Conditional agreement, Australian gold subsidiary

Red Rock Resources plc

13 March 2024

 

Red Rock Resources PLC

("Red Rock" or the "Company")

Heads of Terms Signed

Conditional Agreement to take 100% ownership of Australian Gold Subsidiary

13 March 2024

Red Rock Resources Plc, the natural resource development company with interests in gold, base metals, battery metals, and hydrocarbons, principally in Africa and Australia, announces that it has entered into conditional Heads of Terms ("HoT"), under which it would, subject to due diligence and funding, board approval, and any shareholder approvals required, acquire the 49.9% beneficial interest in Red Rock Australasia Pty Ltd ("RRAL") not already owned, and would become the 100% beneficial owner of RRAL ("Acquisition"). The HoT is subject to board approval of both parties, shareholder and regulatory approval (as required), and is subject to contract.

Currently Red Rock owns 50.1% of New Ballarat Gold Corporation Plc ("NBGC"), and Power Metal Resources Plc (AIM:POW)("POW") owns 49.9% of NBGC. NBGC in turn acts as the holding company of RRAL, of which it owns 100%.

Under the Heads of Terms, Red Rock would upon fulfilment of the conditions, acquire the entire interest of POW in the share capital of NBGC, as well as the benefit of any shareholder loans of POW to NBGC or RRAL, for an aggregate consideration of £1,500,000 in fixed and contingent payments (the "Consideration").

The principal assets of RRAL are 16 gold exploration licences in the State of Victoria in Australia, together with some permitted areas of State land within them, totalling 2,517 sq km, and a 560 sq km licence in Southern Australia.  As Red Rock owns a controlling interest in NBGC, all relevant developments and information in relation thereto has been notified by Red Rock and details are provided on the Red Rock website in accordance with the AIM Rules.

Red Rock Chairman Andrew Bell states: "We have had a successful collaborative relationship with Power Metal Resources since we began the development of Red Rock Australasia into a company specialising in gold exploration in Victoria. Recent drilling results at Berringa have shown that the next step should be to push forward a process that could lead to early production, and the parties have decided that their interests will best be served at this stage by concentrating ownership in the hands of a single shareholder that can focus on these next stages of development.

If this transaction completes, it will enlarge Red Rock's gold footprint at a time when interest in advanced gold stories has increased as the gold price rises to new all-time highs". 

Since the completion of the proposed transaction is subject to the Conditions noted below, there can be no guarantee that the transaction will be completed. Most of the Consideration is payable in either cash or shares, and the Company will inter alia need to assure itself in the due diligence period, in the light of market conditions and other factors, that cash and other Consideration will be available over the next year on the terms and schedule provided in s5 of the HoT below. In addition the Company will need to provide, from itself or pre-IPO investors, funding for the future planned operations of RRAL. Although the Company expects to receive proceeds from DRC compensation, asset sales including sales of subsidiary interests and other external funding will be required in order for the Company to advance its projects. Full satisfaction of condition (a) below, Red Rock board approval, can only occur after conclusion of due diligence inquiries and compliance with the requirements of the AIM Rules set out in the section headed "Related Party Transaction" below. 

Principal terms of the proposed transaction:

1	Purchase and Sale	POW agrees to sell and Red Rock agrees to buy the entire interest of POW in the share capital of NBGC whose principal asset is a 100% holding in RRAL, on the terms and conditions set out below. RRAL holds 2,517 sq km of granted licences in Westen Australia and a 560 sq km granted licence in South Australia (together with the share capital of RRAL, the "Assets").
2	Consideration	The Consideration for the Purchase is the payment of £1,500,000 in fixed and contingent payments subject to the terms and conditions set out in this HoT and as described in the Payment schedule.
3	Conditions Precedent	The transaction is subject to (a) approval of the boards of both parties, (b) shareholder approval by shareholders of Red Rock of the issue of the Initial Share Consideration ("ISC"), (c) regulatory approval and compliance with the AIM Rules, (d) completion of due diligence by Red Rock ("Due Diligence"), (e) Red Rock confirming by the close of Due Diligence that it has access to funding required for the settlement of all amounts due on Completion and for the ongoing financing of NBGC and RRAL; and (f) the addition to this HoT, or the incorporation with the terms of the HoT in a new contractual document, of any additional terms found to be necessary for the completion and execution of the transaction.  Condition (a) shall be deemed satisfied upon written notice of approval given by each party; Condition (b) shall be deemed satisfied upon the passage by the shareholders of Red Rock of a resolution approving the ISC; Condition (c) shall be deemed satisfied upon the approval by the Nominated Adviser of each Party of RNS publication announcing the terms of this HoT, and relevant approval(s) and/or confirmation(s) by the AIM Regulation team and/or the Seller's Nomad that the Transaction does not constitute 'fundamental change of business' of the Seller as per AIM Rule 15. Conditions (d) and (e) shall be satisfied on receipt of written confirmation from Red Rock to POW ("Confirmation"); Condition (f) shall be deemed satisfied when each Party confirms in writing that it has no further comment on the terms.  It is the intention of the Parties that conditions (a), (c), and (f) should be satisfied within 7 days of Confirmation as defined above, and that Red Rock should have called a General Meeting if in the judgment of the Purchaser such meeting is desirable or required to authorise the ISC within that same period. Should all conditions precedent not be satisfied or agreed in writing by the parties to be waived within 13 weeks of the date of this HoT, the HoT shall be terminated.
4	Completion	Completion shall be effected within five days of the satisfaction of the Conditions Precedent (or, in the case of condition (b), its waiver by POW) by: (a) POW delivering its shares in NBGC to Red Rock with a signed transfer; (b) Red Rock delivering the Convertible Loan Notes ("CLNs") to POW; (c) Red Rock delivering upon their approval the ISC and accompanying warrants to POW. ("Completion" means completion of the Transaction in accordance with this paragraph 4).
5	Payment schedule	(a) Upon Completion, Red Rock will pay POW the CLN consideration, namely £250,000 to be settled by the issue of 250 Convertible Loan Notes of £1,000 which will be convertible to Shares at the price of any placement of new Shares to raise proceeds of over £200,000 gross to be carried out in the six months after their issue ("Placement"), and in the event no Placement occurs to be redeemed by a cash payment on a date six months after Completion; (b) Upon the approval by shareholders of Red Rock of the ISC, the payment by Red Rock to POW of £250,000 to be settled by the issue of 166,666,667 new Ordinary Shares of Red Rock ("Shares") at a price of 0.15 pence per Share, or cash (at Red Rock's election) and 166,666,667 warrants each exercisable into one Share at a price of 0.25p per Share and exercisable during a period expiring 3 years after the date of their issue; (c) On the date two months after Completion, the payment by Red Rock to POW of £250,000 in cash; (d) The payment on each of the three following occasions by Red Rock to POW of £250,000 in cash or, at Red Rock's election, Shares in Red Rock to that value calculated by reference to the last 10 trading days' VWAP (volume-weighted average price), provided that if Shares are issued then accompanying warrants with a three year life and each converting into one Share at a 50% premium to the price of issue of the Shares will also be issued on the basis of one warrant for every two Shares issued: (1)   £250,000 on the date nine months after Completion; (2)   £250,000 on the confirmation by announcement by a regulatory news service or a declaration by a Qualified or Competent person (as those terms are defined in the AIM Rules) of a 20,000 oz gold or gold equivalent JORC Resource according to the JORC 2012 Code from within the boundaries of the current licence area or any future licence renewal(s) of that area or part thereof; (3)  £250,000 on the confirmation by announcement by a regulatory news service or a declaration by a Qualified or Competent person (as those terms are defined in the AIM Rules) of a 200,000 oz gold or gold equivalent JORC Resource according to the JORC 2012 Code from within the boundaries of the current licence area or any future licence renewals of that area or part thereof.
6	Other Terms	The transaction will be subject to the following additional terms: (a) Royalties: POW will retain the royalty interests namely a 0.75% GPR over the RRAL licence interests held as at the date of execution of this HoT or any current licence area renewed or the subject of a future disposal; (b) Performance Guarantee: Red Rock undertakes that for the next 12 months from the date of this HoT it will ensure: (1)  That RRAL retains the licences containing the old Berringa and Ajax mines in Victoria, Australia in good standing, subject to any requirement to surrender a portion of any licence upon the second or later anniversary of its grant; (2)  That where any licence expenditure and other commitments will not be satisfied and a reduced expenditure has not been agreed, or where licences (other than any situate in Western Australia) are to be surrendered (other than pursuant to 6(b)(2) above), POW will be given 3 months' notice of same by Red Rock prior to licence expiry and the option to acquire each such interest for A$1; (3)  That if Red Rock does not make any Consideration payments under 5 above within 3 business days of the due date, a Default may be declared by POW in writing to Red Rock, in which case interest will be charged at 2% per month or part thereof and Red Rock must cure the Default within 60 days, after which, provided the delay is not due to any event of force majeure, POW may reacquire its original 49.9% NBGC issued share capital for A$1 and a five year Note for an amount equivalent to any cash Consideration paid up to that date (and any cost incurred in licensing a small area of State land within EL007328); (4)  That no significant exploration interests of or controlling interest in Red Rock's group in Australia should be transferred out or disposed of or agreed to be so transferred or disposed by Red Rock to another Party without an opportunity being given to POW to match the terms offered by such other Party; and (5)  Should Red Rock dispose of any of the interests currently held by NBGC / RRAL within 12 months 15% of disposal proceeds after agreed costs will be payable to POW, or 5% in months 13-24. (6)  So long as any of the payments set out in 5(a) to (c), and 5(d)(1) remain outstanding, any disposal under 6(b)(5) above shall be subject to prior written agreement of POW, such consent not to be unreasonably withheld.  (7)  The obligations of Red Rock under 5(d)(2) and (3) shall not be extinguished by any disposal under 6(b)(5) above, except with the written agreement of POW. (c) Aggregate Consideration:  The Parties agree that the aggregate consideration payable to the Seller pursuant to this HoT shall not exceed 74.9% of the market capitalisation of the Seller as at the date of this HoT, using the mid-market closing price of ordinary shares of the Seller on the trading day immediately prior to the date of this HoT. (d) Other (1)  Unless otherwise agreed by the Parties, Due Diligence will be completed by Friday 19th April 2024. (2)  From the date of execution of this HoT or the Long Stop Date, whichever shall be sooner, until Completion, each Party will contribute A$20,000 per month towards the costs of RRAL, with any further costs to that date being met by Red Rock.
7	Warranties	Each Party represents and warrants that: (a) incorporation: it is a corporation incorporated (or taken to be incorporated) or registered and validly existing under laws of the jurisdiction in which it is domiciled. (b) corporate power: it has the corporate power to own its assets and to carry on its business as it is now being conducted. (c) authority: it has, other than as noted in this HoT, full power and authority to enter into and perform its obligations under this agreement. (d) authorisations: it has taken or will take all necessary action to authorise the execution, delivery and performance of this agreement in accordance with its terms; and (e) binding obligations: this HoT constitutes legal, valid and binding obligations and, subject to any necessary stamping and registration, is enforceable in accordance with its terms (subject to laws generally affecting creditors rights and to principles of equity); and POW warrants: (f)   Legal and beneficial owner; POW is the recognised legal and beneficial owner of the NBGC shares sold and no other Party has any claim or interest in them whatsoever.
8	Terms Binding	Upon fulfilment of the Conditions, this HoT will be legally binding on the Parties, but if requested by either Party, the Parties agree to enter into a formal sale and purchase agreement to more fully document the terms of the Transaction

Licences held by RRAL

Licence Number	Project Name	Area (km2)
EL007271	Buninyong	133
EL007281	Blue Chip	74
EL007282	Blue Sky	489
EL007285	Blue Ribbon	8
EL007327	Dereel	60
EL007385	Sardinia	4
EL007329	Kilmore	484
EL007301	Pitfield/Mt. Bute	85
EL007328	Blue Yonder	164
State land within EL007271 EL007505 EL007506 EL007507	-	[9] [9] [8]
EL007460	Kilmore West	325
EL007330	Daylesford	202
EL007294	Talbot	129
EL005535	Berringa	9 (228 net ha)
EL007756	Monmouth	22
State land within EL007327 EL007799	Dereel (2)	[3]
EL007826	Ballarat East	4
EL007460	Kilmore West	325
ELA2023/00017 (SA)	Upalinna	560
EL007540 (3 competing applications)	Outer Ballarat	142

Further information on NBGC and RRAL

NBGC and its wholly owned subsidiary RRAL ("Australian Subsidiaries") are accounted for as 50.1% subsidiaries of Red Rock and therefore their results and assets and liabilities are consolidated within the Red Rock consolidated accounts. The audited accounts of NBGC in the year to 30 September 2022 show a consolidated after tax loss of £351,891, consolidated equity of £(800,048) including a merger reserve of £(472,083), and amounts due to shareholders of £1,134,902, of which the amount due to POW is £481,575. The Red Rock audited accounts to 30 June 2023 ("Accounts"), as shown in Note 2. Segmental Analysis in relation to "Gold Exploration Australia", the net loss before tax from continuing operations of the Australian Subsidiaries was £(470,000). The net assets of the Australian Subsidiaries consolidated within the Accounts were £(1,052,642) (being on a 100% basis) and the non-controlling interest in relation thereto (which effectively is what is being purchased now under the Acquisition) was £(525,268). The current carrying value after writedowns of the Australian Subsidiaries in the books of Red Rock is £888,911. The current carrying value of the interests being acquired in the books of POW is £870,784.

Plans for Exploration post-Completion

During the Due Diligence period Red Rock will, assisted by professional experts, conduct a technical review of its Exploration Programme and of the Assets, and assess the market for prospects of the type and quality of the Assets comprising this proposed transaction.

Related Party Transaction

As Mr Sean Wade is a director of RRAL and is the sole executive Director of POW, the Acquisition is being treated as a Related Party Transaction for the purpose of the AIM Rules, Accordingly, the Directors of Red Rock, all of whom are independent of the Acquisition will consider, following the results of the Company's due diligence inquiries, and having consulted with the Company's Nominated Adviser, whether the terms of the Acquisition are fair and reasonable insofar as the Company's Shareholders are concerned.

The Company will report further on its plans for Exploration at the conclusion of the Due Diligence period.

For further information, please contact:

Andrew Bell 0207 747 9990                                                       Chairman Red Rock Resources Plc

Roland Cornish/ Rosalind Hill Abrahams 0207 628 3396           NOMAD Beaumont Cornish Limited

Bob Roberts 0203 8696081                                                        Broker Clear Capital Corporate Broking

This announcement contains inside information for the purposes of Article 7 of Regulation 2014/596/EU, which is part of domestic UK law pursuant to the Market Abuse (Amendment) (EU Exit) regulations (SI 2019/310) and is disclosed in accordance with the Company's obligations under Article 17.

Beaumont Cornish Limited ("Beaumont Cornish") is the Company's Nominated Adviser and is authorised and regulated by the FCA. Beaumont Cornish's responsibilities as the Company's Nominated Adviser, including a responsibility to advise and guide the Company on its responsibilities under the AIM Rules for Companies and AIM Rules for Nominated Advisers, are owed solely to the London Stock Exchange. Beaumont Cornish is not acting for and will not be responsible to any other persons for providing protections afforded to customers of Beaumont Cornish nor for advising them in relation to the proposed arrangements described in this announcement or any matter referred to in it.

 

END