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Galaxy Update - Merger with Canadian Company Lithium One 02-Apr-2012

30 March 2012

Creat Resources Holdings Limited


("CRHL" or "the Company")

Galaxy Update -
Merger with Canadian Company Lithium One

 

Creat Resources Holdings Limited ("CRHL") (AIM: CRHL) is pleased to announce that ASX-listed Galaxy Resources Limited ("Galaxy"), in which CRHL has a major shareholding, has today announced that it entered into an agreement toeffect a merger of Galaxy and Canadian lithium and potash exploration and development company Lithium One Inc. (TSXV:LI, "Lithium One")

 

Lithium One owns the highly prospective Sal de Vida lithium brine and potash project in Argentina. It also owns the James Bay Pegmatite Project in Quebec, in which Galaxy has an existing 20% stake (earning to 70% by completion of a DFS) under a farm-in arrangement.

 

Galaxy Resources Managing Director, Iggy Tan, said a merger with Lithium One ("Galaxy MergeCo") represented an excellent opportunity for Galaxy to boost its global lithium resource base and become a major lithium company.

 

Merger Metrics

Under the agreement, Galaxy will acquire 100% of the outstanding securities of Lithium One via a Plan of Arrangement ("Plan") whereby Lithium One shareholders will receive 1.8 Galaxy shares for each Lithium One share held. The proposed exchange ratio of 1.8 Galaxy fully paid ordinary shares ("Galaxy Shares") for each Lithium One share is based on the 30 day volume weighted average price ("VWAP") of Galaxy Shares up to and including 15 March 2012 (when the offer was submitted) of A$0.829 and a CAD:AUD exchange rate of 0.962.

 

This values each Lithium One Share at C$1.55, representing a premium of 27 percent to Lithium One's 30 day VWAP up to and including 15 March 2012 (when the offer was submitted) of C$1.217. The offer values Lithium One at C$109 million on an undiluted basis as at 15 March 2012.

 

Lithium One Equity Research Reports

Various research and securities companies have covered Lithium One. The following is a summary of the research reports and their associated target price recommendations. These reports are available on the Lithium One company web site www.lithium1.com.  The collective research companies target price recommendation average is C$2.75 per Lithium One share.

 

Galaxy Equity Raising

As an agreed pre-cursor to the merger, Galaxy intends to undertake an equity raising to raise between A$50m and A$80 million (before costs) to strengthen the merged entity balance sheet and thereby increasing its financial flexibility to progress its development plans and pursue additional growth opportunities. Funds raised will be used for working capital for Mt Cattlin/Jiangsu; accelerate development of Sal de Vida; debt servicing, capital raising fees and merger costs. The finalisation of the Galaxy capital raising is not conditional on the merger with Lithium One proceeding. Both companies are committed to the success of the merger, however in the event it does not complete, Galaxy will use the residual funds to pursue acquisition of other lithium related properties.

 

The equity raising is expected to be completed before the merger transition is finalised, through an equity placement and share purchase plan. Galaxy anticipates making a further announcement regarding the combined placement and share purchase plan shortly.

 

Lithium One At Pre-DFS Value

Galaxy believes that Lithium One is currently valued as a Preliminary Economic Assessment (PEA) staged company (Market Cap of A$78 million). Lithium One has announced that their Definitive Feasibility Study (DFS) should be completed by the end of 2012. For the sake of peer comparison, Orrocobre, a similar lithium brine company has completed a DFS and their market capitalisation is close to A$187 million, a factor of 2.4 times that of Lithium One. Galaxy believes that with the added processing experience from Galaxy, the Sal de Vida DFS can be fast tracked and the full value of this project reflected in the market.

 

Galaxy Mergco Market Capitalisation

With a contemplated capital raising to be completed prior to the merger, Galaxy intends to undertake an equity raising to raise between A$50m and A$80 million.If a $70 million raising is successful, the Galaxy Mergco will have a market capitalisation of just under A$0.5 billion making it the largest lithium pure play company in the world.

  

Galaxy Resources Managing Director, Iggy Tan Says "Galaxy has spent the last 18 months searching the world for a high quality, undeveloped lithium brine deposit and we believe the Sal de Vida lithium-potash project in Argentina fits that criterion. The Sal de Vida brine chemistry is highly favorable, with high levels of lithium and potash and low levels of magnesium and sulphate impurities. It shares the same Salar (Hombre Muerto) as FMC Lithium which has been operation for the last 15 years, significantly de-risking the project."

 

"Galaxy will require more lithium resources over the next few years, and the Sal de Vida project, along with James Bay will significantly add to our existing Australian resource inventory and give us ample resources to continue to grow the lithium business and drive the long term value of the company. The merger is not only a good strategic fit for Galaxy, it also represents an opportunity for Lithium One shareholders to become part of a lithium producing company with hard rock and brine assets around the world."

 

"With Galaxy's expertise across project development and lithium mining, processing and marketing, we would be able to fast track development of Sal de Vida as we did at Mt Cattlin and the Jiangsu Lithium Carbonate Plant. In addition, Galaxy plans to retain Lithium One's current management team and incorporate it into Galaxy's successful business."

 

"The Galaxy Board of Directors unanimously support the merger and recommends that all Galaxy shareholders vote in favour of the merger on the Annual General Meeting on 31 May 2012"

 

Lithium One Chairman, Martin Rowley, said this offer represented an outstanding opportunity for Lithium One shareholders to realise the value of their investment.

 

"The Lithium One Board and management have done an outstanding job in building a successful lithium exploration and development company within a short period of time, which is reflected in the attractive offer received from Galaxy. By combining the assets, we will be a major player in the lithium sector. We look forward to joining the Galaxy team. The merger is unanimously supported by the Lithium One Board of Directors and recommends that Lithium One shareholders vote in favour accordingly".

 

CRHL's Chief Operations Officer Mr Rex Chow said: "This is further very encouraging news of Galaxy Recourses. Upon the completion of Merger between Galaxy Recourses and Lithium One, Galaxy Resources will become the largest pure Lithium Player in the world with combined assets covering diversified lithium resources. As the major investor of Galaxy, we always support Galaxy in resources consolidation worldwide with the consideration of increasing demand of Lithium, especially in China region.  Follows previous tremendous and constant successes Galaxy has achieved, we are appreciate that the management team of Galaxy has done another excellent job in pursuit of good M&A projects."

CRHL is the largest single shareholder in Galaxy, with an 11.78% stake, and the Company's Executive Chairman Yuewen Zheng and Non Executive Director Xiaojian Ren are both Non Executive Directors on the Galaxy Board. 

For Merger Arrangement Agreement:

http://www.galaxyresources.com.au/documents/DocGXY210-GalaxyLithiumOneMergerAgreement.pdf

For more details further information on the Galaxy announcement:

http://www.galaxyresources.com.au/documents/DocGXY209

GalaxyToMergewithCanadaLithiumOne.pdf

 

http://www.galaxyresources.com.au/documents/GulfstreamRoadshowPresentationFinal.pdf

 

For further information on Galaxy, please visit www.galaxyresources.com.au

 

For further information please visit www.creatresources.comor contact:

 

Creat Resources Holdings Limited

 

Tel: +61 3 6216 2700     

Allan Branch

 

 

Company Secretary

 

 

 

 

 

Evolution Securities Limited (Nominated Adviser)

Evolution Securities China Limited (Broker)

 

  Tel: +44 20 7071 4300     

Tim Worlledge

 

 

Esther Lee

 

 

 

 

About Creat Resources Holdings Limited

 

CRHL is an early stage mining exploration company holding 4 Exploration Licences and 3 Retention Licences covering 109 square kilometres around the mineral rich Zeehan area in western Tasmania. CRHL also has a strategy of acquiring assets in interesting resources companies that complement or supplement the Company's exploration activities. CRHL is a major shareholder of Galaxy Resources Ltd ("Galaxy") with an interest of 11.78% shareholding. Galaxy is an Australian-based integrated lithium mining, chemicals and battery company listed on the Australian Securities Exchange (Code: GXY) and is a S&P/ASX 300 Index Company. Galaxy plans to be one of the world's largest lithium carbonate producers and is positioning itself to be involved in every step of the lithium supply chain.