Marvel Gold Ltd (ASX:MVL) (FRA:GR2) plans to unlock the value of its advanced Chilalo Graphite Project in Tanzania by spinning it out into a newly incorporated, wholly-owned subsidiary Evolution Energy Minerals Limited, which proposes to undertake an IPO to facilitate listing on the ASX.

Evolution Energy, with an intended ASX code of EV1, intends to raise a minimum of $13 million via an initial public offering (IPO) with the ability to accept over-subscriptions.

The proposed transaction aims to gain value for Marvel from the 100%-owned Chilalo Graphite Project – a fully permitted, world-class graphite asset.

“Unlocking Chilalo’s value potential” 

Marvel managing director Phil Hoskins said: “There is no doubting the quality of the fully permitted and construction-ready Chilalo Graphite Project. 

“Since the re-brand to Marvel and the focus on our Mali gold projects, there has been no value attributed to Chilalo despite Chilalo’s peer comparisons trading at many multiples of Marvel’s entire market capitalisation. 

“The IPO of Evolution is the opportunity for Marvel to remove the historical debt encumbrance and unlock Chilalo’s value potential.” 

Under a priority offer, Marvel shareholders will be collectively entitled to subscribe for up to $2 million of Evolution shares.

Shareholder approval is required, with a prospectus setting out the details of the IPO expected to be available in June 2021 and a general meeting scheduled on June 11, 2021.

Structure after the IPO.

Repayment of loan notes

In 2020, Marvel restructured its loan note financing arrangements with Castlelake, which were entered into in connection with the advancement of Chilalo.

Under those financing arrangements, the lender is currently owed around $9.5 million secured against Chilalo and repayable on October 29, 2022. 

Of the minimum $13 million IPO raising (before costs) by Evolution: 

  • $6.5 million will be applied towards repayment of the loan note debt, resulting in the balance of the loan note debt being reduced to $3 million, with the balance to be converted to Evolution shares; and 
  • $6.5 million (less costs) will be available to Evolution for the advancement of the Chilalo Project and for working capital purposes.

Should the minimum subscription be achieved, it is anticipated that any proceeds from over-subscriptions from the IPO will be applied, as a priority, to further pay down the loan note debt in cash. 

Proposed transaction – indicative timetable.

Evolution internal restructure 

Marvel has incorporated Evolution and Evolution Energy Holdings Pty Ltd as Australian companies for the purpose of undertaking an internal restructure, following which Evolution will hold all of Marvel’s interests in the Chilalo Project.

To give effect to the internal restructure and to facilitate the proposed transaction, Marvel and Evolution intend to enter into a share exchange agreement, as a result of which: 

  • Ngwena Tanzania Limited (the holder of the Chilalo Project) will become an indirect wholly-owned subsidiary of Evolution; and 
  • Evolution will issue to Marvel a to-be-determined number of Evolution shares (the number of Evolution shares will be determined by reference to the valuation attributed to the Chilalo Project in the lead-up to the IPO, but is expected to be a number that results in Marvel holding between 28% and 43% of Evolution’s issued capital at the time of IPO). 

On the IPO of Evolution, the Evolution shares held by Marvel will be subject to ASX escrow.

The company has not yet appointed a lead manager and underwriter to the IPO, however, expects to do so in the coming weeks. 

Proposed Evolution board 

Under the share exchange agreement, the company will have the right to appoint one director to the board of Evolution, for so long as Marvel holds 10% or more of all Evolution shares or for one year post-ASX listing of Evolution, whichever is the longer period. 

In order to maximise the prospects for success, Evolution proposes to assemble a board with extensive capability and experience in the graphite industry and the development of graphite projects. 

The appointment of the following individuals is subject to completion of the proposed transaction:

  • Executive chairman Trevor Benson – Previously Walkabout Resources Ltd (ASX:WKT) (FRA:N6D) executive chairman and has more than 30 years’ experience within investment banking and stockbroking, specialising in the resources sector; 
  • Executive director Michael Bourguignon – Previously the project manager for the construction of Syrah Resources Ltd’s (ASX:SYR) (OTCMKTS:SYAAF) (FRA:3S7) Balama graphite project in Mozambique, and for Glencore PLC’s (LON:GLEN) (JSE:GLN) (OTCMKTS:GLCNF) (FRA:8GC) 3.6 million tonnes per annum copper concentrate facility at the Mopani Copper Mine in Zambia; and
  • Non-executive director Phil Hoskins – Currently Marvel’s managing director overseeing the development of Chilalo since its first drill hole in 2014 and has more than 15 years of broad finance and commercial experience across resources exploration, project development and production.

Hoskins said: “Evolution has attracted three directors with significant graphite development, construction and marketing expertise, and will be well placed to add value for its shareholders through Chilalo’s development. “

In addition, Marvel and Evolution are in discussions with institutional investors regarding the potential for cornerstone participation in the IPO. 

If these discussions are successfully concluded, it may result in one or more investors securing a substantial shareholding in Evolution, and it is likely that any such cornerstone investor may have the right to appoint a director.

Marvel’s market capitalisation (including the Mali gold projects and Chilalo) relative to the peer group of dedicated graphite companies. 

Advancing Mali gold strategy

In July 2020, Marvel repositioned itself with a focus on gold exploration in Mali and since then has established a maiden mineral resource of 910,000 ounces gold, grading 1.2 g/t in accordance with JORC 2012 at its Tabakorole Gold Project and – through strategic acquisitions – has increased its landholding in Mali around the Tabakorole mineral resource. 

Hoskins said: “Completion of the proposed transaction will allow Marvel to focus on its exciting Mali gold exploration. 

“In the nine months since acquisition, we have increased Tabakorole’s resource by 54%, increased the grade of the resource by 20%, de-risked the metallurgy and grown the landholding by 300%. 

“Resource expansion drilling is continuing as Tabakorole continues to emerge as a significant west African gold deposit.” 

Completion of the proposed transaction will not only provide for repayment of the loan note debt but also presents the best possible opportunity for the development of the Chilalo Project and for Marvel shareholders to realise the value of Chilalo, while allowing the company to dedicate its efforts to advancing the Mali gold strategy. 

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