Sterling Resources Ltd. is pleased to announce that it has completed the sale of its remaining Romanian business (the “Romanian Sale”) to The Carlyle Group (CG). The sale includes licence blocks 13 Pelican, 15 Midia and 25 Luceafarul, structured as a corporate sale of the Company’s wholly-owned subsidiary Midia Resources SRL. This transaction was first announced in the Company’s news release of March 26, 2015. Block 27 Muridava has been sold separately as described in the news release of June 16, 2015. All dollar figures in this news release are US dollars unless otherwise stated.
The headline consideration for the transaction is $42.5 million, as previously reported. In addition, Carlyle is also reimbursing Sterling approximately $1.4 million in costs incurred by Midia Resources SRL between signing and completion (“Interim Period Costs”), of which half has been paid on completion and the other half (subject to any adjustments) will be paid upon a post completion settlement expected in the next couple of months. Sterling has received an initial cash payment of approximately $40.5 million from Carlyle, which is $42.5 million less an amount agreed to be withheld on account of Romanian VAT of approximately $2.7 million plus approximately $0.7 million as half of the Interim Period Costs. Subsequent to completion, Sterling anticipates making a payment of approximately $0.8 million for Romanian corporate tax arising from the transaction (after taking into account the availability of tax deductible past costs and losses). The VAT with minor adjustments (but none of the corporate tax) is fully refundable to Sterling, but in practice obtaining such a refund typically may take a few months. No Canadian corporate tax is expected to be payable as a result of available tax deductions.
Concurrent with the Romanian Sale, Sterling has terminated the investment agreement signed with Gemini in 2007 for a cash consideration of $10 million (the “Gemini Cash Payment”) and the issuance to Gemini of 60,372,876 common shares of Sterling (“Common Shares”) which had a market value of $7.5 million based on the 10 day volume-weighted average price of the Common Shares on the TSX-V for the period ending March 24, 2015, being Can$0.157 per share at an average exchange rate of US$1 = Can$1.2664). Sterling’s issued share capital is now 441,572,956 Common Shares, an increase of approximately 15.8 percent, of which Gemini’s shareholding is 13.7 percent. The Common Shares were issued pursuant to applicable prospectus exemptions and have a hold period expiring December 27, 2015 pursuant to applicable securities laws.
Net of the Gemini Cash Payment, transaction-related taxes and reimbursement to Sterling of allowable transaction fees already paid, an initial amount of approximately $27.4 million out of the Romanian Sale proceeds is being applied pursuant to the cash waterfall provisions of the Amended and Restated Bond Agreement dated May 8, 2015 (the “Bond Agreement”) relating to Sterling Resources (UK) plc’s senior secured bond (the “Bond”). $24.8 million of this amount is being used to pay Bondholders the outstanding amortization instalment which had been due on April 30, 2015, together with 7.5 percent amortization premium and accrued interest, and the remaining $2.6 million is being transferred to the restricted Debt Service Retention Account (“DSRA”) towards funding the next amortization and interest payment due to Bondholders on October 30, 2015. Further transfers to the DSRA resulting from the application of the cash waterfall are expected to be made upon the post completion settlement and upon receipt of the VAT refund.
Because the sale closed after August 15, 2015 Sterling has made a second payment to Bondholders of $0.75 million in addition to the first payment of the same amount made shortly after July 15, 2015, in accordance with the Bond Agreement.
Sterling’s entitlement to further contingent payments from the completed sale of its 65 percent interest in a portion of the Midia Block in the Romanian Black Sea (the "Carve-out Portion") to ExxonMobil Exploration and Production Romania and OMV Petrom S.A., which was announced on January 29, 2014, is unaffected by the Romanian Sale Agreement. These contingent payments relate to future exploration and development success occurring in the Carve-out Portion, and comprise $29.25 million upon a commercial discovery being made and an additional $19.5 million upon first production.