Canadian oil and gas company Vanoil Energy (TSX-V:VEL) has announced its intention to launch a bid for fluorspar miner Fluormin (LON:FLOR) if it can get the agreement of the independent directors of the UK firm.
The two companies have been in bid talks for some time – James Passin is non-executive director of both companies - and on Friday the Canadian company, which has a portfolio of assets in East Africa, laid its cards on the table.
Vanoil intends to launch a US$27mln offer for the UK company on the basis of 0.806 new Vanoil shares plus 0.572 C$1 warrants and 0.116 C$0.75 warrants for every Fluormin share held.
The C$1 warrants will entitle the holder to subscribe for one Vanoil share at any time during the two year period following the acquisition, while the C$0.75 warrants will also entitle the holder to subscribe for one Vanoil share any time prior to 13 March, 2014.
Based upon independent valuations, the Vanoil directors expect that aggregate cash reserves in the order of US$27 million can be realised from Fluormin's existing accounts and receivables and from the subsequent realisation of Fluormin's assets, so from Vanoil’s perspective, this is largely a chance to boost cash reserves by issuing shares.
From the perspective of Fluormin shareholders, they get a stake in Vanoil’s portfolio of assets and to exit a company that has been reviewing its options following the mothballing of its Witkop mine in South Africa in October.
The board of Fluormin said that, in its view, the current and anticipated oil and gas exploration portfolio of Vanoil is commercially attractive. The board expects to be in a position to make a formal response to the offer in the near future following the completion of due diligence.
Meanwhile, Fluormin has entered into a fixed term facility agreement, under which Fluormin has provided Vanoil with a fixed loan facility of US$5 million.
The loan will yield a coupon of 8% per annum, and is repayable on 13 March 2014.
In the event that the potential offer by Vanoil for the company does not complete, the coupon on the loan will increase to 12% and the principal will be repayable in two stages, with US$$2.5m due by 12 September 2013, and the balance due by 13 March 2014.
Also, in the event that the potential offer does not complete, or if there is a change of control of Vanoil, Fluormin may convert up to the full amount of the loan into Vanoil units at US$0.75 per unit, each unit comprising a common share in Vanoil and 0.2375 of a warrant entitling Fluormin to acquire a further common share in Vanoil at C$0.75.