Vatukoula Gold Mines PLC Proposed Cancellation of trading on AIM (4999I)

TIDMVGM

RNS Number : 4999I

Vatukoula Gold Mines PLC

30 May 2014

30 May 2014

Vatukoula Gold Mines plc

Proposed Cancellation of trading on AIM

Vatukoula Gold Mines plc ("VGM" or "Company") announces that it will, today, be sending a circular to Shareholders together with a notice convening a General Meeting ("GM") of the Company to seek Shareholders' approval to cancel the admission of the Company's ordinary shares of 5p each ("Shares") to trading on AIM ("Cancellation" or "Delisting").

Introduction

The Directors have recently undertaken a review of the benefit of the Shares continuing to be traded on AIM. Having completed this review, which included consultation with the Company's advisers and its major shareholders, your Directors have agreed that it is in the best interests of the Company and its Shareholders as a whole if the admission of the Shares to trading on AIM is cancelled. Pursuant to Rule 41 of the AIM Rules, the Directors have notified the London Stock Exchange of the date of the proposed Cancellation.

To enable Shareholders to buy and sell Shares, the Company plans to put in place a matched bargain trading facility to be administered by WH Ireland and which will operate shortly after Cancellation. Further information is provided below.

In addition, Zhongrun International Mining Co Ltd ("Zhongrun"), the Company's major shareholder, has, conditional upon Cancellation becoming effective, assured the Company of its intention to acquire the Shares of any Shareholder who does not wish to remain a Shareholder at a price of 3.72 pence per Share from December 2014. Further details are included below in the paragraph entitled "Effect of Cancellation".

The AIM Rules provide that Cancellation be conditional upon the approval of the Resolution by not less than 75 per cent of the votes cast, whether in person or by proxy, by shareholders in a general meeting. Both Zhongrun and SCD Energy Inc. ("SCD"), whose shareholdings represent 74.35 per cent of the issued share capital of the Company, have given irrevocable undertakings to vote in favour of the Resolution.

Expected timetable of events

Dispatch of the Delisting Circular 30 May 2014

Latest time for receipt of Form of Proxy 10.00 a.m. on 20 June 2014

General Meeting to be held 10.00 a.m. on 23 June 2014

Expected last day for dealings in Ordinary Shares on AIM 30 June 2014

Expected time and date that admission of Ordinary Shares

to trading on AIM will be cancelled with effect from 7.00 a.m. on 1 July 2014

Each of the times and dates above is subject to change. Dates set after the General Meeting assume that the General Meeting is not adjourned and that the Resolution is passed. Any such change will be notified by an announcement on a Regulatory Information Service.

Unless otherwise stated, all references to time in this document are to London time.

Reasons for the proposed Cancellation

The perceived benefits of an admission of securities to trading on AIM, typically include access to equity capital markets, an enhanced corporate profile, a means to incentivise staff, and a mechanism to provide a market in the Company's shares. The Board has reached the view that the Company is not receiving all these benefits.

The Directors believe that it would now be better for the Company to operate in the private arena as this could enable further capital to be raised more easily and enable the Company to succeed in its longer term objective of becoming a profitable business.

In particular the Directors have identified that the ability to raise capital more easily as an important factor in its views. The Directors have further reviewed the effect of both the continued depressed gold price and the delay in obtaining the originally planned US$40 million funding and have concluded that the Company will need to raise a further US$15 - US$20 million to enable the Company to achieve its longer term targeted production rate of 100,000 ounces per annum.

The continued depressed gold price has led to significant falls in the values of quoted gold mining companies, from which VGM is not immune. The stock market tends to operate on a short term investment horizon which has little basis in the underlying fundamentals of a business such as VGM. The susceptibility of the share price to the wider general equity market conditions is not to the benefit of the business and in particular hampers the Company's ability to raise funds. Therefore by delisting VGM shares from AIM, the Directors believe that the Company will be able to raise further funds based on a longer term investment horizon and at a higher market valuation.

There are significant costs associated with maintaining a quotation on AIM, including fees payable to the London Stock Exchange, nominated adviser fees, shareholder communication time and costs, and other costs of running a London office as well as other professional fees. Cancellation will, accordingly, reduce the recurring administrative costs.

The Board has therefore concluded that the commercial disadvantages and costs of maintaining a listing at this time in the Company's development outweigh the potential benefits and that it is therefore no longer in the Company's or its Shareholders' best interests to remain listed.

The Company has notified the London Stock Exchange of the proposed Cancellation. The Cancellation will occur no earlier than five clear business days after the GM and it is expected that trading in the Shares on AIM will cease at the close of business on 30 June 2014, with Cancellation taking effect at 7.00 a.m. on 1 July 2014.

Current trading and prospects

On the 20 May 2014 the Company issued its unaudited interim financial statements for the period ended 28 February 2014. The announcement outlined that trading in the first half of the current year continued as expected with 19,116 ounces of gold sold during the first half of the year at an average cash cost of US$1,463 per ounce. The Company continued to focus on cost reduction with cost of sales reducing by 15 per cent. to GBP16.9 million compared to the same period last year.

Nonetheless, and despite the reduction in costs, the Company was affected by the lower gold price environment. The average realised gold price per ounce decreased from US$1,681 for the six months ending 28 February 2013 to US$1,264 for the six months ending 28 February 2014. This 25 per cent. drop in price meant that the Company lost approximately GBP5.4 million from revenues and as result the Company reported a gross loss of GBP1.9 million during the period compared to a gross profit of GBP0.9 million during the same period last year. After administrative expenses, foreign exchange losses and depreciation and amortisation expenses the operating loss was GBP9.1 million compared to a loss of GBP2.5 million during the same period last year.

Subsequent to the half year ended 28 February 2014, and for the two months ending April 2014, the delivered grade from the mine has decreased to 3.63 grams of gold per tonne, which has resulted in just under 5,312 ounces of gold shipped. The effect of the lower grade and lower production has resulted in an increase in cash costs per for the two month period to approximately US$2,006 per ounce.

The Company continues to be inhibited by its lack of development capital but I am pleased to report that the Company has now received US$8.2 million out of the total of $20 million to be provided by Zhongrun pursuant to the loan agreement entered into in August last year. These funds have been delivered as US$4.6 million in cash, a further US$2 million in underwriting guarantees for the purchase of an additional 12 underground haulage vehicles and a US$1.6 million deposit paid on the Company's behalf for additional resource development drilling.

Intentions as to the future operation of the business

In the last financial year, the Company shipped approximately 40,000 ounces and in the current year production is running at approximately the same level. At this level the Company is not able to trade cash-positively and its financial resources can therefore only be diminished whilst production remains at this level. The most critical objective is therefore to increase production levels, initially, to over 60,000 ounces, at which level the Company is able to achieve breakeven, assuming no major deterioration in the gold price, and, in the longer term, to levels nearer to 100,000 ounces. The Directors are confident that these production levels can be achieved and, moreover that the cash production costs can be reduced from their current level to a realistic target being US$950 per ounce.

The Board currently believes that once the Company has developed its operations to the point where they are able to trade profitably, it may be that a relisting on a public stock market will again be appropriate. However, no guarantees or assurances can be given as to the timing or even the likelihood of such a relisting happening.

Effect of Cancellation

The principal effect of the proposed Cancellation is that there would no longer be a formal market mechanism enabling Shareholders to trade their Shares on AIM or any other recognised market or trading exchange. However, it should be noted that the trading volume in the Shares on AIM has remained low at an average of approximately 153,250 Shares per month over the last six months. The underlying liquidity in the Shares is low and, in the opinion of the Directors, is likely to remain that way for the foreseeable future. The proposal for a matched bargain facility is described below.

Shareholders should also be aware that the Company will no longer be bound by the AIM Rules or be subject to the Takeover Code and that, as a consequence, certain previously prescribed corporate governance procedures may not be adhered to in the future and the Company will no longer be required to announce material events or transactions. However, following Cancellation, the Directors:

1. will hold an Annual General Meeting and, when required, other General meetings, in accordance with the applicable statutory requirements and the articles of association of the Company;

2. will make available to all Shareholders an annual report and the Company's annual financial statements; and

3. intend to maintain an "investors" section on the Company's website at www.vgmplc.com providing information on any significant events or developments in which Shareholders may be interested.

Trading in the Ordinary Shares after Cancellation

VGM will make available to Shareholders an off-market trading facility for the Ordinary Shares, which will be administered by the Company's broker WH Ireland, based on matching bargains, where buyers' and sellers' price expectations match. It is currently anticipated that this matched bargain facility will be in place shortly after the date of Cancellation. More details of the facility will be made available on the Company's website at that time at www.vgmplc.com.

In addition and in recognition of the loss of ability to trade the Shares and of the uncertainty regarding the restoration of any such ability in the future, the Company's majority shareholder, Zhongrun, has, conditional upon Cancellation becoming effective, assured the Company of its intention to acquire the Shares of any Shareholder who does not wish to remain a Shareholder. Zhongrun is prepared to pay a price of 3.72 pence per share (being the average trading price per share during the five trading days immediately preceding the Company's announcement of the proposed cancellation) in cash.

This opportunity will become effective on 1 December 2014 and will remain available to shareholders for a period of 20 days, that is up to and including until 20 December 2014 or such later period as is 20 days after the day which is six months after the date that Cancellation actually becomes effective.

Any shareholder who wishes to take advantage of this opportunity to dispose of his entire, but not part of his, shareholding should contact WH Ireland from the 1 December 2014, and details of the procedure will be made available on the Company's website by that date.

At this point in time Zhongrun has not lodged any funds with WH Ireland to purchase any such Shares, and although it provided assurances that it will do so, there is not a guarantee that Zhongrun will be able to complete the acquisition of the shares as envisaged above.

SCD, representing 8.69 per cent. of the issued share capital of the Company, has confirmed to the Board and to Zhongrun that they are supportive of the strategy for the development of the Company set out in this document and has given an irrevocable undertaking that it will not take advantage of the opportunity to sell its shares to Zhongrun.

Resolution to be proposed at the General Meeting

The Cancellation is subject to shareholders passing the following resolution: "That the admission of the ordinary shares of 5p each in the capital of the Company to trading on AIM, a market operated by London Stock Exchange plc, be cancelled and that the directors of the Company be authorised to take all steps which they consider to be necessary or desirable in order to effect such cancellation". The resolution is proposed as a special resolution of the Company requiring approval of not less than 75 per cent. of the votes cast by Shareholders at the GM.

Irrevocable undertakings

Irrevocable undertakings to vote in favour of the Cancellation at the General Meeting have been received from Zhongrun and SCD Shareholders in respect of their respective beneficial holdings of, in aggregate, 256,697,000 Ordinary Shares, representing approximately 74.35 per cent. of the total issued share capital of the Company.

Recommendation

The Directors consider the resolution to be proposed at the GM to be in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend Shareholders to vote in favour of the resolution to be proposed at the GM.

General Meeting and Cancellation from Trading on AIM

A notice of GM will be sent to shareholders today convening a meeting at 10.00 a.m. at the offices of Laytons Solicitors LLP at 2 More London Riverside, London, SE1 2AP on 23 June 2014. Subject to the passing of the Resolution, the delisting of the Shares from trading on AIM will take effect from 1 July 2014 and the final day upon which they will be able to be traded on AIM will be 30 June 2014.

A copy of the GM notice will be made available on the Company's website at www.vgmplc.com.

-Ends-

 
 
 
  Enquiries: 
 
  Vatukoula Gold Mines plc    Bell Pottinger         W.H. Ireland Limited 
Ian He                        Daniel Thöle      James Joyce 
Kiran Morzaria                Marianna Bowes         James Bavister 
 + 44 (0)20 7440 0643          + 44 (0)20 7861 3232   + 44 (0)20 7220 
                                                      1666 
 

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