there you go insiderTETHYAN IN LANDMARK DEAL WITH...

there you go insider


TETHYAN IN LANDMARK DEAL WITH ANTOFAGASTA
50:50 Joint Venture with Major Copper Mining Group including US$75 Million Sole Funding
Right and US$50 Million Cancellation of BHP Billiton’s Clawback Rights
HIGHLIGHTS
• Agreement signed today with Antofagasta plc to create a 50:50 joint venture for the
development of the Reko Diq copper/gold project in Pakistan;
• BHP Billiton’s right to clawback into the Reko Diq project to be cancelled for US$45 million
plus US$5 million in deferred payments;
• Agreement between Tethyan and Antofagasta to fast track development of Reko Diq with
Antofagasta entitled to sole fund up to the next US$75 million of expenditure to confirm its
50% joint venture interest;
• Antofagasta to subscribe for 33 million new Tethyan shares for total proceeds of US$20.5
million (equivalent to A$0.832 cents per share at an exchange rate of 0.7464). Antofagasta
will hold just under 20% of Tethyan’s expanded capital or 17.3% on a fully diluted basis;
• New joint venture company to be established into which Antofagasta will inject US$37.5
million (which is in addition to the US$75 million sole funding right), and from which
Tethyan will draw funds for the cancellation of BHP Billiton’s clawback rights, and from
which Tethyan will receive a net cash inflow of approximately US$8 million;
• Antofagasta to nominate a director to the Tethyan board with opportunity to provide
additional equity capital in the future if required;
• Shareholder meeting to approve the proposed transaction – which carries the unanimous
recommendation of Tethyan’s Directors – scheduled for late February 2006.
The directors of Tethyan are pleased to announce that agreements have been signed today with
Antofagasta plc, one of the world’s leading copper producers, and with BHP Billiton which,
subject to the satisfaction of certain conditions, will result in:
• subject to, among other things, the approval of the Government of Balochistan, the creation
of a new 50:50 joint venture between Tethyan and Antofagasta under which Antofagasta
may sole fund the next US$75 million of expenditure on the Reko Diq project and related
costs to confirm its 50% interest;
• the cancellation of BHP Billiton’s Clawback Right for US$45 million and deferred payments
totalling US$5 million; and
• the opportunity for Tethyan’s shareholders to maintain their exposure to the potential offered
by the Reko Diq asset, with up to US$75 million of expenditure to be sole funded by a highly
respected major mining company.
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Speaking today, the Managing Director of Tethyan, Mr David Moore said:
“The agreements we have reached with Antofagasta and BHP Billiton represent an outstanding
result for Tethyan’s shareholders and a landmark in the development of our Company. The joint
venture deal with Antofagasta is a huge vote of confidence in the Reko Diq project by one of the
world’s leading copper producers and vindicates the long held view of the Tethyan board that
Reko Diq will ultimately prove to be one of the world’s great copper mines.
“By cancelling BHP Billiton’s Clawback Right this deal unites the Reko Diq assets under a single
structure. By bringing in a partner with very substantial financial resources the deal ensures that
Reko Diq can get the funding it deserves. And through Antofagasta’s US$75 million sole funding
right, Tethyan’s shareholders are likely to see the Reko Diq Project well advanced before
significant further equity financing is required.
“The subscription price of Antofagasta’s proposed placement in Tethyan values our Company at a
38% premium to the current share price, while the total value of Antofagasta’s proposed
investment in Tethyan and its assets is US$133 million (A$182 million), or nearly double the
value ascribed to Tethyan by the current hostile takeover offer from Crosby.
“Apart from the financial commitments and the equal 50:50 joint venture relationship, the
importance of this deal to Tethyan’s shareholders lies in the quality of our partner – one of the
most admired mining companies in the world today. Antofagasta is a FTSE 100 company that
has been listed on the London Stock Exchange for over 100 years, has over US$1 billion in cash
reserves, and is currently producing more than 450,000 tonnes of copper per annum.
“Tethyan’s directors believe this transaction offers a far more attractive alternative to the
inadequate, hostile, highly conditional and seemingly interminable offer from Crosby. Our board
continues to unanimously recommend rejection of the Crosby offer, which we believe would rob
our shareholders of the upside of this potentially world class asset.
“Tethyan’s directors unanimously recommend this deal to our shareholders. We believe our
shareholders invested in Tethyan in order to gain exposure to the massive potential of the Reko
Diq project. That is what this deal offers. Most importantly, our shareholders can now enjoy
that exposure knowing that Antofagasta can sole fund up to the next US$75 million, after which I
am confident that the project’s potential and value will be such that Tethyan will be in a strong
position to raise the necessary project finance. In the meantime, our cash reserves will be
boosted by the receipt of US$8 million as an immediate result of this transaction.”
COMMENT BY ANTOFAGASTA
The CEO of Antofagasta Minerals SA, Mr Marcelo Awad, said today:
“Our agreement with Tethyan Copper Company provides Antofagasta with a window into a very
prospective mining region and represents a strategic investment opportunity for us. A partnership
with Tethyan will allow Antofagasta to apply its mining and development skills and its experience
in large-scale projects, to evaluate the mineral resources at Reko Diq and ensure that they are
developed to their full potential to the mutual benefit of the shareholders of both Antofagasta
and Tethyan”.
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AGREEMENT WITH ANTOFAGASTA
Antofagasta is one of the world’s leading copper mining companies. Based in and operated from
Chile, the Company is listed in London, and forms part of the FTSE 100 Index. Antofagasta has a
market capitalisation of approximately US$5.9 billion and cash reserves of over US$1 billion. It
recorded operating cashflows of US$767 million in the six months to 30 June 2005.
Antofagasta is a leading low cost copper producer with total annual production of approximately
450,000 tonnes. The Company has experience in developing large scale copper projects in
remote areas, including the hugely successful Los Pelambres mine which was commissioned in
2000 at a capital cost of US$1.36 billion.
Tethyan and Antofagasta have entered into a legally binding Heads of Agreement, the key
elements of which are summarised below:
Formation of Joint Venture
• Tethyan will novate its interests in the Region to a new company (JVCo), which company
will then hold (directly or via a wholly-owned subsidiary) 75% of Exploration Licence 5
(containing all the known mineral resources at Reko Diq) as well as 100% of Exploration
Licences 6 and 8 and the new Reconnaissance Licence 7;
• Antofagasta will provide an initial capital injection of US$37.5 million into JVCo, and is
entitled to provide a further US$75 million as sole funding to JVCo over four years to
confirm its 50% interest in JVCo;
• Antofagasta and Tethyan will have equal representation on the board of JVCo;
• JVCo will be the project manager, with a management team appointed to it by Tethyan
and Antofagasta as appropriate;
• In the event that Antofagasta elects to spend less than the US$75 million sole funding
undertaking then its interest in JVCo will be diluted.
Termination of Clawback Right
• Tethyan will terminate the Alliance Agreement with BHP Billiton (effectively terminating the
clawback right) through the payment of a Compensation Amount of US$45 million in cash
and a further US$5 million in deferred cash payments over a four year period. This amount
will be paid by Tethyan (following the Antofagasta Placement as below and including funds
drawn from JVCo).
Net Cash Inflow
• At closing of the transaction Tethyan will receive a net cash inflow of US$8 million.
Placement
• Antofagasta will subscribe for 33 million fully paid ordinary shares in Tethyan for a total
subscription of US$20.5 million (at an exchange rate of 0.7464 this equates to a
subscription price of A$0.832 per share);
• Antofagasta will then hold just under 20% of Tethyan’s issued shares, or 17.3% on a fully
diluted basis;
• Subject to holding at least 5% of Tethyan’s issued shares, Antofagasta will have certain
rights entitling it to participate in new issuances pro rata to their shareholding level unless
Antofagasta elects to cease its sole funding commitment.
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Other
• Tethyan has agreed to provide Antofagasta with exclusivity, subject to Tethyan’s director’s
fiduciary obligations;
• A break fee of A$1.1 million will be payable by Tethyan to Antofagasta in the event that
certain circumstances occur and the proposed transaction does not complete (as set out
below);
• The break fee represents approximately 1% of the market capitalisation at the placement
subscription price. The conditions under which the break fee is payable are regarded by
the directors of Tethyan as being reasonable and typical for similar transactions and
circumstances;
• The circumstances in which the break fee may be payable include a material adverse event
in respect of Tethyan caused by an act or omission on the part of Tethyan and which arises
from events not publicly disclosed before the date of this announcement; where control of
Tethyan or its assets passes to a third party or to Crosby/Skafell (but only should
Crosby/Skafell’s offer terms become more favourable than its present terms); the Tethyan
board withdraws its recommendation to shareholders to approve the Antofagasta
transaction or publicly recommends a competing offer; the agreement with BHP Billiton or
with Antofagasta terminate in certain circumstances; or the Tethyan board consents to a
superior offer as below;
• Until completion of the transaction Tethyan is not to incur any new indebtedness (except in
the ordinary course of business) nor issue any additional securities except for up to A$5
million of ordinary shares to raise money for working capital purposes.
AGREEMENT WITH BHP BILLITON
Tethyan and Antofagasta have entered into a Termination Deed with BHP Billiton under which
BHP Billiton’s Clawback Right will be terminated.
Key elements of the agreement with BHP Billiton are summarised below:
Consideration
• Tethyan will pay BHP Billiton a Compensation Amount of US$45 million in cash at closing
and US$5 million in deferred cash payments over a four year period for the termination of
the Alliance Agreement and the Clawback Right.
Superior Offer
• Up until the date which is 5 days before the meeting of Tethyan’s shareholders that will
be convened to consider and, if thought fit, to approve this transaction, BHP Billiton will
have the right to accept an unsolicited offer to acquire the Clawback Rights from a third
party provided that:
�� The offer has a readily ascertainable market value to BHP Billiton of US$65 million
or more; and
�� Tethyan consents, having regard to its fiduciary obligations and the consequences
for the Antofagasta Transaction, to that third party acquiring the Clawback Right.
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CONDITIONS PRECEDENT
• The transactions with Antofagasta and BHP Billiton are inter-conditional. Both transactions
are conditional on, or can be terminated upon, the following:
- Satisfactory completion of due diligence by Antofagasta by 18 February 2006; the
completion of formal documentation by 18 February 2006; Tethyan shareholder
approval by 23 February 2006 (all subject to extension under certain
circumstances); confirmation of exemption from payment of Withholding Tax in
Pakistan on the Compensation Amount; no material adverse changes in relation to
Tethyan; Australian Foreign Investment Review Board approval; all necessary
Pakistani or other regulatory approvals; no parties having materially breached
certain provisions of the transaction documents; and no party acquiring voting
rights in respect of 15% or more of the issued voting capital of Tethyan.
- The transaction is subject to completion occurring within four months of the
execution of the Heads of Agreement.
CONTINUED REJECTION OF SKAFELL HOSTILE TAKEOVER OFFER
The board of Tethyan continues to recommend that shareholders reject the hostile and
inadequate cash takeover offer made by Crosby/Skafell. That offer is currently due to close on
19 January 2006.
The arrangements with Antofagasta are subject to Antofagasta’s right to terminate in the event
that Skafell, or any other party, acquires a voting interest of more than 15% (or is capable of
exercising control over 15% by waiving any relevant condition) in Tethyan after and including the
placement of the 33 million shares to Antofagasta. At the date of this announcement, Skafell
holds 1.31% of Tethyan’s shares.
NEXT STEPS
A notice of meeting is currently being prepared and it is expected that a meeting of shareholders
will be held on or before 23 February 2006 in which shareholders will be asked to approve the
transactions via ordinary resolutions.
It is expected that, by the date of the shareholders meeting, Antofagasta’s due diligence
condition will have been met or waived; final binding contracts between Tethyan and Antofagasta
will have been executed; the Withholding Tax Exemption Certificate condition will have been
obtained and the budget and work programme for the first year of expenditure will have been
agreed.
RELEASED BY: ON BEHALF OF:
Jan Hope/Nicholas Read Mr David Moore, Managing Director
Jan Hope & Partners Tethyan Copper Company Limited
Tel (618) 9388 1474 Tel (618) 9226 4646 Fax (618) 9481 1355
www.tethyan.com