Alderon Iron Ore Corp. (AXX,ADV.TO: Quote) announced that it has signed a definitive subscription agreement with Hebei Iron & Steel Group Co., Ltd., China's largest steel producer.
The company noted that Hebei will make a strategic investment into both Alderon and its Kami iron ore project in an aggregate amount of C$194 million, in exchange for 19.9% of the outstanding common shares of Alderon or "Private Placement" and a 25% interest in a newly formed limited partnership that will be established to own the Kami Project.
Under the Subscription Agreement and the Definitive Agreements, the entire C$194 million of investment proceeds from Hebei will be used for the exploration and development of the Kami Project and other relevant corporate expenses of Alderon.
As per the terms of the Subscription Agreement, Hebei will subscribe for common shares at a price per share equal to C$3.42. Liberty Metals & Mining Holdings, LLC or "LMM" has indicated that it intends to exercise its pre-emptive right to maintain its relative proportionate interest in the Company following the Private Placement.
Upon closing of the Private Placement, Hebei will acquire approximately 25.83 million common shares for gross proceeds to the Company of C$88.33 million, representing 19.9% of the issued and outstanding shares of Alderon, after giving effect to such issuance and the exercise by LMM of its pre-emptive right, and LMM will acquire approximately 3.81 million common shares at the Subscription Price for additional gross proceeds to the Company of C$13.02 million.
Upon the closing of the Private Placement, Hebei will be entitled to nominate two directors to the Board of Alderon. In addition, Alderon has granted Hebei a pre-emptive right to maintain its interest in Alderon in certain circumstances.
As per the terms of the Definitive Agreements, within 15 business days of Hebei receiving a feasibility study that meets certain criteria, Hebei will contribute the balance of its C$194 million investment and Alderon will contribute the Kami Project and relevant properties to a newly formed limited partnership which will be owned as to 25% by Hebei and 75% by Alderon.
The Subscription Agreement and the Definitive Agreements are subject to approvals from the government of the People's Republic of China or "PRC".
Alderon is entitled to terminate the Subscription Agreement and the transactions contemplated by the Definitive Agreements, if the PRC approvals have not been obtained by Hebei within 90 days following the date hereof and Alderon has entered into an agreement with respect to an alternative transaction proposal, provided that Alderon pays Hebei a termination fee of C$10.25 million.
Both parties can terminate the Subscription Agreement and the transactions contemplated by the Definitive Agreements in the event that Hebei is denied any PRC approval. Alderon has agreed not to solicit nor approve any alternative transaction proposal for a period of 75 days from the date hereof.
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