Update re. Investment in Silvermines Media plc
For immediate release 4 February 2005
SILENTPOINT PLC
('Silentpoint' or 'the Company')
Update re. Investment in Silvermines Media plc ('Silvermines')
Silentpoint, the AIM-listed investment company, is pleased to note today's
announcement from Silvermines, a company in which Silentpoint currently has a
40.1 per cent. interest.
Highlights
* Silvermines to acquire Zhibek Resources Plc, part owned by Cambrian Mining
Plc
* Silvermines will comprise the oil & gas exploration and development assets
of Zhibek, currently located in Kyrgyzstan
* Silvermines' proposed change of name to Cambrian Oil & Gas Plc
* Silentpoint invests in placing of new shares alongside Cambrian Mining Plc
* Cambrian Mining Plc agreement to offer all of its potential future
opportunities in oil and gas interests to the Company in the first
instance.
Commenting on the proposed Acquisition, Smit Berry, Chief Executive of
Silentpoint PLC, said:
'Cambrian Oil & Gas will own interests in two compelling projects in the Krygz
Republic. The Beshkent Togap field contains an estimated 65 million barrels of
oil with upside potential to 76 million barrels and Zhibek will shortly start a
pilot workover program. There is also a licence (72%) in the Tash Kumyr region,
where the company has used seismic to identify five drilling prospects showing
good geophysical evidence of commercially viable oil and gas reserves.'
Haresh Kanabar, Chairman of Silentpoint PLC, added:
'Cambrian Oil & Gas has a focused strategy and the incoming management team
have been active in Kyrgyzstan for over five years and have established a
strong presence in the country through their early involvement. We believe that
the reversal of the business into Silvermines will deliver further benefits
which will enable it to maximize the full potential of the opportunities in the
resources sector.'
For further information:
Silentpoint plc
Haresh Kanabar, Chairman 07802 858893
Smit Berry, Chief Executive 020 8656 4648
Background
The announcement released by Silvermines includes details regarding the
proposed acquisition of the entire issued share capital of Zhibek Resources Plc
('Zhibek'), an independent oil and gas company operating in Kyrgyzstan, part
owned by Cambrian Mining PLC.
The proposed acquisition constitutes a reverse takeover for Silvermines
pursuant to the AIM Rules and is therefore subject to the approval of
Silvermines' shareholders at an extraordinary general meeting.
It is also proposed that the name of Silvermines be changed to Cambrian Oil &
Gas Plc and that trading in the enlarged share capital is expected to begin
during the first week of March (AIM: COIL).
Under the proposals, Silvermines will enter the field of investment in oil and
gas exploration and development, through the acquisition of Zhibek, the
existing business of which will be continued and developed. This will bring
with it not only the oil and gas exploration and production, but also a
continuing relationship with Cambrian Mining PLC, which, on implementation of
the proposals, has agreed to offer all of its potential future opportunities in
oil and gas interests to Cambrian Oil & Gas Plc in the first instance.
In addition, the announcement details that Silvermines has concluded a placing
which has raised £2.25 million, before expenses, for the enlarged company.
Silentpoint is pleased to report that it subscribed £100,000 for 2,000,000
shares in Silvermines pursuant to the placing, alongside Cambrian Mining PLC
which invested £500,000 in the placing.
Following completion of the transaction, Silentpoint will hold 11,280,000
shares representing 10.4 per cent. of the issued share capital of Silvermines
and 3,093,333 warrants.
The full text of the announcement released by Silvermines today is reproduced
below.
For immediate release: 4 February 2005
Silvermines Media Plc
('Silvermines' or 'the Company')
Proposed Acquisition of Zhibek Resources Plc
Approval of waiver to be granted by the Panel on Takeovers and Mergers
Proposed change of name to Cambrian Oil & Gas Plc
Placing of 45,000,000 Ordinary Shares of 1p each at 5p per share
Proposed issue of Warrants
Silvermines to hold Extraordinary General Meeting on 28 February 2005
Key Highlights
* Silvermines has conditionally agreed to acquire the entire issued share
capital of Zhibek in consideration for the issue of 40,000,000 Ordinary
Shares at 5p each and the proposed issue of 13,333,333 Warrants
* At a closing mid-market price of 7.5p per Ordinary Share on 26 January
2005, the date on which the Ordinary Shares were suspended from trading on
AIM, the acquisition values Zhibek at £3 million and Silvermines at £1.7
million
* Placing through W.H. Ireland to raise £2.25 million gross (£1.95 million
net) for working capital for the Enlarged Group
* Proposed change of name to Cambrian Oil and Gas Plc
* Under the AIM rules, the acquisition constitutes a reverse takeover and
requires shareholder approval at an EGM
* The Directors and major shareholders, representing approximately 69 per
cent. of the existing Ordinary Shares in Silvermines, have irrevocably
undertaken to vote in favour of the proposed Resolutions
* Enlarged Group will comprise the oil and gas exploration and development
assets of Zhibek, currently located primarily in the Kyrgyz Republic
Full details of the Proposals are attached
Copies of the Admission Document posted to Shareholders today are available
from W.H. Ireland, 26 Bennetts Hill, Birmingham B2 5QP. Suspension of the
existing Ordinary Shares is expected to be lifted following publication of this
announcement.
For further information please contact:
WH Ireland Silvermines Media PLC Parkgreen Communications
Tim Cofman-Nicoresti Paul Mc Groary, Chief Justine Howarth / Victoria
Executive Thomas
+44 (0) 121 665 4615 +44 (0) 7930 568 160 +44 (0) 20 7493 3713
SILVERMINES MEDIA PLC ('Silvermines' or the 'Company')
Proposed Acquisition of Zhibek Resources Plc
Approval of waiver to be granted by the Panel on Takeovers and Mergers
Proposed change of name to Cambrian Oil & Gas Plc
Placing of 45,000,000 Ordinary Shares of 1p each at 5p per share
Proposed issue of Warrants
W.H. Ireland Limited
Nominated Adviser and Broker
The Board of Silvermines today announces that the Company has conditionally
agreed to acquire the entire issued share capital of Zhibek (including all
outstanding convertible securities) in consideration for the issue of
40,000,000 Ordinary Shares and 13,333,333 Warrants. As of 26 January 2005
(being the date on which the Ordinary Shares were suspended from trading on
AIM) the closing mid market price of an Ordinary Share was 7.5p, valuing Zhibek
at approximately £3 million and Silvermines at approximately £1.7 million.
The Company has also conditionally raised £1.95 million, net of expenses, by
way of the Placing which is being undertaken in order to provide working
capital for the Enlarged Group.
The Consideration Shares will represent 37 per cent. of the Enlarged Share
Capital and in view of the size of Zhibek relative to the Company, the
Acquisition will constitute a reverse takeover of Silvermines under the AIM
Rules and therefore requires the prior approval of Shareholders at an
Extraordinary General Meeting. In conjunction with the Acquisition, Silvermines
proposes to change its name to Cambrian Oil & Gas Plc.
Additionally, because the members of the Concert Party (comprising certain of
the Zhibek shareholders and associated parties) will own more than 30 per cent.
of its Enlarged Share Capital as a result of the Acquisition and the
participation of Cambrian in the Placing, the Company is seeking a waiver under
Rule 9 of the City Code, which would otherwise require the members of the
Concert Party to offer to acquire those Ordinary Shares that they do not own. A
proposal seeking Shareholder approval for such a waiver is included in the
notice of the Extraordinary General Meeting set out at the end of the Admission
Document which has been posted to Shareholders today.
BUSINESS AND STRATEGY
The share capital of Silvermines was admitted to trading on AIM on 15 July
2004. The prospectus issued by it at that time stated that the Directors
intended to seek acquisition and investment opportunities in the media,
advertising and marketing sectors. However, whilst the Directors believed that
there were a number of opportunities for such investment, the strengthening in
the advertising sector has, in the opinion of the Directors, caused an increase
in price expectations such that the Directors have been unable to find
investments of the appropriate quality at a price which the Board was prepared
to sanction. Accordingly, the Directors have looked at other business sectors
for opportunities which they consider capable of providing an appropriate
return on investment.
Under the Proposals, the Company will enter the field of investment in oil and
gas exploration and development, through the acquisition of Zhibek, the
existing business of which will be continued and developed. This will bring
with it not only the oil and gas exploration and production interests described
in Part II below, but also a continuing relationship with Cambrian, which, on
implementation of the Proposals, will have an interest in 27 per cent. of the
Enlarged Share Capital and which has agreed to offer all of its potential
future opportunities in oil and gas interests to the Company in the first
instance.
Cambrian's principal business is the exploration for and development of mineral
deposits. However, because Cambrian is actively looking at investment
opportunities in a number of countries that also have oil and gas reserves, its
directors often become aware of opportunities to invest in the exploration and
development of such assets. The Directors and Proposed Directors therefore
believe that the Proposals will enable the Enlarged Group access to a number of
further investment opportunities.
DIRECTORS AND PROPOSED DIRECTORS
The Board currently comprises three Directors as follows:
Smit Berry (aged 35) Non-Executive Chairman
Smit is the founder of Equitylink Limited, a publisher of two investment
newsletters which provide research on fully listed and AIM stocks across a
variety of industry classifications. He is Chief Executive of Silentpoint plc
and, until March 2004, served as a non-executive director of Knowledge
Technology Solutions PLC which he co-founded in 1999. Smit obtained a BEng
(Hons) in Computing Science from Imperial College, University of London in
1991.
Paul Mc Groary (aged 47) Chief Executive
Paul is Chairman of Eyeconomy Holdings PLC, an OFEX traded company which
invests in knowledge based companies. He was until March 2004 commercial
director of Knowledge Technology Solutions PLC, an AIM quoted publisher of
market data solutions on a subscription basis, which he helped to found in
1999. He was formerly Chairman of Latin American Copper PLC and is an active
investor in the mining industry including most recently taking a personal stake
in a prospective Canadian Uranium property. Paul in a personal capacity is a
serial investor in a number of private businesses.
Haresh Kanabar (aged 46) Finance Director
Haresh qualified as a certified accountant in 1986. Following a number of
finance positions with Fisons plc, Reed International plc and Texas Homecare
Limited he became finance director of F E Barber Limited, a subsidiary of
Hillsdown Holdings Limited, in 1994. In 1997 he was appointed group finance
director of Whitchurch Group Plc which he left in May 1998 to become finance
director of TMV Finance Limited. In December 1999 he left to join Corvus
Capital Inc. as chief executive, and in November 2002 he left to become finance
director of Gaming Insight plc. Haresh is also currently Chief Executive of
Blue Star Capital plc, non-executive Chairman of Greenfield Construction Group,
India Outsourcing Services plc and Silentpoint plc and executive director of
Bombay Restaurants plc, Knighteagle plc and Aurum Mining Plc. Haresh was also a
director of Spiritel plc until July 2004.
Immediately prior to Admission, Smit Berry and Haresh Kanabar will resign from
the Board, and Paul
Mc Groary will step down as Chief Executive to become a Non-Executive Director
of the Company.
Particulars of all service contracts with more than 12 months to run between
the Company and the Directors and the Proposed Directors are set out in the
Admission Document.
Save in respect of the executive Directors, Silvermines does not have any
employees.
Details of Proposed Directors
Upon completion of the Acquisition and Admission, the following directors of
Zhibek will join the Enlarged Group Board:
John Byrne (aged 55) Non-Executive Chairman
John is the Chairman of Western Canadian Coal Corporation and Chief Executive
Officer of Cambrian, and is also on the boards of a number of other companies
which are listed in Part XI of the Admission Document. John has more than 26
years experience in the resource industry as an investor and resource business
developer.
Neale Taylor (aged 62) Chief Executive
Neale B.Sc (Applied Geology, Hons), MS (Pet Eng), MBA FAICD has over 30 years'
technical, operating and commercial experience in oil and gas exploration and
production. Through his involvement with Esso Australia, Terra Gas Trader and
Nexus Energy, he has been involved in acquisitions, marketing and joint venture
management. He is a non-executive director of the ASX-listed company, Tap Oil
Ltd and of the AIM quoted company Zari Resources Plc. He is a member of the
Society of Petroleum Engineers and a Fellow of the Australian Institute of
Company Directors.
Jonathan Malins (aged 57) Non-Executive Director
Jonathan qualified as a Chartered Accountant in the early 1970s. After
qualification he founded his own accountancy firm and was in practice until
1982. From 1993 to date, he has run his own coal processing equipment supply
company predominately supplying equipment to Russia. Currently he is a
non-executive director of OreVest Plc, a manganese mining company which is
trading on OFEX, a non-executive director of the AIM listed Asia Energy Plc, a
coal mining and exploration company, as well as an executive director of AIM
listed Cambrian Mining Plc, a London-based mining finance house.
Jürgen Hendrich (aged 43) Executive Director
Jürgen gained his petroleum industry experience with Esso Australia over 12
years as a petroleum geologist before joining leading Australian private stock
broking firm, JB Were and Son, as their Energy Analyst in 1996. Following four
years in this role, Jürgen joined boutique equities fund manager BM Capital
Management as a senior investment analyst. In early 2001 he established his own
consulting company.
Ian Ennis (aged 63) Executive Director
Ian Grad. Dip. Mineral ProcTech. (Bendigo) was a founding director of Action
Hydrocarbons Limited and brings skills in international business development,
marketing, sourcing of opportunities and shareholder/joint venture relations.
He has managed oil and gold exploration programs in Australia, New Zealand, the
Philippines and the Kyrgyz Republic. He is involved in environmental technology
development, including the securing of USEPA grant funding for mine waste
research programs.
CURRENT TRADING
The Ordinary Shares of Silvermines were admitted to trading on AIM on 15 July
2004. At that time the Company had cash of £610,000 and no other significant
assets or liabilities. Since then, Silvermines' business has been solely to
look for an appropriate acquisition and as at 31 December 2004 it had cash of £
605,000. Following Completion, Silvermines will assume and undertake the
business of the Zhibek Group.
Silvermines' interim results were published on 30 December 2004 but have been
superseded by the information, including the Accountants' Report on
Silvermines, set out in the Admission Document.
CITY CODE ON TAKEOVERS AND MERGERS
The terms of the Proposals give rise to certain considerations under the City
Code. Brief details of the Panel, the City Code and the protections they afford
are described below.
The City Code has not, and does not seek to have, the force of law. It has,
however, been acknowledged by government and other regulatory authorities that
those who seek to take advantage of the facilities of the securities market in
the United Kingdom should conduct themselves in matters relating to takeovers
in accordance with high business standards and so according to the City Code.
The City Code is issued and administered by the Panel. The City Code applies to
all takeover and merger transactions, however effected, where the offeree
company is, inter alia, a listed or unlisted public company resident in the
United Kingdom. The Company is such a company and its shareholders are entitled
to the protection afforded by the City Code.
Rule 9 of the City Code is designed to prevent the acquisition of control of a
company to which the City Code applies without a general cash offer being made
to all shareholders of that company. Under Rule 9, a person who acquires,
whether by a series of transactions over a period of time or not, shares which
(taken together with shares held or acquired or acquired by persons acting in
concert with him) carry 30 per cent. or more of the voting rights of a company
is normally required by the Panel to make a general offer to all the
shareholders of that company to acquire the balance of the shares not held by
such person, or group of persons acting in concert, at the highest price paid
by him or them or any person acting in concert.
Rule 9 also provides, inter alia, that where any person, together with persons
acting in concert with him, holds shares carrying not less than 30 per cent.
but not more than 50 per cent. of a company's voting rights and such person, or
any person acting in concert with him, acquires additional shares which
increase his percentage of the voting rights in that company, such person is
normally required to make a general offer to all shareholders of that company
at not less than the highest price paid by him or them or any persons acting in
concert.
An offer under Rule 9 should be made in cash and at the highest price paid in
the preceding 12 months for any shares in the Company by the person required to
make the offer and/or any person acting in concert with him.
The City Code also provides that, where any person, together with persons
acting in concert with him, holds more than 50 per cent. of a company's voting
rights, no obligations will normally arise under Rule 9 to make a general offer
to all shareholders of that company, save as described below, from any
acquisitions by such person or any person acting in concert with him of any
further shares carrying voting rights in the company. However, the Panel will
regard as giving rise to an obligation to make an offer, the acquisition by a
single member of a concert party of shares sufficient to increase his
individual holding to 30 per cent. or more of a company's voting rights, or, if
he already holds more than 30 per cent. but less than 50 per cent., which
increases his percentage shareholding.
For the purposes of the City Code, a concert party arises where persons acting
in concert pursuant to an agreement or understanding (whether formal or
informal) actively co-operate, through the acquisition by them of shares in a
company, to obtain or consolidate control of a company, irrespective of whether
the holding or holdings give de facto control.
The Panel has determined that the members of the Concert Party are acting in
concert for the purposes of Rule 9 of the City Code.
Under Rule 9, unless a specific waiver is obtained from the Panel and the terms
of the Acquisition Agreement for the issue of Consideration Shares and Warrants
to members of the Concert Party together with any participation by the members
of the Concert Party in the Placing are approved by Shareholders on a poll, the
Concert Party would be obliged to make a mandatory cash offer for the entire
issued ordinary share capital of Silvermines since the Concert Party would hold
more than 30 per cent. of the voting rights in the Company. Your Board believes
that this consequence is not in the best interests of Silvermines or its
Shareholders.
The expected interests of the Concert Party in the share capital of Silvermines
following Admission are summarised below. The percentage of the Enlarged Share
Capital is calculated assuming only the Warrants and Options held by the
members of the Concert Party are exercised. The Warrants are exercisable, in
whole or in part, at any time up to 31 December 2006 and the Options are
exercisable at any time up to 1 March 2008.
Ordinary Warrants Options % Following % Assuming
Shares Admission exercise of
Concert Party
Warrants and
Options
Action 19,230,769 4,711,425 - 17.8 18.9
Cambrian 29,230,769 8,244,994 - 27.0 29.6
John Byrne - - 400,000 - 0.3
Neale Taylor - - 2,000,000 - 1.6
Jonathan - - 400,000 - 0.3
Malins
Jürgen 1,076,924 376,914 1,100,000 1.0 2.0
Hendrich
Ian Ennis - - 1,100,000 - 0.9
Alwyn Davey - - 300,000 - 0.2
Total 49,538,462 13,333,333 5,300,000 45.8 53.8
Immediately following the implementation of the Proposals, the members of the
Concert Party will own approximately 45.8 per cent. of the Company's issued
ordinary share capital (assuming members of the Concert Party do not exercise
any Warrants or Options).
In addition, pursuant to the exercise of the proposed Warrants and Options the
members of the Concert Party could receive up to a further 18,633,333 Ordinary
Shares. If all such Warrants and Options were exercised the members of the
Concert Party could be interested in up to 53.8 per cent. of the then further
enlarged share capital of the Company assuming that, prior to such exercise, no
further Ordinary Shares are issued.
The Panel has agreed, subject to the passing of Resolution 2 in the notice of
EGM by independent Shareholders on a poll, to waive the obligation to make a
general offer that would otherwise arise as a result of the Acquisition.
On the assumption that the Proposals are completed, that the Placing is fully
subscribed and that the members of the Concert Party exercise their Warrants
and Options in full, since the members of the Concert Party would hold more
than 50 per cent. of the Enlarged Share Capital of the Company, and so long as
they continue to be acting in concert, the members of the Concert Party would
be free to acquire any number of Ordinary Shares without incurring any
obligation under Rule 9 to make a general offer for the Company, so long as no
individual member of the Concert Party thereby becomes obligated to make a
general offer by increasing its/his individual shareholding to 30 per cent. or
more. Further details concerning the members of the Concert Party are set out
in Part II of this announcement.
SIGNIFICANT SHAREHOLDER
Cambrian and Action control voting rights in respect of 96.2 per cent. of
Zhibek's equity and following Admission will control 17.8 per cent. and 27 per
cent. respectively of the Enlarged Share Capital.
Cambrian has entered into a controlling shareholder agreement with the Company
and W.H. Ireland pursuant to the terms of which it has given certain
undertakings concerning the use of the shares controlled (directly or
indirectly) by them to the Company. Further details of this agreement are set
out in Part XI of the Admission Document.
LOCK-IN AGREEMENTS
All of the Directors (other than Messrs Kanabar and Berry who will step down
from the Board immediately prior to Admission), the Proposed Directors, Action
and Blue Mount Investments have entered into agreements not to dispose of any
interests in the securities of the Company within a 12 month period following
Admission, save in certain circumstances permitted by the AIM Rules, including
connection with a general or partial takeover offer. Cambrian has also agreed
to such restrictions in respect of the 19,230,769 Consideration Shares it will
receive pursuant to the Acquisition. Collectively, these lock-in arrangements
will relate to 40,538,462 Ordinary Shares, representing 37.5 per cent. of the
Enlarged Share Capital.
PRINCIPAL TERMS OF THE ACQUISITION
Under the terms of the Acquisition Agreement, the Company has conditionally
agreed to acquire the entire issued share capital of Zhibek and all outstanding
convertible securities in Zhibek in consideration for the issue to the Vendors
of the Consideration Shares and 13,333,333 Warrants. The Acquisition Agreement
is conditional, inter alia, on (i) the passing of Resolutions 1 and 2; (ii) the
Placing Agreement becoming unconditional in all respects (other than any
condition relating to completion of the Acquisition Agreement and Admission);
and (iii) Admission.
The Consideration Shares will represent 37 per cent. of the Enlarged Share
Capital of the Company and, upon their allotment, will rank pari passu in all
respects with the Existing Ordinary Shares and the Placing Shares. Upon
exercise of the Warrants to be issued as part of the Consideration, the members
of the Concert Party could control up to 53.8 per cent. of the Enlarged Share
Capital of the Company.
In addition, Cambrian has agreed that it will not acquire any further interests
in oil and gas exploration and development and will offer the Company the right
of first refusal for any such opportunities.
CHANGE OF NAME
The name of the Company will be changed to Cambrian Oil & Gas Plc, conditional
upon the passing of Resolution 3 by the Shareholders and completion of the
Acquisition.
DETAILS OF THE PLACING
The Company is seeking to raise £2.25 million by the issue of up to 45,000,000
Ordinary Shares at 5p per share pursuant to the Placing, to provide working
capital for the Enlarged Group. The Placing Shares will, following Admission,
rank pari passu in all respects with the Existing Ordinary Shares and the
Consideration Shares.
The Company, the Directors and the Proposed Directors have entered into the
Placing Agreement with W.H. Ireland. The Placing is not being underwritten. The
Placing Shares have been conditionally placed with institutional and other
investors. The Placing is conditional inter alia upon the Placing Agreement
becoming unconditional and not having been terminated in accordance with its
terms, and Admission becoming effective on 1 March 2005 (or such later time and
date as the Company and W.H. Ireland may agree). Cambrian, Silentpoint and
Eyeconomy have agreed to subscribe for 10,000,000, 2,000,000 and 2,000,000
Placing Shares respectively.
ISSUE OF WARRANTS
Pursuant to the terms of the Warrant Instrument, in addition to the 13,333,333
Warrants to be issued to the Vendors as part of the Consideration, a further
7,705,000 Warrants have been issued, conditional upon Admission, to those
Shareholders on the register as at the Record Date on the basis of 1 Warrant
for every 3 Ordinary Shares then held. There will be no entitlement to
fractions of Warrants, which will be aggregated and will be issued at the
discretion of the Board.
The Warrants are exercisable in whole or in part at any time up to 31 December
2006. The exercise price of the Warrants will be 7p, which represents a
discount of 6.6 per cent. to the closing price of the Ordinary Shares on 26
January 2005 (being the date on which the Ordinary Shares were suspended from
trading on AIM). The Warrants are transferable but will not be admitted to
trading on AIM.
DIVIDEND POLICY
The Enlarged Group is initially seeking to achieve capital growth for its
Shareholders. It is not the present
intention to pay a dividend.
EXTRAORDINARY GENERAL MEETING
A notice is set out at the end of the Admission Document convening an
Extraordinary General Meeting to be held at 10.00 a.m. on 28 February 2005 at
Lawrence Graham LLP, 190 Strand, London WC2R 1JN.
As the Acquisition constitutes a reverse takeover, Shareholder approval of the
Acquisition, as set out in Resolution 1, is required under the AIM Rules. In
accordance with the requirements of the Panel for granting a waiver of the
requirement for the Concert Party to make a general offer under Rule 9 of the
City Code, Resolution 2 is required to approve the Waiver and will be taken on
a poll. Pursuant to Resolution 3 it is proposed to change the name of the
Company to Cambrian Oil & Gas PLC.
Resolution 1 is conditional on Resolution 2, and Resolution 3 is conditional on
completion of the Acquisition.
Undertakings to vote in favour of the Resolutions have been given by each of
the Directors, Silentpoint and
Eyeconomy in respect of all the Ordinary Shares held by them amounting to
16,000,000 Ordinary Shares in
aggregate (representing 69.2 per cent. of the existing Ordinary Shares).
FURTHER INFORMATION
Your attention is drawn to the Admission Document, which provides additional
information on the matters discussed above.
RECOMMENDATION OF THE DIRECTORS
The Directors, who have been so advised by W.H. Ireland, consider that the
terms of the Proposals and the Waiver are fair and reasonable and in the best
interests of the Company and Shareholders as a whole. In providing advice to
the Board, W.H. Ireland has taken into account the Directors' commercial
assessments. Accordingly, the Directors unanimously recommend Shareholders to
vote in favour of the Resolutions as they themselves have undertaken to do in
respect of their own beneficial holdings which amount, in aggregate, to
3,000,000 Ordinary Shares, representing approximately 13 per cent. of the
existing Ordinary Shares.
PART II
INFORMATION ON ZHIBEK
INTRODUCTION
Zhibek was formed as a joint venture between Action and Cambrian in February
2004, for the purpose of conducting oil exploration, development and production
activities in Central Asia and FSU countries.
Since its formation, Zhibek has acquired a number of oil production and
exploration interests in the Kyrgyz Republic from Action and Cambrian has
provided initial funding to Zhibek as seed capital for which it has been issued
ordinary shares and warrants in Zhibek.
Zhibek holds the following existing oil and gas assets in the Kyrgyz Republic:
• Beshkent-Togap Water Injection Project - a 50 per cent. participating
interest in a water injection project being commissioned on the Beshkent-Togap
Oil Field in the south-western region of the Kyrgyz Republic; and
• Tash Kumyr Exploration Project - a 72 per cent. interest in CJSC KNG
Hydrocarbons, which holds the Tash Kumyr exploration licence NG-72-00 over an
area in close proximity to the major producing oil fields of the Kyrgyz
Republic. Previous work in the Licence Area has matured one prospect, at South
Karagundai, to near-drilling status. The Enlarged Group plans to drill this
prospect in late 2005 and to upgrade already identified adjoining prospects and
leads. The Directors and Proposed Directors envisage, once a second well
location has been identified, and assuming sufficient funds are available that
drilling will immediately follow drilling of the initial well at South
Karagundai.
In each case Zhibek's partner in these projects is KNG, the state controlled
oil and gas company and the Directors and Proposed Directors believe that the
successful conclusion of the above projects will enhance Zhibek's existing
relationship with KNG and lead to the introduction of the Enlarged Group to
other interesting projects within the Kyrgyz Republic.
The Kyrgyz Republic
The Kyrgyz Republic, formerly part of the USSR, is a landlocked mountainous
country in Central Asia covering approximately 198,500 square kilometres. It
borders Kazakhstan to the north, China to the east, Uzbekistan to the west and
Tajikistan to the south. Approximately 94 per cent. of the country has an
elevation over 1,000 metres above sea level, with approximately 40 per cent.
over 3,000 metres above sea level. Bishkek is the capital city and is situated
in the northern part of the country with Osh, the second largest city, located
in the south.
The population of the Kyrgyz Republic is estimated at approximately 5.1
million, with Russian and Kyrgyz being the official languages.
The Kyrgyz Republic became independent in August 1991. The country is a
republic with a constitution that was adopted in May 1993. The head of state is
the President, elected through nationwide elections. The Government of the
Kyrgyz Republic ('the Kyrgyz Government') is the supreme body of executive
power and consists of a Prime Minister, Vice-Prime Ministers, Ministers and
Chairman of State Committees. The supreme legislative body is the Jogorku
Kenesh (Parliament), which consists of two chambers. The supreme body of
judicial power is the Supreme Court of the Kyrgyz Republic.
Beshkent-Togap Oil Field
The Beshkent-Togap Oil Field is located in the south-western region of the
Kyrgyz Republic. The field is approximately 14 kilometres long and 2 kilometres
wide and is situated approximately 300 kilometres west of the Kyrgyz oil
refinery at Jalal Abad and approximately 200 kilometres southwest of the
Uzbekistan oil refinery in the city of Fergana.
The Beshkent-Togap Oil Field was formed by a series of deepening fault blocks
created in Palaeogene sediments structured against a regional thrust fault and
uplifted against a localised high of older Palaeozoic rocks.
Drilling commenced on the Beshkent-Togap Oil Field in the late 1970s.
Currently, there are 43 and 28 producing wells in the Beshkent and Togap areas
of the field respectively. The Beshkent-Togap Oil Field is located amongst a
number of producing oil fields in the south-western region of the Kyrgyz
Republic. Kyrgyzneftegas has an operating workforce and operations have been
conducted at Beshkent since 1977. Numerous access roads and tracks provide
access to existing wells and facilities.
Electricity is supplied to all wells in the field by multiple grids controlled
and maintained by Kyrgyzneftegas. Crude oil production is collected by an
extensive field gathering system and pumped through a 15 kilometre pipeline to
Kyrgyzneftegas' treatment plant at Karakchikum in the Fergana Valley. It is
then trucked a distance of 10 kilometres to a rail siding in the town of Mahram
and transported by rail 250 kilometres to the Kyrgyz Petroleum Company's oil
refinery in the city of Jalal Abad.
A pilot water injection scheme was initiated in the Togap area in December
1988. Although the pilot scheme produced an almost immediate response of
increased oil production, the planned water injection capacity was not
maintained due to injection well plugging and lack of funding. Major injection
stopped in 1990-91 following the collapse of the FSU. No water is currently
being injected.
Under the terms of the Beshkent-Togap Agreement, which is summarised in Part XI
of the Admission Document, Zhibek must design and fund a pilot project, to be
agreed with KNG, prior to committing to further expansion of the project across
the whole field. The parties have agreed to a pilot project design and to
establish initial oil production rates for each well in the pilot area in the
period immediately prior to the start of water injection. Forecasts will also
be agreed on the applicable rates of oil production decline. This data will be
used to determine incremental production from the project.
It is expected that increased oil production should be achieved within a few
months of the injection of material volumes of water into the reservoir. Once
improved recovery potential has been verified, the pilot project will be
reproduced in modular stages across the entire field.
Work on the agreed project has been initiated and Kyrgyzneftegas has drilled a
water source well for the project. Equipment has been purchased and is being
installed with water injection planned to start in Q1 2005.
The Directors and the Proposed Directors believe that a well designed and
sustained water injection project can raise the ultimate recovery from an
estimated 500,000 barrels to 2.3 million barrels with a possible upside of 7.1
million barrels. The current pilot program is designed to assess the response
to selective and sustained injection. Results from the pilot program will be
used to design an optimal expansion for water injection into the whole field.
Application of additional technologies such as stimulation techniques,
including acidisation, polymer injection and mini-fracturing, will also be
considered.
Tash Kumyr Licence Area
The Tash Kumyr Licence Area is located adjacent to existing oil and gas
production operations mostly controlled and operated by KNG. These operations
date back over 50 years. During the Soviet era, substantial infrastructure was
built up around the southern and eastern margins of the Fergana Basin petroleum
province. KNG's operations include a major oil and gas gathering system and
storage facilities at the Mailisu 4 Oil Field, located approximately 40
kilometres from the South Karagundai prospect. The Mailisu 4 Oil Field system
is connected by pipeline to the Jalal Abad oil refinery further to the south.
The nearest production operations are currently conducted at the smaller
Mailisai Oil Field which is approximately seven kilometres from the South
Karagundai location.
The Bishkek-Osh Highway crosses the Licence Area and links this area to the
northern and southern regions of the Kyrgyz Republic. A series of unsealed
roads and tracks provide access to and within most of the Licence Area. There
is reasonable access to most of the South Karagundai site and a geochemical
survey has been successfully conducted over most of the Licence Area. A railway
line passes approximately ten kilometres from South Karagundai and may be used
to transport oil to the Jalal Abad oil refinery. Coal mining and petroleum
industry activities are conducted in close proximity.
The Tash Kumyr Licence Area extends over 840 square kilometres. It is located
in close proximity to the main producing fields in the Kyrgyz Republic,
including Mailisu, East Izbaskent and Izbaskent. Several small fields are also
found in immediately adjacent areas.
A number of prospects and leads have been identified in the Licence Area, the
largest being South Karagundai. The prospect is well positioned near existing
infrastructure including an electricity supply grid that crosses the prospect
area, a rail head approximately 10 kilometres away and an oil pipeline at the
Mailisu 4 Oil Field which is connected to the refinery at Jalal Abad.
A recent geochemical survey, using GORE-SORBERTM technology, has shown
hydrocarbon type anomalies that occur with the seismically mapped subsurface
structures at South Karangundai and Shink Sai.
The competent person's report set out in Part IV of the Admission Document,
estimates that there is a 1:2 to 1:3 chance of discovering at least 20 MB of
recoverable oil in the Tash Kumyr Licence Area at a relatively low testing
cost. The target area includes a number of sub-structures, all of which are
capable of trapping oil in up to three Pay Beds. Each Pay Bed has the potential
for up to 20 MB recoverable oil.
Success in only one Pay Bed in the main South Karagundai sub-structure is
assumed for the Enlarged Group's business plan.
A substantial upside of up to 60 MB of recoverable oil exists for the main
substructure if oil is found in the three target Pay Beds as occurs in the
nearby Izbashkent field. If the oil is discovered in multiple Pay Beds in the
smaller adjoining sub structures then potential exists to further increase
recoverable oil volumes to above 60 MB of recoverable oil at the South
Karagundai prospect.
Although the Shink Sai prospect is less well defined by seismic and
geochemistry, the indicated structure is on trend with and of the same
structural fabric as a series of structures tracking back to the nearby Mailisu
4 Oil Field. Shink Sai is in a similar setting to South Karagundai where the
Palaeogene target Pay Beds have been mildly structured by the over-thrusting of
a flat layer of Mesozoic and Palaeozoic rocks.
Similar opportunities, including the Pishkaran lead, are believed to be
possible in a number of additional areas within Zhibek's Tash Kumyr Licence
Area. Geochemistry has indicated several positive anomalies where no seismic
control currently exists. These areas will be targeted for seismic and
geochemistry follow-up.
Additional seismic and geochemical surveys are currently in progress. The
results will be combined to identify potential targets for initial drilling in
the second half of 2005.
RESOURCE SUMMARY
Total Bishkent Topgap field project, 1.8 MB (upside to over six MB)
including pilot:
Tash Kumyr Exploration Prospect: 20 MB (upside to 60 MB if multiple Pay
Beds contain oil in the main South
Karagundai substructure with follow-up
potential in adjoining three smaller
substructures)
These statistics are only a summary of the detailed figures set out in the
competent person's report found in Part IV of the Admission Document and the
contents of the report should be read in full.
PLANNED BUSINESS DEVELOPMENT
The Enlarged Group plans to pursue new oil and gas exploration and developments
in the Kyrgyz Republic and other areas of the FSU; other areas and commodities
will also be considered. Cambrian Oil and Gas seeks to build a diversified
portfolio of oil and gas assets in a range of operating environments.
Zhibek is already holding discussions with a private Russian company for the
purpose of jointly funding a study team to identify and pursue oil and gas
exploration and development opportunities in the Russian Federation. The plan
envisages that recommended projects would be offered for joint participation by
both companies. Recommendation on a first project is planned for the end of the
first quarter of 2005.
MANAGEMENT
Biographical details of the Zhibek Directors, who will be joining the Enlarged
Group Board, are summarised in Part I of the Admission Document.
Kadyrkan Abdrakhmanov is the local general manager, and also acts as General
Director of CJSC KNG Hydrocarbons and CJSC Zhibek Hydrocarbons. Kadyrkan is a
Kyrgyz citizen with a technical and management background as a mining engineer.
The Enlarged Group intends to continue to retain the services of the existing
employees and may further expand staff numbers as the business develops.
FINANCIAL INFORMATION
Financial information on Zhibek and the two subsidiaries (CJSC KNG Hydrocarbons
and CJSC Zhibek Hydrocarbons) which it acquired from Action on 14 July 2004 is
set out in Part VI of the Admission Document. These reports show that at 30
June 2004, Zhibek had net assets of $381,159 and that CJSC KNG Hydrocarbons (in
which Zhibek has an 85 per cent. interest) and CJSC Zhibek Hydrocarbons had net
liabilities of $174,000 and $38,000 respectively.
CURRENT TRADING
In the six months to 30 October 2004 the Zhibek Group has incurred $180,000 of
expenditure on its projects.
SHAREHOLDERS
The shareholders of Zhibek, their current interests in Zhibek and their
potential interests in the share capital of the Company are set out below:
Current On Admission
Zhibek Zhibek Ordinary % of Warrants % of
Shares warrants Shares Enlarged Company's
Share Share
Capital Capital on
exercise
of Options
and
Warrants
Action 5,000,000 2,000,000 19,230,769 17.8 4,711,425 17.7
Cambrian 5,000,000 3,500,000 29,230,769 27.0 8,244,994 27.7
Blue Mount 280,000 160,000 1,076,924 1.0 376,914 1.1
Investments
International 120,000 - 461,538 0.4 - 0.3
Petroleum
Consulting
Pty Ltd
The Cambrian holding includes 10,000,000 Placing Shares for which Cambrian will
be subscribing for under the Placing.
Cambrian is an investment company which acquires stakes in emerging resource
companies and projects and assists in their financing and development. It is a
public company quoted on AIM and at close of business on 2 February 2005, the
last practical date before publication of the Admission Document, it had a
market capitalisation of approximately £162.3 million. In the year ended 30
June 2004, the last reported results of Cambrian state that it made a loss of £
89,000 from its income in investments and at the period end it had the
following net assets:
As at As at
30 June 30 June
2004 2003
£'000 £'000
Tangible fixed assets
Investments 7,960 3,084
Current assets
Investments 24 159
Debtors 1,611 383
Cash at bank and in hand 1,312 47
2,947 589
Creditors: amounts falling due within one year 815 306
Net current assets 2,132 283
Total assets less current liabilities 10,092 3,367
Creditors: amounts falling due after more than one - 565
year
Net assets 10,092 2,802
Capital and reserves
Called up share capital 6,885 2,590
Share premium account 3,200 111
Profit and loss account 7 101
Shareholders' funds 10,092 2,802
Action is an unlisted Australian public company with more than 50 shareholders,
one of whom, Charles Hider, together with his associates, controls 37.85 per
cent. of the voting rights. Charles Hider is formerly Chairman of Partners of
Rigby Cooke Solicitors, Melbourne. He has been a Barrister and Solicitor of the
Supreme Court of Victoria since 1959 and has extensive international legal,
commercial and negotiating experience in respect of technology and resources.
He was a member of the Victorian Parliament for 10 years. Mr Hider is currently
practicing as a consultant lawyer with primary emphasis on developing
innovative technologies, resources and corporate strategy. In the year ended 30
June 2003, Action had losses of AS$61,629 and at the period end it had net
assets of AS$0.7 million comprising principally costs carried forward in
respect of areas of interest in exploration and evaluation phases AS$0.9
million, debtors AS$0.2 million and cash AS$0.01 million.
Jürgen Hendrich, who is beneficially interested in the entire issued share
capital of Blue Mount Investments, is one of the Proposed Directors, and
details of his CV are summarised in Part I above. Blue Mount Investments is a
non-trading investment holding company. International Petroleum Consulting Pty
Ltd is a consulting services business based in Australia. Its holding in Action
arose in connection with a fee for the introduction of Action to Cambrian.
PART III
REGULATORY ENVIRONMENT
The mining laws of the Kyrgyz Republic are contained in a document published in
Bishkek on 2 July 1997 (No.42) and amended on 21 July 1999 (No.82), and again
on 4 February 2002 (No.23). It was approved by President A. Akaev and adopted
by the Legislative Assembly of Jogorku Kenesh of the Kyrgyz Republic on 24 June
1997. The document is entitled the 'Law of the Kyrgyz Republic on Subsoil' and
contains a total of 47 articles. A summary of pertinent information regarding
licensing, exploration, development, exploitation and environmental issues is
provided below.
The Law of the Kyrgyz Republic on Subsoil allows local and foreign companies to
explore, develop, and mine properties in the Kyrgyz Republic. There are some
restrictions on the use of subsoil in instances where there is a threat to the
lives and health of people, or which may cause damage to economic objects and
the environment. The Kyrgyz Government sets the upper and lower limits for
exploration/development expenditures per unit of licensed area.
The area licensed to CJSC KNG Hydrocarbons is licensed to it pursuant to an
exploration licence which is valid until 31 December 2005. The licence may be
renewed for an additional 10 years from the original date of grant (i.e 22 July
2013) provided that all necessary conditions have been met. Annual reports,
including the total expenditures incurred and development plans for the next
year, must be submitted to the authorised state body of the Kyrgyz Republic.
With respect to any mining operation, the licensee is granted a 20 year period
in which to undertake construction and exploitation, with subsequent extensions
granted if necessary. These regulations apply to petroleum operations as well
as mining operations.
A licensee may have its licence suspended for up to 3 months in the event that:
(i) the resource user uses subsoil resources for a purpose other than the
purpose for which such rights were granted, (ii) the resource user violates the
conditions set out in the relevant licence agreement or (iii) a force majeure
event occurs. The license may be terminated in the following situations: (i)
upon the completion of geological exploration or the exhaustion of reserves or
the liquidation of the enterprise conducting operations, (ii) upon the use of
technology in the course of project development that threatens the health or
safety of workers or of the population, and also causes harm to the environment
and the deposit, (iii) if the resources user fails to present its technical
programme for the conduct of work within the period set out in the licence
agreement, (iv) if the resource user in the course of more than one year from
the date of licence issuance fails to begin operations on the scale set out in
the licence or (v) if the resources user voluntarily refuses to conduct subsoil
use operations or upon the expiration of the validity of a licence.
Foreigners are guaranteed the right to repatriation of capital and the right to
export the profit, or a part of it, in the form of foreign currency or the
product received by recovery or processing of any raw minerals, including gold.
Foreigners may also recover groundwater for their own needs. A licensee must
protect the subsoil, comply with permissible norms of impact on the physical
and biological state of the environment and make timely and accurate payments
for the use of the subsoil.
Where any hydrocarbon product is sold or exported, the licensee must notify the
National Bank of the Kyrgyz Republic, or any other agency authorised by the
Kyrgyz Government, in advance and must grant these agencies the first right of
refusal to buy all or part of the hydrocarbon product regardless of whether it
has been refined within the Kyrgyz Republic.
Subsoil users must make agreements with the holder of the land rights for the
use of the land plots. If a holder of land rights intends to change his
irrigation or other systems for agricultural means, and such measures may
affect the geological surveying or mining works, then he must obtain permission
from the government agency for subsoil use. Where an agreement cannot be
reached between the subsoil user and the holder of the land rights, the court
will make the final decision on the dispute.
When a project is at a more advanced stage of final feasibility and
pre-production, the licensee must take measures to preserve the life, health
and safety of the employees and of the local population in the relevant area.
The subsoil users and the appropriate government agencies must ensure
compliance with legislation and safety standards according to normal practice
and the rules set out by the Kyrgyz Government. Subsoil users who have received
the right to develop the subsoil areas must present financial guarantees for
the restoration of the damaged environment, the terms of which are governed by
regulations approved by the Kyrgyz Government.
Exploration and development enterprises are subject to Section VI, Article 41
of the tax legislation of the Kyrgyz Republic. This article also states that
payments for subsoil use include the following:
• payment for subsoil use (bonus);
• payment for subsoil use (royalty); and
• other payments required by the legislation of the Kyrgyz Republic.
The Law of the Kyrgyz Republic 'On Oil and Gas' No 77 dated 8 June 1998
contains substantially the same provisions in relation to oil and gas as the
Law of the Kyrgyz Republic 'On Subsoil', but the former is more detailed in
terms of the competences of the Government of the Kyrgyz Republic and local
administrative bodies to regulate, inter alia, the oil and gas industry, joint
or separate oil and gas ventures and protection of oil and gas consumers'
rights. In relation to the licensing procedure, the Law on Oil and Gas refers
to the Law of the Kyrgyz Republic 'On Licensing'.
The environmental laws in the Kyrgyz Republic are covered in the following
documents: The Law of the Kyrgyz Republic 'On Environment Protection', The Law
of the Kyrgyz Republic 'On Specially Protected Nature Territories', The Law of
the Kyrgyz Republic 'On Biosphere Territories' and The Law of Kyrgyz Republic
'On Atmospheric Air Protection'.
The Law of the Kyrgyz Republic 'On Environment Protection' became effective on
the date of its publication on 7 July 1999. In accordance with the Law on
Environment Protection both the land and its subsoil are subject to protection.
The Law on Environment Protection contains maximum levels of allowable
concentration of hazardous substances in the subsoil, as well as levels of
charges for natural resources use, pollutant emissions, hazardous effects and
placement of waste. The nature use charges consist of payments for the use of
natural resources and payments for environmental pollution and other negative
effects on nature. In addition a payment for the use of natural resources over
a fixed limit is established and, in respect of environmental pollution, a
charge of 1-2 soms for every ton of contaminant is imposed.
During their activities, business and other entities are obliged to observe
standard technical regimes, provide effective treatment facilities,
decontamination and recycling of waste, introduce environmentally safe
technologies and to provide protection and efficient subsoil use.
The Law of the Kyrgyz Republic 'On Specially Protected Nature Territories'
became effective on the date of its publication on 28 July 1994 and governs
procedures regarding the use of specially protected nature territories
including natural complexes having particular environmental, science, aesthetic
and sanitary meaning. Specially protected natural territories are given the
status of state reserves, state natural national parks, state sanctuaries,
state nature monuments, botanical gardens, dendrology parks, zoological gardens
or natural territories of sanitary meaning.
Geological exploration works and deposit development is prohibited on
territories of state reserves, state natural national parks and hydrogeological
sanctuaries. In relation to territories of state nature monuments, state
botanic gardens, dendrology and zoological parks, which are territories of
sanitary meaning, any activity threatening the safety of such land may be
prohibited.
The Law of the Kyrgyz Republic 'On Biosphere Territories' became effective on
the date of its publication on 25 June 1999. In accordance with the Law on
Biosphere Territories exploration works and deposit development on biosphere
territories is prohibited. Biosphere territories are established by the
Government of the Kyrgyz Republic for safety, ,reclamation and for the use of
natural territories with rich nature and/or cultural heritage.
The Law of Kyrgyz Republic 'On Atmospheric Air Protection' became effective on
the date of its publication on 25 June 1999. In accordance with the Law on
Atmospheric Air Protection extraction of the minerals and their processing must
be conducted in conjunction with the implementation of the measures in relation
to atmospheric air protection.
Business entities whose activities result in the emission of pollutants are
obliged to:
* establish control areas;
* take measures to decrease emissions;
* observe rules regarding exploitation of construction and cleaning
equipment;
* in accordance with established procedures, exercise control over observance
of the norms of maximum permissible emissions, keep records and submit
statistical reporting; and
* carry out evaluation of hazardous effect on environment and health of
population in the zone of pollutant objects.
In addition, under the Law on Atmospheric Air Protection, legal and physical
persons who are owners of the polluting objects are obliged to develop and
maintain an ecological passport of the enterprise.
The words and expressions used in this announcement shall have the same
meanings as in the Admission Document, unless the context otherwise requires.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Last time and date for receipt of Forms of Proxy 10.00 am on 26 February
2005
Extraordinary General Meeting 10.00 am on 28 February
2005
Completion date of the Acquisition 1 March 2005
Admission effective and dealings in Ordinary Shares 1 March 2005
(including New Ordinary Shares) expected to commence
on AIM
Expected date for CREST accounts to be credited (in 1 March 2005
respect of the Placing Shares)
Expected date for posting of the share certificates 8 March 2005
for the Placing Shares (where applicable)
ACQUISITION AND PLACING STATISTICS
Placing Price 5p
Mid market price per Ordinary Share on 26 January 2005 (being 7.5p
the date on which the Ordinary Shares were suspended from
trading on AIM)
Placing Price discount 33%
Number of existing Ordinary Shares in issue prior to the 23,115,000
Acquisition
Number of Consideration Shares being issued under the 40,000,000
Acquisition
Number of Placing Shares 45,000,000
Percentage of the enlarged issued share capital of the Company 45.8%
held by members of the Concert Party following completion of
the Proposals*
Number of Ordinary Shares in issue on Admission 108,115,000
Gross Proceeds of the Placing £2.25 million
Estimated net proceeds of the Placing receivable by the £1.95 million
Company
*Includes 10,000,000 Placing Shares to be subscribed by Cambrian pursuant to
the Placing.
Page 16
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