European Metals Managing Director Keith Coughlan said, ” We are very pleased to have concluded this agreement with CEZ which, subject only to EMH shareholder approval, provides certainty for the future development of the Cinovec Project.
Given the current uncertain state of global markets, it is particularly affirming for us to have a partner with the corporate, technical and financial strength of CEZ investing in the Project.”
European Metals Holdings Limited (“European Metals” or the “Company”) is pleased to announce that it has today reached final agreement (“Final Agreement”) with CEZ Group (“CEZ”), one of Central and Eastern Europe’s largest power utilities, regarding a strategic partnership and significant investment into the Cinovec Project (“Cinovec” or “theProject”).
The Company announced on 20 November 2019 (” Potential Strategic Partnership with CEZ and Significant Investment into Cinovec Project”) the terms of a conditional agreement (“Conditional Agreement”) with CEZ under which CEZ had the option to subscribe to become a 51% shareholder in Geomet s.r.o. (“Geomet”), the Company’s Czech subsidiary and holder of the rights over the Project.
The Final Agreement reached today is now a binding commitment from CEZ to subscribe to become a 51% shareholder in Geomet, and is conditional only upon EMH shareholder approval, which will be sought at an EGM to be held in April 2020.
The amended terms of the Final Agreement (as compared to the Conditional Agreement) include:
(a) in the context of the binding commitment to invest described above and current market conditions, a reduction of the price payable by CEZ upon completing of the subscription of Geomet shares from €34,061,265 to €29,100,000; and
(b) allowing CEZ to elect to withdraw from funding of the Project at two separate milestones. The first withdrawal milestone is designed to coincide with completion of the front-end engineering design program and semi-industrial pilot testing of the lithium concentrate processing while the second withdrawal milestone is designed to coincide with completion of the definitive feasibility study. If CEZ elects to withdraw, Geomet will return to it an amount equal to its initial investment minus €250,000 and all costs and expenses incurred in relation to the Project up until the date of notification of the withdrawal. Following a withdrawal, CEZ will reduce its holding on a pro-rata basis to a minority position in Geomet.
The directors of the Company believe that the revised terms provide sufficient funding for the next stage of the development of the Project, setting it on sound footing to progress into production thereafter.
Further details of the Final Agreement will be set out in the supplementary circular to be posted to EMH shareholders shortly.
European Metals Managing Director Keith Coughlan said, ” We are very pleased to have concluded this agreement with CEZ which, subject only to EMH shareholder approval, provides certainty for the future development of the Cinovec Project. Given the current uncertain state of global markets, it is particularly affirming for us to have a partner with the corporate, technical and financial strength of CEZ investing in the Project.”
Background to the Transaction
In July last year, EMH announced that CEZ was conducting due diligence on the Company and the Cinovec Project, and that the successful outcome of the due diligence process could result in CEZ potentially becoming the Company’s largest shareholder and co-development partner for the Cinovec Project. Since then, EMH and CEZ have held detailed discussions on the framework for CEZ’s participation in the Cinovec Project and in November 2019 EMH and CEZ entered into the Conditional Agreement, pursuant to which CEZ had the option to subscribe become a 51% shareholder in Geomet. The Conditional Agreement included conditions precedent that have now all been met.
In light of very significant changes in global markets and the successful completion of CEZ’s due diligence, EMH and CEZ have replaced the Conditional Agreement with the Final Agreement.
The Company considers that CEZ Group is an ideal strategic and financial partner for the Cinovec Project. In addition to CEZ’s financial strength, the Board believes that CEZ provides strong strategic relationships within the Czech Republic, the European Union and abroad. CEZ is a leader in power generation and distribution in the region and has plans to become heavily involved in the development of new energy systems. Through these battery industry activities, CEZ is expected to assist greatly in the securing of off take agreements for the Project.
Financial effects of the Transaction
The primary financial objective of the transaction is to secure the funding for the next stage of the development of the Cinovec Project and to provide a strong platform for the Cinovec Project to progress into production. Whilst the Board believes from the extensive PFS work undertaken to date that Cinovec is a robust project with strong economics, the funding of large mining and processing projects requiring significant capital expenditure is very challenging for smaller mining companies in current economic and market conditions.
The addition of a partner with the financial strength of CEZ, and the strong significant business relationships that it brings, significantly enhances the status of the Cinovec Project at this important stage of its development.
The subscription proceeds from the Final Agreement will be used by Geomet to develop the Cinovec Project through completion of the Definitive Feasibility Study (“DFS”), complete all permitting processes and advance the Cinovec Project to a construction decision. The DFS will bring together the detailed operational and financial implementation plan, including geological, technical, engineering, metallurgical, environmental and financial technical expert reports. The Company has prepared the detailed budget and business plan for the delivery of the DFS, together with the front-end engineering design programme, which is expected to take up to 18 months to complete. In order to facilitate the timely progressing of the DFS, Geomet will enter into a service contract with one or more third party contractors and, under the Geomet Shareholders’ Agreement (to be entered into at the completion of CEZ’s investment), EMH will be appointed to provide services of managing the Cinovec Project development.
On completion of CEZ’s investment pursuant to the Final Agreement, EMH’s ongoing interest in Geomet will reduce to 49%. Under the Geomet Shareholders’ Agreement (to be entered into at the completion of CEZ’s investment), Geomet will have a board of five directors. EMH will have the right to nominate two of the five Geomet directors Further, under the Geomet Shareholders’ Agreement, EMH will be appointed to provide services managing the Cinovec Project development
Accordingly, on completion of the Final Agreement, EMH will cease to consolidate Geomet’s results within the EMH’s consolidated accounts.
ASX Listing Rule 11.2
ASX Listing Rule 11.2 provides that an entity may not dispose of its main undertaking (that is, its main asset or business) without the approval of its shareholders. While the Final Agreement may be considered to constitute the Company disposing of its main undertaking, the Company will not be making any change to its main undertaking. That is, the Company will remain engaged in the same principal business activities following completion of the Final Agreement. Accordingly, the Company will be seeking Shareholder approval under Listing Rule 11.2 for completeness.
CEZ is not a related party of the Company, and Shareholder approval for the Final Agreement is not required for the purposes of ASX Listing Rule 10.1.
AIM Rule 15
The Final Agreement would constitute a fundamental change of business of the Company under Rule 15 of the AIM Rules. The Final Agreement is therefore conditional on, inter alia, Shareholder approval which will be sought at a General Meeting of the Company to be convened in due course. The Company will, however, as previously announced, remain an operating minerals company under the AIM Rules given its remaining material interest and ongoing involvement in the Cinovec Project after the Final Agreement has completed, as described above.
The completion of the Final Agreement will not result in any changes to the Company’s Board or management.
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