Capstone Mining to Acquire Far West Mining and Form Strategic Partnership and Joint Venture with Korea Resources Corporation
Creating a Financially Strong Copper Growth Story
VANCOUVER, April 17 /CNW/ - Capstone Mining Corp. ("Capstone" or the
"Company") (TSX: CS) and Far West Mining Ltd. ("Far West") (TSX: FWM)
have entered into a definitive agreement (the "Agreement") pursuant to
which Capstone will acquire all of the issued and outstanding common
shares of Far West, by way of a court-approved plan of arrangement.
Under the terms of the Agreement, Far West shareholders will be
entitled to elect to receive, in exchange for each Far West share held,
1.825 shares of Capstone and C$1.00 in cash. The consideration implies
a total transaction value of approximately C$725 million. The consideration represents a total of C$9.19 per Far West share, based
on the volume weighted average price of Capstone shares on the TSX for
the 30 trading days ended April 15, 2011 and a premium of 30% to the
volume weighted average price of Far West shares on the TSX for the
Far West's 100% owned Santo Domingo project ("Santo Domingo" or the
"Project") is a large-scale copper-iron-gold development project
located in Region III, Chile. Santo Domingo has the potential to be a
long lived significant copper and iron ore producer, based on an
indicated mineral resource of 486 million tonnes at a copper-equivalent1 grade of 0.57% and an additional inferred mineral resource of 61
million tonnes at a copper-equivalent grade of 0.46%. The Project is
strategically located near key infrastructure (highway, rail, power,
port, smelter and airport) in a prolific, established mining district
with several significant copper and iron mining and smelting
operations. A Preliminary Economic Assessment ("PEA") completed in May
2008, using indicated and inferred resources, projected life of mine
average annual production of 65,000 tonnes of copper2 and 4 million tonnes of iron concentrate. Since completion of the PEA,
the indicated mineral resource has more than doubled. The
pre-feasibility study, which the Company anticipates completing in Q3
2011, is currently underway based on the updated mineral resource
estimate. If warranted by the pre-feasibility study, the Company may
also consider higher throughput rates, which could potentially increase
copper production significantly.
Capstone has also entered into agreements with Korea Resources
Corporation ("KORES") to form a long-term strategic partnership for the
development of Far West's Santo Domingo Project, subject to completion
of the Far West transaction. Under these agreements:
Upon completion of the Far West acquisition, KORES will acquire a 30%
interest in Santo Domingo for cash consideration of approximately C$210
million to Capstone.
KORES will arrange for a debt financier to offer to provide funding, on
then prevailing market terms, for 65% of the capital costs of the
Project and fund 30% of the balance of the capital requirements at the
KORES will enter into an off-take agreement for 50% of all copper
concentrate and iron concentrate produced from the Project over the
life of the Santo Domingo mine, on then prevailing market terms (at the
Upon completion of the acquisition, KORES will subscribe for an
approximate 11% interest in Capstone to become Capstone's largest
shareholder. The private placement will represent approximately 39
million Capstone shares and Capstone will receive proceeds of
approximately C$170 million, based on the volume weighted average price
of Capstone shares on the TSX for the 5 trading days ended April 15,
KORES will appoint one representative to Capstone's board of directors
upon completion of the acquisition.
The agreements between Capstone and KORES are subject to a number of
conditions, including completion of the acquisition of Far West by
Highly compelling transaction delivering fully-funded growth from Santo
Santo Domingo is favourably located with access to nearby infrastructure
and ongoing studies continue to demonstrate the potential for
significant copper and iron ore production.
Consistent with Capstone's strategy of building a mid-tier copper
producer focused in the Americas forming a combined portfolio of high
quality operating mines and a strong pipeline of copper production
growth in mining friendly jurisdictions.
Over 200% growth in anticipated copper production from 2011 to 2016 and
over 125% increase in measured and indicated copper contained in
Further asset diversification in a preferred mining geography.
Robust cash flow generation in a company with a strong pro-forma balance
sheet and a strategic partnership with KORES to fund a leading copper
production growth profile.
No future share dilution to fund Santo Domingo as Capstone expects to
fund its portion of Santo Domingo capital requirements through
pro-forma balance sheet and ongoing cash flow from operations.
Enhanced capital markets profile through increased market
capitalization, which should further improve trading liquidity for
shareholders of Capstone.
Compelling Offer for Far West Shareholders
Immediate premium to current share price.
Opportunity to participate in the future potential of an Americas-based
mid-tier copper producer with a fully-funded growth pipeline.
Santo Domingo project de-risking through Capstone and KORES' development
and operational expertise and funding capabilities.
Exposure to a diverse portfolio of producing and development assets in a
robust commodity price environment.
A platform through which to participate in future industry
Increased trading liquidity through ownership of Capstone shares.
Tax free roll-over option for Canadian shareholders, upon election of
Darren Pylot, Capstone's President and CEO commented, "The proposed
acquisition of Far West is consistent with Capstone's strategy of
building a growth focused mid-tier copper producer in the Americas and
represents an excellent value opportunity for our shareholders. Santo
Domingo is a robust development opportunity that will substantially
increase Capstone's leverage to copper and long-term growth profile.
Our strategic partnership with KORES brings significant financial
support and mitigates risk for all shareholders."
Rick Zimmer, Far West's President and CEO commented, "The proposed
transaction delivers an immediate premium to our shareholders.
Moreover, it provides our shareholders with the opportunity to
participate in the future potential of the combined portfolio of
producing and development assets. We are pleased to be announcing this
transaction with Capstone. Their financial strength and current base of
operations, combined with the KORES partnership, provide a clear path
forward for the funding and development of Santo Domingo. This
transaction has the potential to unlock the full value of Santo Domingo
for all shareholders."
The proposed transaction will be carried out by way of a court-approved
plan of arrangement whereby Capstone will acquire all of the issued and
outstanding common shares of Far West and Far West would be held
through a newly-formed subsidiary of Capstone, to be owned 70% by
Capstone and 30% by KORES. Far West shareholders will be entitled to
elect to receive, in exchange for each Far West share held (i) 1.825
shares of Capstone and C$1.00 in cash, (ii) 2.047 shares of Capstone
and C$0.001 in cash, or (iii) C$9.19 cash, subject to proration on the
basis of an aggregate maximum cash amount of approximately up to C$79
million and provided that no Far West shareholder that elects option
(iii) above, will receive less than C$1.00 in cash per Far West share.
The proposed transaction is subject to certain customary conditions
including the approval of not less than 66-2/3% of the votes cast at a
special meeting of Far West securityholders that is expected to be held
in June 2011 and not less than a majority of the votes cast at a
special meeting of Capstone shareholders that is expected to be held at
approximately the same time. The Far West annual general meeting will
be rescheduled and may be combined with the special meeting for Far
West securityholders. Pursuant to the terms of the Agreement, the
proposed transaction is also subject to applicable regulatory approvals
and the satisfaction of certain closing conditions customary for
transactions of this nature. The arrangement agreement also provides
for, among other things, customary board support and non-solicitation
covenants from Far West (subject to customary "fiduciary out"
provisions that entitle Far West to consider and accept a superior
proposal and a 5-business day "right to match" in favour of Capstone).
The arrangement agreement also provides for the payment of a break fee
of C$20 million to Capstone and to Far West in certain specified
The boards of directors of Capstone and Far West have each unanimously
determined that the proposed transaction is in the best interest of
their respective companies and fair to their respective shareholders
and recommend that their respective shareholders vote in favour of the
proposed transaction, other than those directors who were recused from
meetings regarding the Agreement. Scotia Capital provided a fairness
opinion to Capstone's board of directors that the transaction is fair,
from a financial point of view, to Capstone. The Far West Board's
determinations are based on the recommendations of a special committee
of independent Far West directors. BMO Capital Markets, financial
advisor to Far West and its board of directors, and National Bank
Financial, fairness opinion provider to the special committee of the
board of directors of Far West, have each provided an opinion to the
effect that the consideration to be received by Far West shareholders
is fair, from a financial point of view, to Far West shareholders. Far
West's directors, senior management, Quadra FNX Mining Ltd. and certain
other shareholders, representing, in aggregate, approximately 38% of
Far West's fully diluted shares outstanding, have entered into
customary voting support agreements pursuant to which, among other
things, they have agreed to vote their Far West shares in favour of the
proposed transaction. Capstone's directors and senior management have
entered into customary voting support agreements pursuant to which,
among other things, they have agreed to vote their Capstone shares in
favour of the proposed transaction.
If it is approved by securityholders of Far West and shareholders of
Capstone, the proposed transaction is expected to be completed in July
2011 and is subject to certain customary conditions, including receipt
of all necessary court, TSX and securityholder approvals. Upon
completion of the proposed transaction, a Far West nominee will be
appointed to the board of directors of Capstone. In order to
accommodate the appointment of the Far West and KORES nominees to the
Capstone board, Stephen Quin has agreed to resign from the board of
Capstone upon the effective date.
The terms and conditions for the proposed transaction will be summarized
in the respective Management Information Circulars to be mailed to Far
West securityholders and Capstone shareholders in May 2011. Copies of
the Agreement, the agreements between Capstone and KORES, the
Management Information Circulars, and certain related documents and
agreements will be filed with Canadian securities regulators and will
be available at the SEDAR website at www.sedar.com under Capstone's and Far West's profiles, as applicable.
Scotia Capital is acting as lead financial advisor to Capstone and its
board of directors and a finders fee is payable upon closing of the
transaction to RCI Capital Group in respect of the KORES agreement.
Scotia Capital has provided a fairness opinion to Capstone's board of
directors. Capstone's legal counsel is Blake, Cassels & Graydon LLP.
BMO Capital Markets is acting as financial advisor to Far West and its
board of directors and National Bank Financial is acting as fairness
opinion provider to the special committee of the board of directors of
Far West. Far West's legal counsel is Davis LLP and Borden Ladner
Gervais LLP is acting as legal counsel to the special committee of the
board of directors of Far West.
Gryphon Partners acted as financial advisor to KORES with respect to the
Capstone private placement. KORES' legal counsel is Stikeman Elliott
Capstone and Far West will hold a conference call at 8:30 a.m. Eastern
time (5:30 a.m. Pacific time) on April 18, 2011 to allow shareholders,
securities analysts and investors the opportunity to hear management
discuss the transaction outlined herein. The call can be accessed by
dialing (toll free) (888) 231-8191 or International (647) 427-7450. The
call will also be webcast at:
The webcast and presentation can be accessed at Capstone or Far West's
websites at www.capstonemining.com or www.farwestmining.com, respectively. The call will also be available for replay by dialing
(toll free) 1-800-642-1687 or International 1-416-849-0833 Password:
61244676 for 14 days. A slide presentation will be available on
Capstone and Far West's websites before the conference call.
Capstone Mining Corp.
Capstone Mining Corp. is a TSX-listed Canadian mining company whose
principal business activity is the production of copper from the
Company's two producing copper mines: the 100% owned Cozamin
copper-silver-zinc-lead mine located in Zacatecas State, Mexico and the
100% owned Minto copper-gold-silver mine in the Yukon, Canada.
Using its operations as a springboard, Capstone aims to grow both
organically and through mergers and acquisitions: organic growth
through continued mineral resource and reserve expansions at its
operating mines and through the development of its 100% owned high
grade Kutcho copper-zinc-gold-silver deposit in British Columbia, while
M&A provides opportunities to accelerate that growth profile by
combining with other current producers or acquiring operating mines or
Capstone is included in the S&P/TSX Global Mining Index and S&P/TSX
Additional information on Capstone Mining is available on Capstone's
website at www.capstonemining.com.
Far West Mining Ltd.
Far West Mining Ltd. is an international mineral exploration company
headquartered in Vancouver, Canada. Far West is primarily engaged in
the evaluation, acquisition, and exploration of mineral properties in
Chile and Australia. Far West's main project is the wholly owned Santo
Domingo copper-iron-gold deposit in Chile. The deposit has NI 43-101
compliant indicated mineral resources of 486 million tonnes at a
copper-equivalent grade of 0.57% and inferred resources of 61 million
tonnes at a copper-equivalent grade of 0.46% (See news release dated
July 12, 2010 for the key assumptions, conditions and other factors on
which these estimates were based). The Project is located at low
elevation (1000m), approximately 800km north of Santiago. There is
superior infrastructure nearby, with a paved highway (1km), power
(7km), railway (7km), deep water port (60km) and smelter (60km), which
all provide an ideal scenario for rapid development of the Project.
Since the completion of the Preliminary Economic Assessment in May
2008, the indicated mineral resource has more than doubled and the
recovery of copper and magnetite iron has been confirmed by detailed
test work. Far West is currently working towards completing a
pre-feasibility study due in Q3 2011 on Santo Domingo (news release
dated April 16, 2011).
Additional information on Far West Mining is available on Far West's
website at http://www.farwestmining.com.
Korea Resources Corporation
Korea Resources Corporation is wholly-owned by the Korean government and
is charged with a policy mandate to further Korea's access to
strategically important mineral resources, both domestically and
internationally. The company carries out the Korean government's
mineral resources policy objectives by engaging directly, or indirectly
through joint ventures or in the form of minority investments, in
overseas exploration, development and production of strategically
important mineral resources, and managing the nation's stockpile of
rare mineral resources.
Additional information on KORES is available on KORES' website at http://eng.kores.or.kr.
Compliance With NI 43-101
The technical information in this news release has been prepared in
accordance with Canadian regulatory requirements set out in National
Instrument 43-101 and technical information related to Capstone has
been reviewed by John Sagman, P. Eng, Vice President, Technical
Services, Capstone, Qualified Person under NI 43-101. In addition,
Gregg Bush, Senior Vice President and Chief Operating Officer for
Capstone, reviewed all Capstone technical information in this news
release. Richard Zimmer, P. Eng, Chief Executive Officer of Far West
has reviewed and approved all technical information related to Far
Cautionary Note Regarding Estimates of Measured, Indicated and Inferred
This press release uses the terms "measured, indicated and inferred
resources." We advise U.S. investors that while these terms are
recognized and required by Canadian rules, they are not recognized by
the SEC. "Measured, indicated and inferred resources" have a great
amount of uncertainty as to their existence, and great uncertainty as
to their economic and legal feasibility. It cannot be assumed that all
or any part of a "measured, indicated or inferred mineral resource"
will ever be upgraded to a higher category. Under Canadian rules,
estimates of "inferred mineral resources" may not form the basis of a
feasibility study or pre-feasibility studies. The SEC normally only
permits issuers to report mineralization that does not constitute
"reserves" as in-place tonnage and grade without reference to unit
measures. U.S. investors are cautioned not to assume that any part or
all of a measured, indicated or inferred resource exists or is
economically or legally mineable.
This document may contain "forward-looking information" within the
meaning of Canadian securities legislation and "forward-looking
statements" within the meaning of the United States Private Securities
Litigation Reform Act of 1995 (collectively, "forward-looking
statements"). These forward-looking statements are made as of the date
of this document.
Forward-looking statements relate to future events or future performance
and reflect Capstone and Far West management's expectations or beliefs
regarding future events and include, but are not limited to, statements
with respect to the timing and implementation of the proposed
transaction, the integration of Capstone and Far West following the
transaction, estimation of mineral reserves and mineral resources,
availability of cash flow to fund capital requirements, the timing and
amount of estimated future production, availability of project
financing, and success of mining and development operations.
Assumptions upon which such forward-looking statements are based
include that Capstone and Far West will be able to satisfy the
conditions in the Agreement, that the required approvals will be
obtained from the shareholders of each of Capstone and Far West, that
all third party, court, regulatory and governmental approvals to the
transaction will be obtained, tax treatment of the transaction and that
all other conditions to completion of the transaction will be satisfied
or waived. Many of these assumptions are based on factors and events
that are not within the control of Capstone or Far West and there is no
assurance they will prove to be correct.
In certain cases, forward-looking statements can be identified by the
use of words such as "plans", "expects" or "does not expect", "is
expected", "budget", "potential", "scheduled", "estimates",
"forecasts", "intends", "anticipates" or "does not anticipate", or
"believes", or variations of such words and phrases or statements that
certain actions, events or results "may", "could", "would", "might" or
"will be taken", "occur" or "be achieved" or the negative of these
terms or comparable terminology. By their very nature forward-looking
statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements
of Capstone and Far West to be materially different from any future
results, performance or achievements expressed or implied by the
forward-looking statements. Such factors include, among others, risks
related to actual results of current exploration and development
activities; changes in project parameters as plans continue to be
refined; future prices of metals; possible variations in mineral
reserves, grade or recovery rates; accidents, labour disputes and other
risks of the mining industry; delays in obtaining governmental
approvals or financing or in the completion of development or
construction activities; as well as those factors detailed from time to
time in Capstone's and Far West's interim and annual financial
statements and management's discussion and analysis of those
statements, all of which are filed and available for review on SEDAR at
www.sedar.com. Although each of Capstone and Far West have attempted to identify
important factors that could cause actual actions, events or results to
differ materially from those described in forward-looking statements,
there may be other factors that cause actions, events or results not to
be as anticipated, estimated or intended. Capstone and Far West provide
no assurance that forward-looking statements will prove to be accurate,
as actual results and future events could differ materially from those
anticipated in such statements.
Accordingly, readers should not place undue reliance on forward-looking
1 Copper-equivalent grades calculated using prices of US$2.25/lb copper,
US$950/oz gold and US$0.74/dmtu iron (US$50 per tonne concentrate at
67.5% iron content).
2 Based on AMEC International (Chile) S.A. Preliminary Assessment dated
April 30, 2008. Refer to "Forward-Looking Statements" and "Compliance
With NI 43-101" for additional information.
Mineral Resources that are not mineral reserves do not have demonstrated
economic viability. Mineral resource estimates do not account for
mineability, selectivity, mining loss and dilution. These mineral
resource estimates include inferred mineral resources that are normally
considered too speculative geologically to have economic considerations
applied to them that would enable them to be categorized as mineral
reserves. There is also no certainty that these inferred mineral
resources will be converted to measured and indicated categories
through further drilling, or into mineral reserves, once economic
considerations are applied. Also there is no certainty that this
Preliminary Economic Assessment will be realized.
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