Rare Earth Industries Ltd.
TSX VENTURE : RND

Rare Earth Industries Ltd.

December 06, 2011 19:53 ET

Rare Earth Announces Letter of Intent to Acquire Lion Petroleum Corp.

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Dec. 6, 2011) - Rare Earth Industries Ltd. (the "Company" or "Rare Earth") (TSX VENTURE:RND) is pleased to announce that it has entered into a letter of intent dated December 5, 2011 (the "LOI"), to acquire (the "Acquisition") all of the issued and outstanding share capital of Lion Petroleum Corp. ("Lion"), a widely held, private British Columbia company with no shareholder holding a controlling interest. Upon closing, Rare Earth will issue an aggregate of 31,899,167 common shares to the securityholders of Lion in exchange for all of Lion's issued and outstanding shares and convertible notes. The completion of the Acquisition will be subject to Rare Earth and Lion obtaining all necessary consents, approvals and other authorizations of regulatory authorities, shareholders and third parties.

Lion's business is focused on oil and gas exploration in East and Central Africa. Lion has secured land concessions for hydrocarbon exploration through two production sharing contracts dated November 19, 2007 (the "Block 1 PSC") and September 17, 2008 (the "Block 2B PSC") with the government of the Republic of Kenya (the "Government").

Pursuant to the Block 1 PSC and the Block 2B PSC, respectively, Lion has a 50% interest in a petroleum exploration and production concession of approximately 7.8 million acres in one contiguous block ("Block 1") and has a 100% interest in a petroleum exploration and production concession of approximately 1.9 million acres in a second contiguous block ("Block 2B"), both of which concessions (collectively, the "Concessions") are located in the Republic of Kenya. Both the Block 1 PSC and the Block 2B PSC are subject to an 18% back-in right by the Government.

Block 1 covers 31,781sq km (7.8 million acres) of northeastern Kenya and the southern extension of the hydrocarbon-productive Mandera-Lugh Basin. Pursuant to a joint operating agreement with East African Exploration (Kenya) Ltd. ("EAX"), Lion has a 50% interest while EAX currently holds the remaining 50% interest and acts as the operator of Block 1. Lion has a 100% interest in Block 2B (that is non-contiguous to Block 1), which covers 7,807sq km (1.9 million acres) in northeastern Kenya and the southern extension of the Anza Graben Basin. Under the Block 1 PSC and the Block 2B PSC, Lion must carry out respective minimum work obligations and expenditures.

A National Instrument 51-101 ("NI 51-101") report on the Concessions will be filed with the TSX-V Exchange (the "Exchange") for review in connection with the Acquisition. A report prepared by Sproule International Limited, as at May 31, 2011, is available on Lion's website at www.lionpetroleum.com. In addition, audited financial statements of Lion will be filed and included in the information circular or filing statement to be filed with the Exchange in connection with the Acquisition. These documents will also be available on SEDAR once finalized.

In connection with the Acquisition, Rare Earth intends to complete a non-brokered private placement (the "Offering") of up to 45,000,000 subscription receipts at $0.20 each for aggregate proceeds of up to $9,000,000. Each subscription receipt will automatically convert into one unit of the Company (each, a "Unit") upon completion of the Acquisition. Upon such conversion, each Unit will consist of one common share of the Company and one-half of one common share purchase warrant, entitling the holder to purchase one additional common share (each, a "Warrant Share") at $0.40 per Warrant Share for a period of two years after the closing of the Offering, subject to acceleration if the shares have a volume weighted average price of $0.60 or greater for a period of ten consecutive trading days. The gross proceeds of the Offering will be held in escrow until the completion of the Acquisition. If the Acquisition is not completed on or before March 31, 2012, the proceeds will be returned to subscribers.

The proceeds of the Offering, together with the existing combined cash position of approximately $3,500,000, will be used to fund the exploration of Block 1 and Block 2B and for general working capital following the completion of the Acquisition.

It is expected that Rare Earth will pay finder's fees in the amount of 7% of the gross proceeds payable in cash or Units, and finder's warrants in the amount of 7% of the Units sold. Each finders warrant will entitle the holder to purchase one common share of Rare Earth at a price of $0.20 per share for a period of 12 months after the closing of the Offering.

The securities of Rare Earth to be issued in the Offering will be subject to a four month hold period.

The Acquisition is also subject to the following additional conditions:

  1. subject to regulatory approval, Rare Earth will provide Lion with an interim secured bridge loan of up to $1,000,000 in order to fund certain seismic obligations on Block 2B;
  2. Rare Earth will re-price its existing 4,099,943 warrants to $0.25, subject to acceleration provisions as required by the Exchange;
  3. Lion will obtain consent of the holders of its outstanding convertible notes (the "Notes") in the aggregate amount of $2,725,000, to extend the maturity date until June 30, 2012 and to accept the conversion of the Notes into 18,166,667 common shares (the "Conversion Shares") and 9,083,333 warrants of the Company (the "Conversion Warrants") on closing. Each Conversion Warrant will be exercisable into one additional common share of Rare Earth for a period of two years at a price of $0.30 in the first year and $0.40 in the second year. These Conversion Shares form part of the 31,899,167 shares to be issued by the Company in order to complete the Acquisition; and
  4. the Conversion Shares, the Conversion Warrants and Rare Earth's shares issued to certain shareholders of Lion will be pooled and subject to release over an 18 month period. Certain of the securities will also be subject to additional escrow as required by the Exchange.

Union Securities Ltd., subject to completion of satisfactory due diligence, has agreed to act as sponsor to Rare Earth in connection with the Acquisition. An agreement with a sponsor should not be construed as any assurance with respect to the merits of the Acquisition or the likelihood of completion.

On closing, the officers and certain directors of Rare Earth will resign, and the Board will be reconstituted to include three out of five directors nominated by Lion. Details on the constitution of the new Board will be released once finalized. The biographies of the proposed officers are set out below:

Alec E. Robinson - President and Chief Executive Officer:

Mr. Robinson has over 40 years' experience in the international upstream oil & gas industry, primarily with Amoco. Mr. Robinson has lived and worked with Amoco in senior positions around the world. He joined Centric Energy Corp. ("Centric Energy") as President and CEO in 2006. Primarily focused on exploration in sub-Saharan Africa, Centric Energy was bought by Africa Oil in February 2011. The transaction was valued at approximately $60,000,000.

Andrew Bell - Chief Financial Officer:

Mr. Bell has almost 30 years' experience in the oil exploration and production sector, including high profile financial roles with Charterhouse Petroleum plc, Monument Oil and Gas plc, Consort Resources Ltd., Rosehill Energy plc and Centric Energy. Mr. Bell's experience spans private and public funding in London and Toronto. Mr. Bell oversaw, as CFO, the sale of Centric Energy to Africa Oil in February 2011.

Paul Griggs - Vice-President, Commercial:

Mr. Griggs has over 25 years' oil industry experience, with an extensive track record of leading international growth. Past positions include Director of Investment Banking for Natwest Market's oil team, VP Strategic Planning for BHP Petroleum in London and Head, Global Business Development for OMV's E&P arm. In 2008, Mr. Griggs became an independent consultant, advising listed companies with a focus on sub-Saharan Africa.

Chris Lewis - Vice-President, Exploration:

A geophysicist and explorer with 19 years' international oil-industry experience, Mr. Lewis' career started at Conoco in field exploration in the North Sea. Since then, he has held senior exploration positions at Troy-Ikoda (now part of RPS Energy), Zeta Petroleum (CEO & Founder) and, more recently, Centric Energy. Mr. Lewis has held management positions for over 11 years and has global exploration experience and success.

The Acquisition will constitute a Reverse Takeover under the policies of the Exchange. Assuming completion of the Acquisition, it is anticipated that the Company will change from being classified as a mining issuer to an oil and gas issuer under the policies of the Exchange. The proposed Acquisition was negotiated at arm's length. The Board of Rare Earth is currently investigating various alternatives in connection with the disposition of its existing rare earth assets.

Investors are cautioned that, except as disclosed in the disclosure document to be prepared in connection with the Acquisition, any information released or received with respect to the Acquisition may not be accurate or complete and should not be relied upon. Trading in the securities of Rare Earth should be considered highly speculative. Trading on the Exchange will remain halted pending further regulatory filings with the Exchange pursuant to section 3.4 of Exchange Policy 5.2.

The TSX Venture Exchange has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

On behalf of the Board of Directors of RARE EARTH INDUSTRIES LTD.

Rob Smith, Chief Executive Officer

Completion of the transaction is subject to a number of conditions, including Exchange acceptance and disinterested Shareholder approval. The transaction cannot close until the required Shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the Filing Statement, to be prepared in connection with the transaction, any information released or received with respect to the Reverse Takeover may not be accurate or complete and should not be relied upon. Trading in the securities of Rare Earth Industries should be considered highly speculative.

Safe Harbor Statement

This news release may include forward-looking statements that are subject to risks and uncertainties. All statements within, other than statements of historical fact, are to be considered forward looking. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, exploitation and exploration successes, continued availability of capital and financing, and general economic, market or business conditions. There can be no assurances that such statements will prove accurate and, therefore, readers are advised to rely on their own evaluation of such uncertainties. We do not assume any obligation to update any forward-looking statements.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Rare Earth Industries Ltd.
    Rob Smith
    (604) 558-0022