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Ormonde Mining (LON:ORM) has rejected a takeover approach from rival tungsten group Almonty and instead recommended a finance package from US financier Oaktree.
Almonty proposed the equivalent of 4.25p in cash and shares. Shares were trading at 2.9p today but after studying independent assessments of its operations, Ormonde said the proposal both undervalued the company and was too risky.
Instead, the board has backed a deal put together by Oaktree to develop its Barruecopardo mine in Spain.
Oaktree will take a 70% stake in the project through US$44.2mln of new equity with the remainder to come from US$55.5mln of project debt.
Ormonde will hold a 30% interest in a new joint venture company set up to develop the tungsten mine.
It will also receive an annual management fee of €1mln (£0.91mln) to cover its current working capital requirements and allow it to repay a US$1.5mln loan provided by Oaktree in February.
Kerr Anderson, Ormonde’s managing director, urged shareholders to back the finance proposal at a meeting on 19 May.
"The US$99.7mln project financing, committed by Oaktree, provides funding certainty and enables the development of Barruecopardo in the short term.”
It was a good package in the current tough market for junior miners, he added, as projects are hard to finance.
“To bring in €100mln and retain a substantial minority with various dilution protections built-in is a very good deal,” he told Proactive.
Oaktree will have a majority of members on the board at Barruecopardo, but key decision making will be made jointly, he said, and Ormonde will manage the project at the operating level.
A mining concession has already been granted and subject to Oaktree’s plan being approved, production is scheduled to begin in late 2016.
The two companies may also co-operate on other tungsten projects, he said.
Anderson added Ormonde is being shielded from the recent dip in the tungsten price by the weakness of the euro against the dollar, but he insisted fundamentals overall remained strong.
“There is not a supply glut coming along. The supply/demand dynamic is favourable and we remain as bullish as previously.”
US firm Oaktree is also a sophisticated investor that has done homework on the metal, he said.