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Galaxy Resources Limited(ASX:GXY)A$81 Million Capital Raising  Join our daily free Newsletter

MENAFN - ABN Newswire - 04/11/2012

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Galaxy Resources Ltd (ASX:GXY) is pleased to announce that it is to raise A81 million (before costs) via a Placement ("Placement") to cornerstone investors M&G Investments ("M&G") and the East China Mineral Exploration & Development Bureau ("ECE").

Under a two-tranche raising, Galaxy will issue 162.4 million fully paid ordinary shares at a price of A0.50 per share, at a 2% premium to the 5 day VWAP (0.49) up to and including trading on 31 October 2012, the day prior to the Company requesting a trading halt of its shares.

For the Tranche 1, M&G will subscribe for 30 million Galaxy shares, for gross proceeds of A15 million, increasing its interest in the Company to 19.3%. Tranche 1 will be completed under the Company's 15% capital issuance facility; will not require shareholder approval or be conditional on due diligence or upon the completion of the ECE placement. The settlement and issue of Tranche 1 shares is expected to be completed by 9 November 2012.

Pursuant to an executed Non Binding Indicative Offer ("NBIO"), Tranche 2 comprises the subscription for 132.4 million Galaxy shares by ECE, for gross proceeds of A66.2 million. Completion of Tranche 2 will give ECE an initial 19.8% interest and reduce M&G's interest to 16.4%. The success of the Tranche 2 placement is subject to due diligence by ECE, approval from the Jiangsu Provincial Development and Reform Commission and Jiangsu Provincial Department of Commerce, registration with China National Development and Reform Commission and PRC Ministry of Commerce, approval from the China State Administration of Foreign Exchange Jiangsu Branch, Australia's Foreign Investment Review Board (FIRB) and Galaxy ordinary shareholders. Once the condition precedents have been satisfied the settlement and issue of Tranche 2 shares is expected to be completed during first quarter 2013. ECE will be offered one non-executive Board position following completion of Tranche 2.

The proceeds from the Placement will be used to reduce debt, including the maturing Lithium One convertible notes, complete the Definitive Feasibility Study ("DFS") and forthcoming pilot plant work at the Company's Sal de Vida Lithium Brine and Potash Project ("Sal de Vida") in Argentina; and to provide additional working capital.

Based on a positive DFS, the Company is targeting to fund the Sal de Vida project through a project debt finance facility of around 70% of the project capital cost. On completion of the Placement the Company's cash flow management strategy will be to limit the need for any further unnecessary dilution for ordinary shareholders. Accordingly, until the expected Sal de Vida development decision is made in Q1, 2013, the Company will limit the amount of funds from the Placement applied towards permanent debt reduction in order to have available proceeds from the Placement for its equity share ( Galaxy 70%, Korean Consortium 30% ) of the development cost of Sal de Vida, if necessary.

M&G is an existing substantial shareholder in Galaxy and this further investment reflects its support for Galaxy's long term strategy and outlook, including the development of Sal de Vida.

ECE, which will become a new cornerstone investor in Galaxy, is a long standing state-owned mining exploration and development group, which seeks strategic resource investments in China and globally. ECE already has investments in a number of ASX-listed companies and is subordinate to the Jiangsu provincial government where Galaxy's lithium carbonate plant is located. ECE does not require any off take arrangements as condition of its investment as its focus is as a financial investor supporting Galaxy as it develops into a fully integrated global lithium company.

The Galaxy Board has taken this investment opportunity to ensure that the Company is well funded amid global credit tightening and an uncertain economic environment.

Galaxy Managing Director Iggy Tan said: "We have an opportunity not only to raise a substantial amount of money and strengthen our balance sheet considerably, but to bring in a new strategic, long term cornerstone investor. The fact that two strategic investors were prepared to invest at a slight premium to market is a solid indication of the future of our business, and validates our forecasts of a significant increase in demand for lithium products in the near term." "In light of the current market outlook, we've taken the opportunity to raise money now to give us sufficient and certain funding to carry out our development plans. This financing will underpin the DFS and the accelerated development of Sal de Vida and give us the opportunity to significantly reduce our debt levels," Mr Tan said.

Galaxy expects that the Tranche 1 and 2 Placements will be the last major capital raising by the Company because, as mentioned above, the Company has an option to direct these placement funds towards Galaxy's equity component required for the development of Sal de Vida after a development decision is made. The balance of the development funds will likely come from Galaxy's joint venture partner and debt funding.

Use of Funds:
Sal de Vida DFS & land purchase payments - A15m
Re-pay expiring L1 convertible notes - A5m
Debt Reduction - A31m
Corporate Working Capital - A15m
Jiangsu Working Capital Buffer - A15m
Total - A81m

Expected Timetable

The expected timetable for the Placement is as follows:

Issue of Tranche 1 shares / 9 November 2012
Notice of Meeting for EGM dispatched / 13 November 2012
Shareholder approval at EGM of Tranche 2 / 12 December 2012
Issue of Tranche 2 shares / Early January 2013

About M&G Investments

M&G Investment Management Ltd. is a wholly owned subsidary of Prudential PLC. M&G Investment Management Ltd. is one of the largest fund managers in the United Kingdom. M&G is an existing substantial shareholder in Galaxy Resources Ltd.

About ECE

ECE, which was established in 1955, is a major Chinese mineral exploration, development and mining group, based in Nanjing. It has over 5,000 employees and is one of the few organisations authorised by the Chinese Government to carry out geological exploration and scientific research in major State classified projects. ECE has discovered more than 160 ore deposits in China with a potential value in excess of 10 billion. ECE also holds a significant interest in Australian rare earths company, Arafura Resources (ASX: ARU), Australian Niobium company, Globe Metals (ASX: GBE), Australian Vanadium company, TNG Limited (ASX:TNG) and AIM listed China Africa Resources.


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