European Minerals to acquire Lero Gold

2008-04-18 08:44 ET - News Release

Also News Release (C-LER) Lero Gold Corp

Mr. Tony Williams of European reports

EUROPEAN MINERALS TO ACQUIRE LERO GOLD; CREATES REGIONAL CONSOLIDATION & GROWTH COMPANY FOCUSED IN THE COUNTRIES OF THE FORMER SOVIET UNION

European Minerals Corp. and Lero Gold Corp. have entered into a binding heads of agreement pursuant to which EMC will acquire all of the outstanding common shares of Lero in exchange for common shares of EMC pursuant to a plan of arrangement. The directors of EMC and Lero believe that the acquisition will create a well-financed gold/copper mining and production, development and exploration company with an exciting growth profile focused on regional consolidation in the countries of the former Soviet Union.

Under the terms of the acquisition, Lero shareholders will receive one common share of EMC for each issued share of Lero, representing a value of 98 cents per share based upon the 20-day volume-weighted average price of EMC on the Toronto Stock Exchange for the 20-day period leading up to and including April 17, 2008. This represents a 9-per-cent premium to Lero's 20-day volume-weighted average trading price based on the 20-day volume-weighted average prices of EMC and Lero shares on the TSX and TSX Venture Exchange, respectively.

Subject to receipt of required stock exchange approval, following the completion of the acquisition, EMC's shares will continue to be listed on the TSX and admitted to trading on the AIM market of the London Stock Exchange.

The combined company will focus on regional consolidation and growth opportunities in the countries of the former Soviet Union. Some of the salient terms of the acquisition and characteristics of the combined company are set forth below:

• Upon the closing of the acquisition, Dr. Sergey V. Kurzin, currently chairman of Lero, will join the board of EMC as executive chairman, together with Dr. Alexander Yakubchuk (currently chief executive officer of Lero) and Takhirzhan T. Baratov (currently the chairman of EMC's Kazakh subsidiary, JSC Varvarinskoye).
• At the next meeting of shareholders of EMC following the closing of the acquisition, the name of EMC will be changed to Orsu Metals Corp.
• Concurrent with this announcement of the acquisition, Lero announces a $40-million "bought deal" financing with Canaccord Adams Ltd., details of which are set out below. Of this financing, $25-million (U.S.) will be lent by Lero to EMC prior to closing of the acquisition on the terms outlined below.
• Endeavour Mining Capital Corp. has agreed to provide a $5-million (U.S.) bridge loan to EMC for working capital purposes to be repaid upon the completion of the Lero loan.
• EMC is currently commissioning the Varvarinskoye gold/copper project in Kazakhstan where commercial production is expected to be achieved by the end of the third quarter of 2008. At steady state production the mine is expected to produce 149,000 ounces of gold and 26 million pounds of copper annually in its first three years of production.
• As previously announced (see EMC's news in Stockwatch on March 31, 2008) EMC has appointed an independent engineering company to undertake a scoping study to engineer the expansion of the Varvarinskoye plant throughput beyond the currently planned 4.2 million tonnes per year.
• Lero is currently exploring the Taldybulak Talas gold copper deposit in Kyrgyzstan and is also exploring at the Karchiga copper deposit in western Kazakhstan. Lero expects to announce National Instrument 43-101-compliant resource estimates for both properties by the end of April, 2008.
• The board of directors of Lero believes there is substantial exploration upside at its Taldybulak Talas and Karchiga deposits and also within EMC's three-square-kilometre mining lease for Varvarinskoye and surrounding 220-square-kilometre exploration licence.

Commenting on the transaction, Dr. Kurzin, executive chairman of Lero, said:

"Combining the Varvarinskoye cash flow and expansion potential with the Lero growth opportunities will position Orsu Metals Corp. to be a premier growth company with the ability to be a regional consolidator. The benefits of the strategic fit between Lero and EMC is something that I look forward to bringing to fruition for all shareholders. As global demand for gold and base metals remains strong, a well-funded Orsu Metals Corp. has a stable foundation from which to launch its growth and consolidation platform."

Tony Williams, chairman of EMC, added:

"This business combination, together with Lero's concurrent financing, stabilizes the enlarged group's financial position whilst we finish bringing Varvarinskoye up to commercial production levels. At the same time, I am delighted to see the additional growth potential of the Lero assets and the significant experience of the Lero management team in the FSU bringing immediate and long-term benefits to the EMC shareholders."

Summary of transaction

The acquisition of Lero by EMC will be completed by way of a statutory plan of arrangement under the Business Corporations Act (British Columbia) whereby each Lero common share will be exchanged for one EMC common share. After completion of the transaction, prior to giving effect to the Lero placing described below, it is expected that current EMC shareholders will own approximately 81 per cent of the combined company (72 per cent including the shares to be issued pursuant to the offering (as defined below) and excluding the overallotment option and the underwriter's option each as described below) and current Lero shareholders will own approximately 19 per cent (28 per cent including the shares to be issued pursuant to the offering (as defined below) and excluding the overallotment option and the underwriters option each as described below and each on a non-diluted basis).

The acquisition will be subject to, among other things, confirmatory legal and financial due diligence (technical due diligence has been completed), definitive documentation, approval by the holders of Lero common shares, satisfactory amendments to current EMC senior loan documents, regulatory and court approvals. A meeting of Lero shareholders to approve the acquisition will be held as soon as practicable and a notice of meeting, information circular and related materials will be mailed to Lero shareholders on completion of the confirmatory due diligence and definitive documentation.

The Lero loan will be an unsecured obligation of EMC. The Lero loan will have a term to Dec. 31, 2008, and will accrue interest at a rate of 10 per cent per year. Principal and accrued interest will be payable on maturity. In the event that the acquisition is not completed pursuant to the terms of the heads of agreement, Lero may, at its sole discretion, subject to the approval of the TSX, convert the Lero loan, including accrued interest, into common shares of EMC at a price equal to 95 per cent of the market price of the common shares of EMC at the time of conversion.

If the transaction is not completed as a result of certain specified actions of EMC or Lero, such party has agreed to pay a break fee of $3-million to the other. In addition, both EMC and Lero have provided each other with certain other customary undertakings, such as confidentiality and non-solicitation agreements.

Lero placing

Lero also announced a bought deal, private placement for gross proceeds of $40-million. In addition, Lero will grant to Canaccord Adams Ltd. an overallotment option of an equivalent of up to 15 per cent of the offering shares ($6-million). Canaccord is the sole underwriter and bookrunner. Lero has also granted Canaccord the option to increase the offering by up to a total amount of common shares equal to proceeds of $20-million.

The net proceeds from the proposed offering will be used primarily to finance the Lero loan detailed above, to finance continued exploration and drilling on Lero's Taldybulak Talas and Karchiga projects, with the remainder being used for working capital and potential acquisitions.

EMC Nomad and temporary cessation of trading on AIM

In light of the proposed acquisition, Canaccord Adams Ltd. has resigned as nominated adviser and broker to EMC, effective 1:30 p.m. (BST) on Friday, April 18, 2008, as required under Rule 22 of the AIM rules for nominated advisers. Pursuant to Rule 1 of the AIM rules for companies, EMC's shares will, with effect from 1:30 p.m. (BST) on Friday, April 18, 2008, be suspended from trading pending the appointment of a replacement nominated adviser. EMC is in discussions with regard to the appointment of a replacement nominated adviser and, upon its appointment, the suspension of EMC's shares from trading on AIM will be lifted. EMC's shares remain listed and posted for trading on the TSX.

Advisers and counsel

EMC's exclusive financial adviser is Endeavour Financial International Corp. and its legal counsel is Macleod Dixon LLP. Lero's financial advisers are Canaccord International Ltd. and its legal counsel is McCullough O'Connor Irwin LLP.

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