) and S$3.75 per ounce of gold production.
Based on a $1,600 per ounce gold price and 100,000 ounces of gold
production, in aggregate these royalties equate to an average NSR of
3.2%.
Based on a $1,600 per ounce gold price and 500,000 ounces of gold
production, this overall production based royalty payable to the vendors
equates to an average NSR of 1.5% (as the 3% NSR would cease after some
200,000 ozs).
The above amounts are based on production from gold in the exploration
licence area of AP12836. There are other minor royalty payments on metal
production from any new exploration permits arising from the further
contiguous and nearby 6,763 hectares which are the subject of current
exploration permit applications.
About Kenai Resources Ltd.
Kenai is a Canadian company focused on precious mineral project exploration and
development, towards early significant gold production. Its principal current
activity is at the Sao Chico project in Brasil, with a corporate priority
towards the earliest possible cash flow generation from Sao Chico.
Shares Outstanding: 105,906,734
On behalf of the Board of Directors.
Greg Starr, President and CEO
Forward-Looking Statements: Statements in this news release that are
forward-looking statements are subject to various risks and uncertainties
concerning the specific factors disclosed and elsewhere in the company's
periodic filings with Canadian securities regulators. The economic viability of
the mineral resources estimates described herein has not been established and
may not be.
Such information contained herein represents management's best judgment as of
the date hereof based on information currently available. The company does not
assume the obligation to update any forward-looking statement.
Kenai's Vice President Technical Services, Neil Cole, is responsible for
technical information in this news release. Mr Cole has sufficient experience
which is relevant to the style of mineralization under consideration and to the
activity which is being undertaken and planned to qualify as a Qualified Person
under NI 43-101. Mr Cole has verified the technical data disclosed in this
release, including references to planned exploration and operational activities,
and the sampling of the gold-bearing vein structures. Mr Cole has consented to
the inclusion in this release of such technical information in the form and
context in which it appears.
FOR FURTHER INFORMATION PLEASE CONTACT:
Kenai Resources Ltd.
604-669-5753
604-688-9895 (FAX)
info@kenairesources.ca
www.kenairesources.ca/
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