Asks Dolly Varden Board to Support the Offer and Refrain from
Shareholder Dilution and Further Obstruction
Applies for Order to Stop Dolly Varden’s Highly Dilutive Equity
Financing
COEUR D’ALENE, Idaho--(BUSINESS WIRE)--
Hecla Mining Company (NYSE:HL)
today announced that it is formally commencing a takeover bid for all of
the outstanding shares of Dolly Varden Silver Corporation not owned by
Hecla and its affiliates for C$0.69 cash per share, following the
initial announcement of its bid on June 27, 2016.
Hecla is also filing a letter to shareholders of Dolly Varden outlining
the value of the premium cash offer and Hecla’s opposition to a dilutive
equity private placement proposed by Dolly Varden. The text of Hecla’s
letter is included below.
Dear Dolly Varden Shareholders
On behalf of Hecla Mining Company, the largest shareholder of Dolly
Varden Silver Corporation, I am writing to you on a matter that has
significant implications on the value of your Dolly Varden shares.
Hecla is formally commencing its cash offer of C$0.69 per share for
Dolly Varden and I urge you to tender your shares for an attractive
premium of approximately 97%.(1) The formal offer follows
Hecla’s June 27, 2016, announcement of its bid.
Despite the attractive premium available, Dolly Varden’s board of
directors has chosen another path – a dilutive private placement that is
not in the interest of all shareholders. Hecla believes that the private
placement is an attempt to obstruct Hecla’s premium cash offer. Hecla
has asked Dolly Varden’s board of directors to support its offer and
refrain from obstructionist tactics.
Hecla’s Offer Won’t Proceed if Private Placement Is Completed
In addition to the other customary conditions for a takeover bid, Hecla
notes that it will not proceed with its premium cash offer if the
private placement is completed. Hecla is also applying to the relevant
regulatory authorities for an order to stop the private placement on the
grounds that it is an improper defensive tactic.
Proposed Private Placement Could Dilute Existing Shareholders by more
than 57%
The private placement, as disclosed publicly by Dolly Varden on July 5,
2016, could increase the number of Dolly Varden shares by up to 43% and
therefore is highly dilutive.(2) Worse, the private placement
includes an over-allotment option that Dolly Varden has not publicly
disclosed, and that would be even more dilutive, increasing the
total number of shares issued by more than 57%.(3) In
addition, the issuance of the proposed private placement, flow-through
and broker shares average C$0.60 per share, which is 15% lower than
Hecla’s C$0.69 cash per share bid.
Don Birak, Tom Wharton and Rosie Moore, Dolly Varden’s directors who
collectively own or control about four percent of Dolly Varden’s
outstanding shares, seem intent on dilution that does not benefit
current Dolly Varden shareholders.
The proposed private placement is intended in part to repay the new loan
Dolly Varden agreed to on June 13, 2016. The new loan’s repayment
provisions require Dolly Varden to pay in full six month’s interest
(being C$50,000) even if the principal amount is repaid prior to
maturity. In addition, the lenders will receive warrants with a value of
C$687,500. Therefore, Dolly Varden is obliged to pay and incur costs of
up to C$737,500 in respect of the new loan. When the C$31,250 finder’s
fee for the loan is included, the all-in cost of C$768,750 for what is
effectively a two-week loan of C$2.5 million is egregious.
Dolly Varden’s Share Price Might Plunge if Hecla’s Offer is Obstructed
Dolly Varden’s share price has increased substantially since Hecla
announced its intention to bid, reflecting the bid premium, but the
share price could just as readily plunge back to its pre-bid level if
Hecla is prevented from proceeding with its premium cash offer. Dolly
Varden’s board, rather than act obstructively, should abridge the
105-day mandated minimum offer period so that shareholders can benefit
from Hecla’s premium cash offer without delay.
Dolly Varden securityholders who wish to review the offer documents
should:
-
look under Dolly Varden’s issuer profile on the SEDAR website at www.sedar.com;
or
-
visit Hecla’s website at www.hecla-mining.com;
or
-
contact Laurel Hill Advisory Group, Hecla’s information agent, at
1-877-452-7184 (toll free) or 416-304-0211 (collect) or by email at assistance@laurelhill.com.
Sincerely,
Phillips S. Baker, Jr.
President Chief Executive
Officer
Hecla Mining Company
(1) Premium is based on the volume-weighted average price of the Dolly
Varden shares on the TSX-V for the 20 trading days ended June 24, 2016,
which was the last trading day prior to Hecla’s announcement of its
intention to bid. Formal commencement is by way of an announcement today
in the National Post and Le Journal de Montréal and the
filing of the takeover bid circular and related documents with the
relevant securities regulatory authorities.
(2) Based on the terms disclosed by Dolly Varden on July 5, 2016, the
proposed private placement represents potential dilution of up to 43%.
Dolly Varden’s announcement contemplates the issue of up to 10,545,621
shares, including private placement, flow-through and broker shares. The
dilution is calculated based on 24,623,963 of current fully diluted
issued and outstanding shares.
(3) With the undisclosed over-allotment option, potential dilution is
increased to more than 57%. With the over-allotment, a total of
14,158,525 shares, including private placement, flow-through and broker
shares might be issued as a result of the financing. The dilution is
calculated based on 24,623,963 of current fully diluted issued and
outstanding shares. Dolly Varden advised Hecla of the over-allotment
option on July 5, 2016 in the Offering Notice, received under the
Ancillary Rights Agreement (ARA).
About Hecla
Founded in 1891,Hecla Mining Company (NYSE:HL)
is a leading low-cost U.S. silver producer with operating mines in
Alaska, Idaho and Mexico, and is a growing gold producer with an
operating mine in Quebec, Canada. The Company also has exploration and
pre-development properties in six world-class silver and gold mining
districts in the U.S., Canada, and Mexico, and an exploration office and
investments in early-stage silver exploration projects in Canada.
Cautionary Note Regarding Forward-Looking Statements
Statements made or information provided in this news release that are
not historical facts, such as anticipated production, sales of assets,
exploration results and plans, costs, and prices or sales performance,
are “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995 and “forward-looking
information” within the meaning of Canadian securities laws. Words such
as “may,” “will,” “should,” “expects,” “intends,” “projects,”
“believes,” “estimates,” “targets,” “anticipates” and similar
expressions are used to identify these forward-looking statements.
Forward-looking statements involve a number of risks and uncertainties
that could cause actual results to differ materially from those
projected, anticipated, expected or implied. These risks and
uncertainties include, but are not limited to, metals price volatility,
volatility of metals production and costs, litigation, regulatory and
environmental risks, operating risks, project development risks,
political risks, labor issues, ability to raise financing and
exploration risks and results. Refer to the company’s Form 10-K and 10-Q
reports for a more detailed discussion of factors that may impact
expected future results. The company undertakes no obligation and has no
intention of updating forward-looking statements other than as may be
required by law.
View source version on businesswire.com: http://www.businesswire.com/news/home/20160708005121/en/
Hecla Mining Company
Mike Westerlund, 800-HECLA91 (800-432-5291)
Vice
President - Investor Relations
hmc-info@hecla-mining.com
Source: Hecla Mining Company