Marvel Gold Ltd’s (ASX:MVL) (FRA:GR2) proposed spin-out of its Chilalo Graphite Project in Tanzania and initial public offering (IPO) of wholly-owned subsidiary Evolution Energy Metals Ltd is at an advanced stage – pending final in-country regulatory approvals.
In a key development, a share exchange agreement (SEA) has been executed under which Marvel has agreed to sell the Chilalo Project to Evolution in exchange for Evolution shares valued at A$10 million.
The SEA also includes a cash component of A$2 million and is subject to satisfaction of the pre-conditions to the spin-out and based on the currently targeted spin-out parameters.
“Significant milestone”
Speaking to the proposed spin out and IPO, Marvel's managing director Phil Hoskins said: “Signing the SEA is a significant milestone in the spin-out of the Chilalo Graphite Project.
“To facilitate the repayment of the lender, receiving $2 million in cash and retaining $10 million of Evolution shares would be a fantastic result for Marvel shareholders.
“This not only delivers no dilutionary funding to Marvel but also provides our shareholders with meaningful exposure to the ongoing development of the world-class Chilalo Graphite Project.
“Whilst the launch and completion of the spin-out remains conditional on a variety of matters, we are confident of securing the cornerstone investor support required to undertake the spin-out on the parameters currently being contemplated.
“The proposed IPO is at an advanced stage as we await the consent of Tanzania’s Fair Competition Commission.”
Share exchange agreement
Following shareholder approval in June, the official launch of the spin-out remains conditional on regulatory matters, including Tanzania Fair Competition Commission (FCC) approval and securing cornerstone investor support.
Satisfaction of these pre-conditions would see Evolution lodge a prospectus to undertake the spin-out and seek a listing on the Australian Securities Exchange (ASX).
Key terms of the SEA comprise the following:
- Ngwena Tanzania Limited (the holder of the Chilalo Project) will become an indirect wholly-owned subsidiary of Evolution;
- Evolution will issue to Marvel 50,000,000 Evolution shares (expected to have a value of A$10 million upon IPO) and, subject to completion of the spin-out on the targeted metrics, pay Marvel A$2 million in cash. On the spin-out and ASX listing of Evolution, the Evolution shares held by Marvel are expected to be subject to an ASX-imposed, 24-month escrow in accordance with the ASX listing rules; and
- Marvel will have the right to appoint one director to the board of Evolution (for so long as Marvel holds 10% or more of all Evolution Shares or for one year post ASX listing of Evolution, whichever is the longer period). The Marvel appointee to the Evolution board is expected to be Phil Hoskins.
Status of spin-out
Whilst the spin-out is well-advanced, it remains subject to a number of conditions, both as a function of the terms of the SEA as well as regulatory matters:
- Final approval of the Marvel board to proceed with the spin out – the board has committed to progress the spin-out and ASX listing of Evolution, with Marvel shareholders approving the spin-out of Chilalo at a general meeting held in June. However, under the terms of the SEA, the Marvel board will take a final decision to proceed with the spin-out following FCC approval;
- Receipt of FCC approval - The FCC is a government institution responsible for promoting and protecting effective competition in trade and commerce and protecting consumers from unfair and misleading market conduct. Its functions include assessing transactions that include a change of ownership of a Tanzanian entity to ensure no adverse impact on competition and market power and providing its consent for change of ownership transactions to proceed;
- Successful Evolution capital raising of A$22 million (gross proceeds); and
- Approval from ASX for the listing of Evolution on ASX.
Although both companies are working hard to give effect to the spin-out as soon as possible, as long as the spin-out remains subject to regulatory approvals (including the FCC) and the success of the offer of Evolution shares, there can be no assurances that the spin-out will successfully complete, nor that the value currently anticipated to be derived by Marvel from the spin-out will be obtained.