Mountain Province Diamonds Inc. (TSX:MPVD) (NASDAQ:MPVD) and Kennady Diamonds Inc. (TSX-V: KDI) are pleased to announce that they have entered into a definitive arrangement agreement pursuant to which Mountain Province will acquire all of the issued and outstanding common shares of Kennady by way of a court-approved plan of arrangement.
Under the terms of the Transaction, Kennady shareholders will receive 0.975 of a Mountain Province common share for each Kennady common share representing the equivalent of C$3.46 per Kennady Share, based on the closing price of Mountain Province Shares on the TSX on January 26, 2018. This Exchange Ratio represents a premium of 26% to Kennady’s closing price and a premium of 15% based on the 20-day volume-weighted-average-price of Mountain Province Shares on the TSX and Kennady Shares on the TSX-V, both as of close on January 26, 2018. The implied equity value for Kennady based on the Exchange Ratio is approximately C$176 million. Upon completion of the Transaction, the combined company will be owned approximately 76% by Mountain Province shareholders and 24% by Kennady shareholders (excluding common shares to be issued pursuant to the Private Placement defined below).
David E. Whittle, Interim President and CEO of Mountain Province, stated: “The Kennady assets are a strong complement to Mountain Province’s interest in the Gahcho Kué project, significantly adding to our attributed resource base. Kennady’s exploration efforts have been very successful and we have high confidence in our ability to continue that success, not only through expanding the existing resources at Kelvin and Faraday but through the potential for further discoveries, not just in the Kelvin-Faraday corridor but elsewhere across the property.”
Dr. Rory O. Moore, President and CEO of Kennady, stated: “We are excited that our shareholders have the opportunity to benefit from the near-term cash flow of the world-class Gahcho Kué mine while retaining exposure to the significant exploration upside on the current Kennady assets.”
Benefits to Mountain Province Shareholders
Benefits to Kennady Shareholders
Board of Directors’ Recommendations
The Boards of Directors of both companies each formed a Special Committee of independent directors in connection with the proposed Transaction. Based on the recommendations of their respective Special Committees, the Board of Directors of each of Mountain Province and Kennady has determined that the Transaction is in the best interests of its respective company and shareholders. Mountain Province’s Board of Directors has unanimously approved the share issuance pursuant to the Transaction and will recommend that its shareholders vote in favour of approving the Mountain Province share issuance pursuant to the Transaction. Kennady’s Board of Directors has unanimously approved the Transaction and will recommend that its shareholders vote in favour of the Transaction. Mr. Jonathan Comerford noted his respective conflicts as a director of both Mountain Province and Kennady and abstained from participating in the Transaction process and from voting in connection with the approval of the Transaction by the Board of Directors of each company.
The issuance of shares by Mountain Province pursuant to the Transaction (“Share Issuance”) is subject to approval at a special meeting of Mountain Province shareholders (the “Mountain Province Meeting”) by: (i) at least a majority of the votes cast on the resolution to approve the Share Issuance by the Mountain Province shareholders present in person or represented by proxy and entitled to vote at the Mountain Province Meeting; and (ii) at least a majority of the votes cast on the resolution to approve the Share Issuance by the minority Mountain Province shareholders present in person or represented by proxy and entitled to vote at the Mountain Province Meeting. The minority shareholders are defined by securities legislation and, among others, will exclude the shares of Mountain Province held by Bottin (International) Investments Ltd. and Mr. Dermot Desmond.
The Transaction is subject to approval at a special meeting of Kennady shareholders (the “Kennady Meeting”) by: (i) at least 66 ⅔% of the votes cast on the resolution to approve the Transaction by Kennady shareholders present in person or represented by proxy and entitled to vote at the Kennady Meeting; and (ii) at least a majority of the votes cast on the resolution to approve the Transaction by the minority Kennady shareholders present in person or represented by proxy and entitled to vote at the Kennady Meeting. The minority shareholders are defined by securities legislation and, among others will exclude the shares of Kennady held by Bottin (International) Investments Ltd. and Mr. Dermot Desmond.
Each of the directors and senior officers of Mountain Province have agreed to vote their shares in favour of the Share Issuance at the Mountain Province Meeting, and each of the directors and senior officers of Kennady have agreed to vote their shares in favour of the Transaction at the Kennady Meeting.
Bottin (International) Investments Ltd. and Mr. Dermot Desmond, collectively owning approximately 24% of the outstanding Mountain Province Shares and approximately 28% of the outstanding Kennady Shares, have agreed to vote the Mountain Province Shares in favour of the Share Issuance and to vote the Kennady Shares in favour of the Transaction.
In addition to shareholder approval, the Transaction is also subject to court approval as well as the acceptance of the applicable stock exchanges.
The Transaction is expected to close in April 2018 and is subject to customary deal protections with a mutual break fee of C$6 million, payable under certain circumstances.
In connection with the Transaction, Mountain Province will provide financing to Kennady of up to C$10 million via an equity private placement (the “Private Placement”) at C$2.50 per share in multiple tranches designed to coincide with Kennady’s budget for the current work program. The completion of the Private Placement is not conditional upon the closing of the Transaction.
Full details of the Transaction will be included in the meeting materials which are expected to be mailed to the respective shareholders of Mountain Province and Kennady by early March 2018.
Related Party Transaction / Business Combination
Pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions the Transaction constitutes a “related party transaction” for Mountain Province and the Transaction constitutes a “business combination” for Kennady due to the shareholding of Bottin (International) Investments and Mr. Dermot Desmond in each company as described above. Kennady is exempt from the formal valuation requirement pursuant to section 4.4(a) of MI 61-101 as an issuer not listed on specified markets. No formal valuation on the part of Mountain Province is required under MI 61-101, pursuant to exemptions from the delivery of such opinions under section 6.3(2) of MI 61-101. Neither Kennady nor Mountain Province is aware of any prior valuation being made in the preceding 24 months.
Advisors and Counsel
Scotiabank is acting as financial advisor to Mountain Province. Miller Thomson LLP is acting as legal advisor to the Mountain Province Special Committee, and Bennett Jones LLP is acting as Canadian legal counsel to Mountain Province together with US legal counsel Paul, Weiss, Rifkind, Wharton & Garrison LLP. RBC Capital Markets has provided a fairness opinion to the Special Committee of Mountain Province.
Minvisory Corp. is acting as financial advisor to Kennady. Fasken Martineau DuMoulin LLP is acting as legal counsel to Kennady together with US legal counsel Perkins Coie LLP. Haywood Securities Inc. has provided a fairness opinion to the Special Committee of Kennady.
About Mountain Province Diamonds Inc.
Mountain Province Diamonds is a 49% participant with De Beers Canada in the Gahcho Kué diamond mine located in Canada’s Northwest Territories. Gahcho Kué is the world’s largest new diamond mine, consisting of a cluster of four diamondiferous kimberlites, three of which are being developed and mined under the initial 12 year mine plan.
About Kennady Diamonds Inc.
Kennady Diamonds Inc. owns 100% of the Kennady North diamond project located in Canada’s Northwest Territories. Kennady North is adjacent to the Gahcho Kué diamond mine. Kennady is focused on expanding its high-grade diamond resources along the Kelvin–Faraday kimberlite corridor, as well as identifying new kimberlites outside of the corridor. To date an indicated resource of 13.62 million carats of diamonds contained in 8.50 million tonnes of kimberlite, with a grade of 1.60 carats per tonne and an average value of US$63 per carat, has been defined for the Kelvin kimberlite and an inferred resource of 5.02 million carats contained in 3.27 million tonnes of kimberlite, with a grade of 1.54 carats per tonne and an average value of US$98 per carat, has been defined for the Faraday kimberlites using a 1mm bottom cutoff size. The Kelvin–Faraday corridor is also a target for further exploration.
Scientific and Technical Information and Qualified Persons
The disclosure in this news release of scientific and technical information regarding Mountain Province’s mineral properties has been reviewed and approved by Keyvan Salehi, P.Eng., MBA, a Qualified Person as defined by National Instrument 43-101 – Standards of Disclosure for Mineral Projects.
The disclosure in this news release of scientific and technical information regarding Kennady’s mineral properties has been reviewed and approved by Dr. Tom McCandless, P. Geo., a director of Kennady Diamonds and a Qualified Person under NI 43-101.
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