Something like this needed to happenThe NR is complex. It helps to break it down in main pieces. There are at least three different concurrent transactions and important changes to the Board of Directors composition, plus comments from the Almonty CEO:
Transaction 1:
Almonty Industries Inc. has entered into an agreement with Woulfe Mining Corp. for a non-brokered private placement of $1.0-million in principal amount of convertible unsecured subordinated debentures at a price of $1,000 per debenture. The debentures will have an interest rate of 12 per cent per year, payable quarterly in arrears. Woulfe will have the option to satisfy, all or a portion of its interest payment obligations by delivering to Almonty common shares of Woulfe at a price equal to equal to the Market Price (as defined in the Canadian Securities Exchange Corporate Finance Manual) of Woulfe's common shares on the interest settlement date. The Offering is expected to close on June 4, 2015 and will mature 12 months from closing. Each $1,000 principal amount of the Debentures will be convertible at the option of the holder into 16,667 common shares of Woulfe. In addition Almonty and Woulfe entered into an agreement such that Almonty will be granted a right on closing to nominate one member to the board of directors of Woulfe, provided such nominees are acceptable to regulatory authorities, for so long as Almonty holds a minimum of 5% of the issued and outstanding shares of Woulfe.
My interpretation:
Almonty is throwing Woulfe a 1000k lifeline and likely allowing the company to go through the low tungsten price patch before financing. I would not be too concerned with the low value of the convertible or the 12% interest. Interest is payable in stock and has the same conditions as the 4M convertible PP that was done in February 2014 by Dundee. As comparison, the conditions for the old merger were 8c/share (in Almonty shares) for all Woulfe shares. Almonty SP has also dropped from 7c to 5.5c per share since the previous offer, so the valuation is actually not very different from the old merger offer, but now it is only for 5% of the shares. The 1M injection will likely be used to pay off the 450k bridge loan from Dundee and to get Woulfe going for 2-3 months until the IMC deal comes through (the IMC loan is due in September - my mistake in the previous post). I do not think this offer with 1M cash would have happened without IMC being on board.
Transaction 2 and 3:
Concurrently, Almonty has entered into an agreement with Dundee Corporation ("DC") and Dundee Resources Limited ("DRL" and together with DC, "Dundee") whereby Almonty will acquire 29,497,229 common shares in the capital of Woulfe currently owned by Dundee at a deemed price of $0.056 per Woulfe share in exchange for issuing to Dundee 2,949,723 common shares of Almonty at a deemed price of $0.56 per Almonty common share. Almonty will also acquire the $4,000,000 principal amount 12% Unsecured Subordinated Convertible Debenture due December 31, 2016 issued to Dundee by Woulfe on March 7, 2014 (the "2016 Debenture") in exchange for a cash payment to Dundee of $2,600,000 ($2,100,000 in cash on closing and $125,000 in cash in four equal installments on the dates that are three, six, nine and twelve months from the closing date) and the issuance to Dundee of a term promissory note in the principal amount of $1,400,000 due five (5) years after closing and bearing interest at 4% per annum.
My interpretation:
This is the most important part of the NR. With these two transactions (which will happen at the same time - concurrent - with Transaction 1) Almonty effectively replaces Dundee in the management and ownership of Woulfe. It does looks like the share price of both companies was manipulated to get them to be exactly at 1:10 ratio so as to make the math easier on the eye, but whatever .... I am cool with Dundee out and Almonty in for reasons I have mentioned in several posts at the time of the attempted merger. I used to think very highly of Ned Goodman, but Dundee really has turned into just another financial house and likely has no passion for real mine development anymore. Doing some numbers: Almonty is relieving Dundee of 30M Woulfe shares (half of Dundee's current stake) and of its 4M convertible loan of last year in exchange of Almonty shares at 1:10 ratio. Transaction 3 will require Almonty to pay 2100k on closing and 125k in four installments. Again I do not think this second cash transaction would be happening without IMC on board for the off-take.
Changes to Board of Directors:
In connection with the purchase of the 2016 Debenture, Dundee will also assign its nomination rights to Almonty whereby Almonty will be entitled to nominate up to 50% of the directors of Woulfe so long as its partially diluted ownership interest in Woulfe remains not less than 15% (on closing, Almonty will hold 8% of the outstanding Woulfe shares and have a pro-rata partially diluted ownership interest in Woulfe of approximately 18.2%). Accordingly, on closing Almonty will have nomination rights for up to four (4) nominees to the Woulfe board of directors as presently constituted. Completion of the transactions contemplated herein is conditional on approval by the TSX Venture Exchange.
My interpretation:
Once the three concurrent transactions close (June 4 2015) Almonty will own 30M Woulfe shares outright. On a diluted basis (after the convertibles mature in June and December 2016 Almonty will own (16+34) = 50M more Woulfe shares for a total of about 80M shares, which would be about 18% (partially diluted) of the outstanding shares. Very importantly, as Dundee loses its major shareholder status (as of June 5, 2015) they will also lose the right to maintain a majority of the board members. Altogether: at closing of Transaction 1 Almonty will get to select one board member per new agreement with Woulfe, and at closing of transactions 2 and 3 Almonty will get to select 3 more board members. So I read this as Almonty will nominate 4 board members on June 5, 2015. I could be wrong, but I expect four Dundee directors to resign and be replaced next week, not next year. Also I notice that only the TSX Venture approval is conditioned for the transactions, not the CSE: it could be nothing, but it may also mean Woulfe goes back to the TSX after the Dundee board is replaced.
Commenting on the transaction:
Lewis Black, Chairman, President & CEO of Almonty stated: "Almonty continues to believe in the merits of combining one of the world's most promising undeveloped tungsten assets, Woulfe's flagship Sangdong mine. with our significant portfolio of producing assets that will create a truly global tungsten powerhouse to the benefit of both Almonty and Woulfe shareholders. We view this transaction as the first step in achieving our desired end result of combining the two companies. Almonty has already established itself as a leading producer of tungsten outside of China and premier consolidator of global tungsten assets. We are confident in the combined team's ability to unlock significant value from our collective assets for our combined shareholders and see this transaction as a first step in achieving our original aim of combining the two companies.
My interpretation:
We are moving from financiers management to technical management and Almonty is as good technical as it gets today in Tungsten, with the possible exception of BlackHeat (who come from the same Primary Metals batch). You almost have to root for these guys they are persistent and focused. And they likley need a big mine sooner rather than later. Almonty's properties in Spain are near end of life (looks like 5 years left) and the new Australian acquisition is lagging expectations. I see no reasons why Almonty would delay development of the Sangdong mine. Merging the two companies makes a lot of sense and may happen very soon, given past history.
Dundee position:
Almonty is also pleased to welcome Dundee as a significant shareholder (5.7% ownership interest post-closing) in the Company as a result of this transaction."
My interpretation:
Dundee gives up 8% of Woulfe for 5.7% of Almonty. Given the current relative value of the two companies, it is an almost even exchange. The clear message is that Dundee does not want to be managing either company. Which brings to the bottom line: IMC has had almost infinite time to deny the off-take deal and from what we know are still on board. In fact it should be mor so now than before. I believe the Sangdong mine needs to move to technically savvy hands at this point and this development is a clear step in that direction.