Baker Steel Resources Trust Ltd Polar Silver Investment (4351W)
27 April 2016 - 4:01PM
UK Regulatory
TIDMBSRT
RNS Number : 4351W
Baker Steel Resources Trust Ltd
27 April 2016
Baker Steel Resources Trust Limited
Update re: Polar Silver investment
27 April 2016
Further to the EGM held on 5 January 2016 the Board of Baker
Steel Resources Trust Limited (the "Company") is pleased to provide
an update on its intention to increase its ownership in Polar
Silver Resources Limited and/or any company within its group (the
"Polar Silver Group").
Polar Silver Resources Limited ("Polar Silver") is the Company's
largest investment representing 25.8 per cent. of the net asset
value as at 31 March 2016. It is a private limited company
incorporated in the British Virgin Islands that owns 100 per cent.
of ZAO Argentum ("Argentum"), which is incorporated in Russia and
in turn holds a 50 per cent. indirect interest in the Prognoz
silver project, 444km north of Yakutsk in Russia (the "Prognoz
Asset"). An NI 43-101 compliant report by independent consultants
Micon International Limited ("Micon") in July 2009, estimated an
indicated resource of 5.86 million tonnes of ore grading 773 g/t
silver containing 146 million ounces silver and inferred resources
of 9.64 million tonnes of ore grading 473g/t silver containing 147
million ounces silver. An NI 43-101 compliant preliminary economic
assessment by Micon envisages a mine producing an average of 13
million ounces of silver per annum over a 16 year mine life.
The Company's investment in the Polar Silver Group is in the
form of shares in Polar Silver ("Polar Silver Shares"), and loan
notes in Argentum and Polar Silver (both of which are convertible
into Polar Silver Shares). The Company currently owns 27.25 per
cent. of the equity of Polar Silver and has lent US$14.84m in
aggregate to Polar Silver and Argentum.
The Company's Investment Manager, Baker Steel Capital Managers
LLP, has advised the Board that there is a disagreement as to the
strategy to develop the Prognoz Asset between another major Polar
Silver shareholder and the holder of the other 50 per cent.
interest in the Prognoz Asset. In order to remove the uncertainty
and risk which this disagreement creates, the Investment Manager
has proposed that the Company increases its interest in the Polar
Silver Group so that the Company can achieve majority control
position and undertake further work on the Prognoz Asset so that it
can be developed for the benefit of its shareholders.
Accordingly, a wholly owned subsidiary of the Company, Polar
Acquisition Limited ("PAL"), has made an irrevocable offer (the
"Offer") to acquire Polar Silver's entire holding in Argentum in
accordance with the rights set out in the shareholders' agreement
between the significant shareholders in Polar Silver.
The Offer has been made at a valuation around the Company's
current carrying value and therefore the acquisition is expected to
have a minimal effect upon the Company's Net Asset Value in the
short term. This valuation is regarded by the Investment Manager as
fundamentally attractive relative to what it considers to be the
risk adjusted fair value of the Prognoz Asset and, accordingly, the
Investment Manager believes that acquiring a further interest in
the Prognoz Asset should be value enhancing for the Company in the
medium to longer term.
The Offer is subject to pre-emption by certain other Polar
Silver shareholders, which if exercised, would result in the cash
repayment of the Company's convertible loan investment (US$14.84m,
equivalent to 25.8% of the Company's NAV at 31 March 2016) and
payment for its equity holding in Polar Silver (with the loan
repayment representing the majority of the total consideration
received) such that a pre-emption would be broadly NAV neutral to
the Company.
On the assumption that these pre-emption rights are not
exercised, on completion of the Offer the Company's indirect
interest in the ordinary shares of Argentum, via its new holdings
in PAL, would increase to over 50% thereby providing it with a
control position.
The Offer structure is such that holders of convertible loans
and ordinary shareholders in the Polar Silver Group can elect to
receive settlement in new shares of PAL or cash. The value of the
Offer is such that, coupled with the minimum level of anticipated
acceptances in PAL shares, the maximum anticipated cash outlay
required by PAL would be equivalent to approximately 5% of the
Company's NAV at 31 March 2016, which would be funded from existing
cash resources and/or portfolio realisations. Further, PAL has
identified potential third party investors which, if they subscribe
for new PAL shares, would result in a reduced (or potentially no)
cash funding requirement from the Company.
Assuming the Offer completes, the Company's holding in the
Prognoz Asset through its new holdings in PAL will increase such
that pro-forma it is expected to represent around 30% of the
Company's NAV as at 31 March 2016, which is in accordance with the
revised investment restrictions as approved by shareholders at the
EGM held on 5 January 2016. Assuming completion of the Offer, the
Company's effective equity interest in the Prognoz Asset will be
between 30-35%.
The settlement of a significant portion of the consideration
payable under the Offer is subject to extension of the Mining
License for Prognoz. The Board has been advised by the Company's
Russian counsel that application for extension of the license is
valid under law. The Investment Manager has a reasonable
expectation that this extension will be granted.
It is anticipated that the Offer will complete (or pre-emption
by other Polar Silver investors will take place) around mid-year,
although it could be sooner by agreement.
The Company will keep investors updated on developments.
Enquiries:
Baker Steel Resources Trust Limited
+44 20 7389 8237
Francis Johnstone
Trevor Steel
Numis Securities Limited
+44 20 7260 1000
David Benda / Nathan Brown (corporate)
James Glass (sales)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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