Fundraising of up to US$12.8m
23.12.2011SUNKAR RESOURCES PLC
("Sunkar" or the "Company")
Conditional fundraising of up to US$12.8 million through the issue of convertible loan notes, cancellation of options and board changes
The board of directors (the "Board") of Sunkar (AIM: SKR) announces that the Company has entered into a conditional subscription agreement (the "Subscription Agreement") with Sun Avenue Partners Corp, an investment and trading company registered in the British Virgin Islands ("SAPC"), for the subscription by SAPC in two tranches of up to US$12.8 million of convertible loan notes (the "Investment"). The Investment values each Ordinary Share at approximately 4.7 pence.
The Company has conditionally approved the issue to SAPC of the first tranche of US$2.8 million of such convertible loan notes (the "First Convertible Loan Notes") which issue will be made pursuant to the authorities granted by the Company's shareholders at the Company's AGM on 26 May 2011. The Board anticipates that the Company will receive the US$2.8 million from SAPC by 30 December 2011 whereupon full receipt it will issue the First Convertible Loan Notes.
The issue of the second tranche of US$10 million of such convertible loan notes (the "Second Convertible Loan Notes") is conditional, inter alia, on the passing by the Company's shareholders at a general meeting (the "General Meeting") of certain resolutions to approve the issue of the Second Convertible Loan Notes and to approve the conversion of the same into ordinary shares of 0.1p each in the Company (the "Ordinary Shares"). The Board intends to convene and hold the General Meeting as soon as practicable in 2012 and, in any event before 9 February 2012, the date on which the admission of the Ordinary Shares to AIM will be cancelled should the Board not be satisfied that the Company has sufficient working capital to apply to the London Stock Exchange to have the suspension of the Ordinary Shares from trading on AIM lifted.
A summary of the Subscription Agreement and the terms and conditions of the First Convertible Loan Notes and Second Convertible Loan Notes (together the "Convertible Loan Notes"), is set out below.
The Convertible Loan Notes will convert in full, in accordance with their terms, into an aggregate of 174,476,283 Ordinary Shares, representing 51.00 per cent. of the fully diluted issued share capital of the Company as of today's date as enlarged by the issue of such Ordinary Shares provided existing options to acquire Ordinary Shares have been duly cancelled or terminated as referred to below. The maturity dates and conversion rights of the Convertible Loan Notes are set out below.
Background to the Investment
In the update on its financial position announced on 1 November 2011 the Company stated it was in negotiations with a number of potential sources of funding. The Board subsequently received a number of offers of funding and, after due and careful deliberation, concluded that the investment from SAPC was in the best interests of the Company and its shareholders as a whole and so commenced talks with SAPC on an exclusive basis to secure an investment.
The Investment is being structured as the Convertible Loan Notes so that the Company may receive the US$12.8 million being invested in advance of obtaining a waiver from the Kazakhstan Government of its pre-emptive right to any equity issued by the Company under the subsoil use law in Kazakhstan (the "Subsoil Use Law").
The Subscription Agreement
SAPC has agreed to make the Investment on the basis of, and subject to the terms and conditions of, the Subscription Agreement.
In accordance with the Subscription Agreement, certain irrevocable undertakings will be given to SAPC by Nurdin Damitov and Serikjan Utegen (details of which are set out below). The Company has also agreed to provide, security in favour of SAPC over certain phosphate rock and phosphate ore owned by the Company's subsidiary, Temir Service LLP.
The issue of the Second Convertible Loan Notes is conditional upon, inter alia:
- resolutions being passed at the General Meeting to approve the creation of the Second Convertible Loan Notes and to grant the necessary authorities to permit the Company to allot such number of Ordinary Shares to SAPC as shall be necessary to satisfy the conversion of the Second Convertible Loan Notes (the "Resolutions"); and
- the limited number of representations and warranties as to the current status of the business of the Company given in the Subscription Agreement by the Company to SAPC remaining true, up-to-date, complete, accurate and not misleading in all material respects and the Subscription Agreement not having been terminated in accordance with its terms.
The Subscription Agreement places certain restrictions on the Company which remain in force until such time as the Convertible Loan Notes have been converted in full. The Company is, therefore, obliged to obtain the prior written consent of SAPC prior to, inter alia, incurring any expenditure in excess of US$80,000, issuing new securities, taking on any new indebtedness or entering into any contract under which the Company would have a direct liability exceeding US$500,000.
The Subscription Agreement also sets out SAPC's entitlement to make certain changes to the Board, as described below.
Terms of the Convertible Loan Notes
Save to the extent not previously converted, the First Convertible Loan Notes will be repayable in full, together with interest at the rate of 10% per annum, on their maturity date which shall be the earlier of:
(i) 12 months from the First Convertible Loan Notes being issued;
(ii) 5 business days following the General Meeting in the event that the Resolutions are not passed; and
(iii) the date on which the competent body of the Government of the Republic of Kazakhstan (the "Competent Body") completes the exercise of its pre-emptive right under the Subsoil Use Law to acquire the Ordinary Shares arising on the conversion of the Convertible Loan Notes and the Company receives payment for such Ordinary Shares.
The Second Convertible Loan Notes will be issued on terms similar to the First Convertible Loan Notes, save that the maturity date of the Second Convertible Loan Notes will be the date which is the earlier of the dates referred to in (i) and (iii) above.
Subject to, and automatically on, the receipt by the Company of a waiver from the Competent Body of its pre-emptive right to the Ordinary Shares to be issued under the relevant Convertible Loan Notes ("Subsoil Waiver"):
- the First Convertible Loan Notes will convert in full into 38,166,687 Ordinary Shares; and
- the Second Convertible Loan Notes will convert in full into 136,309,596 Ordinary Shares.
At the beginning of 2012, the Company intends to submit a single application for a Subsoil Waiver in respect of the conversion of all the Convertible Loan Notes and therefore, if the Subsoil Waiver is obtained, all the Convertible Loan Notes will convert at the same time.
Takeover Code
The Company is not subject to the City Code on Takeovers & Mergers (the "Takeover Code") on the basis that the place of central management and control of the Company is located outside the United Kingdom, the Channel Islands and the Isle of Man for the purposes of paragraph 3(a)(ii) of the Introduction to the Takeover Code.
As the Takeover Code does not apply to the Company, article 144 of the Company's articles of association provides that a person must not, whether by himself or with persons acting in concert with him, acquire an interest in shares which, taken together with shares in which persons acting in concert with him are interested, carry 30 per cent. or more of the voting rights attributable to all the shares of the Company, except as a result of a Permitted Acquisition. An acquisition is a "Permitted Acquisition" if either:
- following consultation with, and having taken account of the views of, the Company's nominated adviser from time to time, a majority of the independent non-executive directors of the Company consent to the acquisition; or
- the acquisition is made in circumstances in which the Takeover Code, if it applied to the Company, would require an offer to be made as a consequence and such offer is made in accordance with Rule 9 of the Takeover Code, as if it applied to the Company.
The conversion of the Convertible Loan Notes into Ordinary Shares will be prohibited unless such conversion is a Permitted Acquisition. The independent non-executive directors, being Mr Teck Soon Kong and Mr Charles de Chezelles, have resolved to consent to the acquisition of the Ordinary Shares by SAPC on the conversion of the Convertible Loan Notes, so that SAPC is not required on such acquisition to make an offer for the entire issued share capital of the Company in accordance with Rule 9 of the Takeover Code, as if it so applied.
Cancellation of options
The Subscription Agreement provides that the 174,476,283 Ordinary Shares to be issued on the conversion of the Convertible Loan Notes shall represent 51.00 per cent. of the fully diluted issued share capital of the Company on the condition that all or any existing options to acquire Ordinary Shares are duly cancelled or terminated with the exception of the warrants issued to Dutchess Opportunity Cayman Fund Ltd and First Columbus LLP in June 2010 conferring a right to subscribe for up to 1,000,000 Ordinary Shares (the "Warrants").
It is the Board's intention to seek the cancellation for nil consideration of the remaining outstanding options.
As of today's date the number of Ordinary Shares in issue is 166,634,074 and, following the cancellation of all options, only the Warrants would be outstanding. The following directors on 22 December 2011 notified the Company that they have entered into deeds of cancellation, for nil consideration, of options granted to them over the following number of Ordinary Shares:
Teck Soon Kong: 1,300,465;
Serikjan Utegen: 2,303,796;
Donald Sinclair: 1,582,277;
Nurdin Damitov: 1,782,277;
Charles de Chezelles: 1,120,085.
Serikjan Utegen: 2,303,796;
Donald Sinclair: 1,582,277;
Nurdin Damitov: 1,782,277;
Charles de Chezelles: 1,120,085.
Irrevocable undertakings by Nurdin Damitov and Serikjan Utegen
Nurdin Damitov and Serikjan Utegen have agreed to provide irrevocable undertakings to SAPC confirming that they will vote in favour of the Resolutions and, as security for the Investment, will transfer to SAPC such number of Ordinary Shares as are held by them up to a maximum of 20,000,000 Ordinary Shares each to satisfy any default on the repayment of the Investment by the Company.
Board changes
Donald Sinclair has today resigned as a director of the Company but will (subject to SAPC's right of nomination described below) remain as the Company's Chief Financial Officer.
Under the Subscription Agreement, SAPC has the right to nominate/re-nominate:
- one director to the Board upon the issue of the First Convertible Loan Notes; and
- two further directors to the Board upon the issue of the Second Convertible Loan Notes.
Upon the issue of the First Convertible Loan Notes, SAPC will also have the right to nominate the Chief Executive Officer and the Chief Financial Officer of the Company from among the Board.
Working capital
The US$2.8m investment by SAPC in the First Convertible Loan Notes will enable the Company to pay the majority of its outstanding trade creditors and to allow work on the final components of the Feasibility Study to proceed. However, the Company will remain in default of its loans with ATF Bank and, as a consequence, a fundamental uncertainty remains over the Company's future as a going concern.
It is envisaged that the loans totalling approximately US$894,000 made by Teck Soon Kong, Nurdin Damitov and Serikjan Utegen and the family trust of Charles de Chezelles will be repaid following the issue of the Second Convertible Loan Notes.
Due to the continuing uncertainty as to the financial position pending the issue of the Second Convertible Loan Notes, the Ordinary Shares will remain suspended from trading on AIM notwithstanding the issue of the First Convertible Loan Notes.
Mr Teck Soon Kong, Chairman of Sunkar, commented:
"This proposed investment, once approved, provides the Company with the means to meet its immediate objectives and preserves much of the potential upside of the Chilisai project for shareholders."
For further information please contact:
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Sunkar Resources plc
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Teck Soon Kong (Chairman)
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Tel: +44 20 7930 8678
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Serikjan Utegen (CEO)
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Ambrian Partners Limited
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Richard Morrison
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Tel: +44 20 7634 4700
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Matt Einhorn
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Bankside Consultants
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Simon Rothschild
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Tel: +44 20 7367 8888
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Editors Notes
Sunkar Resources plc
Sunkar Resources plc, through a wholly owned subsidiary Temir Service LLP, operates a phosphate rock mine in Aktobe Oblast, North West Kazakhstan. Temir Service LLP holds a Subsoil Use Contract to part of the Chilisai Phosphate Rock Deposit. The contract area is estimated to contain 800 Mt of phosphate ore.
Sunkar's strategy is to build a world class integrated ammoniated phosphate fertilizer plant with low operating costs. Sunkar's low cost base derives from its near surface phosphate rock deposit, access to sulphur from the nearby North Caspian oil and gas fields.
Sun Avenue Partners Corp
Sun Avenue Partners Corp is the investment and trading company which was a shareholder in the Company prior to the Company's IPO from December 2007 until March 2010. SAPC is an investment vehicle of Mr Almas Mynbayev, a Kazak national, who was a non-executive director of the Company's subsidiary, Temir Service LLP, from 18 February 2008 until 24 September 2009.