Mineral Deposits Limited
TSX : MDM
ASX : MDL

Mineral Deposits Limited

June 19, 2011 21:00 ET

Mineral Deposits to Form Joint Venture With Eramet and Raise A$151 Million to Fund the Development of the Grande Cote Mineral Sands Project

MELBOURNE, AUSTRALIA--(Marketwire - June 19, 2011) - Mineral Deposits Limited (TSX:MDM)(ASX:MDL) -

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES

Highlights

  • Proposed joint venture with ERAMET ("Eramet") to combine Mineral Deposit's 90% interest in the Grande Côte Mineral Sands Project ("Grande Côte") and Eramet's Tyssedal titanium slag and iron plant in Norway
  • Proposed joint venture will create a globally significant vertically-integrated mineral sands player, secures offtake for the majority of Grande Côte's ilmenite production, provides a new future source of ilmenite for the Tyssedal plant (giving expansion and product diversification opportunities) and means the funding of Grande Côte development will be shared with a major mining group
  • Grande Côte capital cost estimate revised to US$516 million, largely due a new self-sufficient rail and port strategy and a greater contingency estimate; and annual operating costs now estimated at US$80 – 85 million, due largely to an increase in power and fuel costs
  • An equity raising comprising an accelerated non-renounceable pro-rata entitlement offer and institutional placement to raise approximately $151 million (the "Offer") is being undertaken to largely fund equity contributions to the joint venture which will primarily be used for the development of Grande Côte
  • The Offer will consist of a fully underwritten institutional entitlement offer to raise approximately A$68 million, a fully underwritten placement to raise approximately A$60 million and a retail entitlement offer to raise up to A$23 million

Joint venture with Eramet

Mineral Deposits Limited (TSX:MDM)(ASX:MDL) ("MDL" or the "Company"), is pleased to announce that it has entered into a Memorandum of Understanding ("MOU"), the key terms of which are summarised on page 5, with French mining and metallurgical group Eramet to form a strategic incorporated joint venture. Eramet is listed on the Euronext Paris with a market capitalisation of approximately €5.8 billion and a portfolio of global mining and smelting operations.

The proposed joint venture will consist of:

  • MDL's 90% interest in Grande Côte (with the balance held by the Republic of Senegal); and
  • Eramet's wholly-owned subsidiary Eramet Titanium & Iron ("ETI"), which holds a 100% interest in the Tyssedal titanium slag and iron plant in Norway ("Tyssedal Plant").

In accordance with the terms of the MOU, Eramet will also contribute US$30 million in cash and provide a US$45 million unsecured, subordinated debt facility to the joint venture company.

In announcing this landmark transaction for MDL, the Company's Executive Chairman, Nic Limb, said "This exciting transaction with Eramet will create a globally significant vertically-integrated player in the mineral sands sector. Combining Grande Côte and the Tyssedal Plant within the one entity secures off-take for the majority of Grande Côte's ilmenite and provides security of supply to the Tyssedal Plant, which will give rise to expansion and product diversification opportunities. In addition, funding for the development of Grande Côte will now be shared with Eramet, a major Paris-based global mining group, which also has significant mining experience in Africa.

"The geographic location of Grande Côte in Senegal on the west coast of Africa means it is well positioned to access pigment producers in Europe and North America. There is a growing trend of pigment producers in mature markets sourcing more of their feedstock from slag rather than ilmenite. This transaction provides access to the only available smelting operation in the region on attractive terms."

The joint venture will exist as a standalone incorporated entity in which MDL and Eramet will have equal rights in all material aspects in relation to the joint venture's operation. The joint venture will be governed by a Board of Directors consisting of six members, with each party nominating three directors each, and a Shareholders Agreement, which will stipulate that each party will hold equal voting rights and rights to future capital contributions and in respect of other mechanisms within the joint venture.

The capital structure of the joint venture is intended to consist of external debt funding of up to US$150 million (as agreed within the MOU) with the balance of capital contributed in equal shares by the joint venture partners. The joint venture is expected to be formally established in late September 2011.

The minimum equity contribution required of each of the joint venture partners under the MOU is approximately US$138 million. MDL intends to fund its minimum equity contribution via the Offer announced today. The majority of the joint venture's capital requirements relate to Grande Côte. ETI is expected to be a largely self-funded operation, with its forecast maintenance and expansionary capital expenditure expected to be primarily funded through its operating cash flows.

In preparing for the announcement today, MDL has undertaken due diligence investigations on each of the respective assets to be contributed to the joint venture, which investigations are continuing. The establishment of the joint venture is subject to some procedural conditions, including the negotiation, agreement and execution of formal documentation in relation to the joint venture, obtaining certain regulatory and contractual counterparty approvals and no material adverse changes occurring. Formal documentation is to be negotiated with execution expected to occur in late July 2011 and completion of the transaction scheduled to occur in late September 2011.

ETI and the Tyssedal Plant

Eramet's Tyssedal Plant currently produces approximately 200,000 tonnes per annum of sulphate TiO2 slag and approximately 110,000 tonnes per annum of high purity pig iron ("HPPI") as a significant co-product.

Approximately 345,000 tonnes of ilmenite (both rock and sand varieties) is used as feedstock in the Tyssedal Plant, primarily sourced from the Tellnes mine in Norway.

The Tyssedal Plant is located in Tyssedal, Norway approximately 180 kilometres south-east of Bergen and approximately 145 kilometres from Oslo. The Tyssedal Plant's location is highly beneficial to its operation for a number of reasons:

  • base load ilmenite has historically been sourced from the Tellnes hard-rock ilmenite mine located nearby in south-west Norway;
  • power is sourced from a nearby hydroelectric power plant as well as the local electricity grid;
  • it is located next to the Hardangar Fjord, which is positioned off the North Sea in the southern part of Norway, which allows for all shipping discharges and loads directly at the Tyssedal Plant; and
  • it is located in close proximity to the majority of its European-based customers.

Other than ilmenite, the Tyssedal Plant also uses approximately 115,000 tonnes per annum of coal, which is imported from Scotland and Poland.

Grande Côte update

Rather than utilise third party infrastructure as proposed under the Definitive Feasibility Study, a strategy of logistics self- sufficiency is now being pursued. A 25 year concession has been received from the Government of Senegal for largely exclusive use of an existing rail line which will be upgraded by MDL. When combined with a proposed 22 km rail spur from the Mineral Separation Plant, this will allow full rail of all products to the Dakar port. A concession is also being negotiated for a large area of land at the Dakar port for bulk storage and exclusive use of a mole for ship loading.

The capital cost estimate for Grande Côte has been revised to US$516 million, an increase from US$406 million in the Definitive Feasibility Study, due largely to:

  • US$55 million of additional infrastructure spend (now ˜US$75 million in total) associated with the new self-sufficient rail and port strategy – including a new 22 kilometre rail spur, existing rail refurbishment, owner locomotives and port storage and ship loading facilities;
  • US$18 million increase in the estimation/design allowance and contingency (now US$49 million in total);
  • US$11 million increase in the wet concentrator plant, due to equipment price increases and A$ appreciation; and
  • US$6 million cost of additional material removal in the start-up pond for increased flexibility.

The capital cost estimate is becoming increasingly robust as bids for substantial components of the build are being received.

In addition, annual operating costs for Grande Côte are now estimated at US$80-85 million, up from US$75 million in the Definitive Feasibility Study, due largely to:

  • US$11 million increase in power and fuel costs (due to higher assumed Heavy Fuel Oil price);
  • US$3 million increase in social and environmental costs;
  • offset by a US$9 million reduction in transportation costs due to the self-sufficient rail and port strategy.

Funding strategy for Grande Côte

For the purpose of funding the development of Grande Côte, proposed to be via equity contributions to the joint venture, an equity raising is being undertaken which comprises:

  • A 1 for 4 accelerated non-renounceable pro-rata entitlement offer ("Entitlement Offer"), consisting of a fully underwritten institutional entitlement offer to raise approximately A$68 million and a retail entitlement offer to raise up to A$23 million; and
  • A fully underwritten institutional placement to raise approximately A$60 million ("Placement").

The gross proceeds of the Offer will be utilised to fund:

  • MDL's share of the minimum required equity contributions to the joint venture, if it proceeds, which will primarily be used for funding the development of Grande Côte;
  • General working capital purposes; and
  • Costs associated with the Offer.

MDL's Chief Financial Officer1, Rick Sharp, said "This capital raising completes the funding strategy for Grande Côte. The proceeds of the raising, combined with existing resources will comfortably enable the Company to fund its equity contributions to the joint venture for the purpose of developing Grande Côte."

Details of the Offer

The Entitlement Offer will be made on the basis of 1 new MDL ordinary share for every 4 existing MDL ordinary shares held at 7:00 pm, Melbourne time, on 23 June 2011 ("Record Date").

The Entitlement Offer will raise approximately A$91 million at an issue price of A$6.00 per share. The Entitlement Offer will consist of an institutional component ("Institutional Entitlement Offer") and a retail component ("Retail Entitlement Offer").

The Entitlement Offer price of A$6.00 per share represents:

  • a 12.3% discount to the last closing price of MDL's share price on the ASX on 17 June 2011; and
  • a 10.1% discount to the theoretical ex-rights price ("TERP") of the Offer.

The Placement will raise approximately A$60 million with the Placement price to be determined by way of a bookbuild process ("Institutional Bookbuild") from an underwritten floor price of A$6.00 per share. The Institutional Bookbuild will also incorporate shares equal in number to entitlements not taken up by institutional shareholders and entitlements that would have been offered to ineligible institutional shareholders.

New shares issued in the Offer will rank equally with existing MDL ordinary shares.

Investors should refer to the ASX presentation including description of key risks which is attached to this ASX release.

1 As announced to the ASX on 20 June 2011, Rick Sharp is to be appointed CEO of MDL effective from 1 July 2011.

Key dates
Execution of MOUSaturday, 18 June
Institutional Offer opensMonday, 20 June
Institutional Offer closesTuesday, 21 June
Trading recommencesWednesday, 22 June
Record DateThursday, 23 June
Retail Offer opensMonday, 27 June
Retail Offer booklet dispatch completedMonday, 27 June
Institutional Offer settlementTuesday, 28 June
Institutional Offer allotment and tradingWednesday, 29 June
Retail Offer closesMonday, 11 July
Issue of New Shares under the Retail OfferMonday, 18 July
New Shares under the Retail Offer expected to commence tradingTuesday, 19 July
Expected completion of joint ventureFriday, 30 September

The above timetable is indicative only. References to time and date are references to time in Melbourne, Australia. MDL reserves the right to amend any or all of these events, dates and times subject to the Corporations Act, the ASX Listing Rules and other applicable laws. In particular, MDL reserves the right to extend the closing dates for the offers, to accept late applications either generally or, in particular cases, to withdraw the offers without prior notice. The commencement of quotation of the New Shares is subject to confirmation from ASX and approval from TSX.

Eligible retail shareholders will be sent details of the Offer shortly. Retail shareholders with questions in relation to the Offer should contact the MDL Information Line on 1300 583 860 (for calls within Australia) and +61 3 9415 4689 (for calls outside Australia) between 8:30am and 5:00pm (Melbourne time) Monday to Friday during the Offer Period for further information.

This release does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States. The securities to be issued in the proposed offering have not been and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act"), or under the securities laws of any state or other jurisdiction of the United States. Securities may not be offered or sold in the United States, unless the securities have been registered under the Securities Act, or in a transaction exempt from, or not subject to, the registration requirements of the Securities Act and applicable U.S. state securities laws.

Overview of Eramet

Eramet is a French-based mining and metallurgical processing group – with a focus on integrating world class ore bodies and upscale metallurgical facilities. Eramet is listed on Euronext Paris, with a market capitalisation of €5.8bn, revenue (CY2010) of €3.6bn and net cash (as at Dec-2010) of €1.3bn.

Eramet has operations in manganese, nickel and alloys where it enjoys strong world leadership positions:

  • World #2 in manganese high-grade ore and alloys and #1 in refined manganese alloys;
  • World #6 in nickel, #2 in ferronickel, and one of the three world producers of high-purity nickel;
  • World #1 in high-speed steels.

Eramet has operated in Africa since it acquired a stake in Comilog (Gabon) in 1995-1996.

Overview of the MOU

The MOU was executed on 18 June 2011 by MDL and Eramet (the "JV Partners"). The MOU sets out the key terms and conditions to be included in final agreements to establish the joint venture company ("JVCo") and to govern its operations.

The JVCo is to be owned and operated in equal shares (50/50) by MDL and Eramet pursuant to a Shareholders' Agreement, with equal board representation and voting rights. Disputes on decisions of strategic importance are to be ultimately determined through a deadlock mechanism.

The asset contributions to be made by the JV Partners to JVCo are:

  • 100% of MDL's shares in Mineral Deposits Mauritius Limited ("MDML"), the holder of 90% of the shares in Grande Côte Operations SA ("GCO"), which owns the Grande Côte Mineral Sands Project 2; and
  • 100% of Eramet's shares in ETI, which owns the Tyssedal Plant.

JVCo is to have no outstanding liabilities to the JV Partners or their respective subsidiaries, with all liabilities owed by MDML or GCO to MDL or its subsidiaries, or ETI to Eramet or it subsidiaries, to be capitalised prior to transfer (excluding an outstanding receivable owed to MDL by CGO, which is to be transferred to JVCo).

ETI is to be transferred to JVCo with working capital of NOK 250 million and no external debt.

The MOU sets out details of JVCo's intended funding plan, which is to include:

  • Eramet paying an amount equal to expenditures incurred by the MDL Group in connection with Grande Côte between 31 December 2010 and completion of the transaction, as agreed by the JV Partners ("Pre-Completion Expenditure");
  • US$137.5m (less Pre-Completion Expenditure) as equity or shareholder loans from each of MDL and Eramet;
  • US$30m in cash plus an unsecured subordinated loan of US$45m to JVCo from Eramet; and
  • MDL and Eramet to seek third party non-recourse financing of at least US$150m.

Eramet will grant JVCo an option to purchase the land on which the Tyssedal titanium slag and iron plant is located, at an independently appraised price, exercisable by MDL between completion of the joint venture with Eramet and the expiry of ETI's current long term lease.

The MOU expressly provides for legally binding rights of exclusivity between MDL and Eramet with respect to the negotiation and conclusion of the transaction until 30 September 2011 but no such express provision is made in respect of any other material aspect of the MOU.

2 This does not include MDML's 50% interest in Tayssir Resources SAS or its wholly owned subsidiaries MDML (Capital) Limited, Mineral Deposits (Operations) Senegal SARL and MDL Senegal SARL.

ABN 19 064 377 420

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