Ivanhoe Energy pursues U.S. listing for its China operations Thursday February 23, 8:28 am ET Sunwing Energy plans US$125 million merger with U.S. public company
BEIJING, China, Feb. 23 /PRNewswire-FirstCall/ - Ivanhoe Energy Inc. (NASDAQ: IVAN and TSX: IE, IE.U) and China Mineral Acquisition Corporation (OTCBB: CMAQ - News, CMAQU - News, CMAQW - News) have signed a non-binding Memorandum of Understanding (MOU) regarding a proposed merger of Ivanhoe Energy's 100%-owned China operating subsidiary, Sunwing Energy Ltd., with China Mineral Acquisition Corporation (CMA), a U.S. public corporation with US$21 million in cash and no other assets or current operations.
If the proposed merger is successfully completed, the resulting public corporation - which the parties are valuing at approximately US$125 million - would be approximately 75%-80% owned by Ivanhoe Energy. CMA intends to change its name to China Ivanhoe Energy following the proposed merger.
Sunwing Energy is the corporate flagship for Ivanhoe Energy's existing operations in China. CMA, a Delaware corporation, is a "blank check" company, formed to effect a merger or other similar business combination with a company having its primary operations in China. CMA raised approximately US$21 million (net) in an initial public offering in August 2004. CMA has no current operating business or full-time employees.
The proposed merger follows Ivanhoe Energy's February 21, 2006 announcement of the investment in Ivanhoe Energy by CITIC Resources, a subsidiary of China's CITIC Group, and Ivanhoe Energy's purchase from CITIC of a 40% working interest in the Kongnan Project in China's Dagang oil field.
Sunwing's operating subsidiaries have carried out oil and gas activities in China for more than 11 years and have interests in the Kongnan enhanced oil recovery (EOR) project at Dagang, in Hebei Province and a large natural gas exploration project on a 900,000-acre Zitong block in Sichuan Province. The Kongnan Project is being operated by Sunwing under a 30-year production-sharing contract signed in 1997 between a Sunwing subsidiary and China National Petroleum Corporation. Sunwing's net production in Dagang of approximately 1,680 barrels of oil per day reflects the recently announced acquisition from CITIC Resources of 40% of the working interest in Dagang, taking Sunwing's working interest share to 100%. Sunwing recently signed a farmout agreement with Mitsubishi Gas Chemical Corporation (MGC), in which MGC acquired a 10% working interest in the Zitong block for US$4 million.
Robert Friedland, Ivanhoe Energy's Deputy Chairman and proposed Chairman of the newly merged company said, "Sunwing was one of the first - and is still one of the few - foreign producers of light, sweet crude oil on the Chinese mainland, one of the world's most important energy markets. This transaction provides Sunwing with capital and a financing platform, which together with the enhanced cash flow resulting from the recently announced acquisition of a 40% working interest in the Kongnan Project, will assist Sunwing in its objective of growing its oil and gas operations in China. We have held initial discussions with entities in China and abroad regarding expansion opportunities for Sunwing."
Simon Mu, CEO of CMA, said, "We are extremely pleased to join forces with a company with the experience and prospects of Ivanhoe's Sunwing Energy. Sunwing has been operating in China for many years, and has invaluable expertise, in terms of both technical capacity and in knowing how to conduct business in China. In addition, Sunwing has excellent relationships with oil and gas companies in China. We believe the additional capital, the recently acquired production, and the opportunity to access capital markets are key factors in preparing the company for expanded growth in China."
Under the terms of the proposed merger outlined in the MOU, CMA will effectively acquire all of the issued and outstanding shares of Sunwing for an aggregate acquisition price of US$100 million, subject to working capital and long-term debt adjustments at closing. CMA will pay Ivanhoe Energy the acquisition price in common stock of CMA. It is expected that following the completion of the merger Ivanhoe Energy would own between 75% and 80% of the issued and outstanding shares of CMA. The MOU contemplates that Ivanhoe Energy would also receive rights that, under certain circumstances, would give Ivanhoe Energy the right to receive or to purchase additional CMA shares, providing Ivanhoe Energy with access to an additional 5% ownership of CMA.
The proposed merger requires the negotiation of definitive documentation, completion of satisfactory due diligence, receipt of Ivanhoe Energy, Sunwing and CMA board approvals and the approval of CMA shareholders. The proposed name change from CMA to China Ivanhoe Energy is subject to regulatory approvals and confirmation.
The valuation of Sunwing assumes successful completion of the purchase of the 40% working interest of the Kongnan Project in China's Dagang oil field from CITIC Resources. This acquisition will increase Sunwing's working interest in the Kongnan Project to 100%, and will increase Sunwing's gross production in China by 67% to approximately 2,050 barrels of oil per day (net approximately 1,680 barrels of oil per day). The Kongnan production-sharing agreement provides that Sunwing is paid 82% of the net revenue from oil production until cost recovery, at which time Sunwing's entitlement will revert to 49%. A total of 36 wells are in production as part of the ongoing Dagang development program. Dagang oil, a sweet crude of 34 API, is sold at a price slightly less than West Texas Intermediate. The oil price for the first 18 days of February 2006 averaged US$56.02, an increase from the average of US$54.27 received during January 2006.
Ivanhoe Energy is an independent international oil and gas exploration and development company pursuing long-term growth in its reserve base and production. Ivanhoe Energy is a leader in technologically innovative methods designed to significantly improve reserves of oil and gas through the upgrading of heavy oil to light oil, state-of-the-art drilling techniques, enhanced oil recovery (EOR) and the conversion of natural gas to liquids (GTL). Core operations are in the United States and China, with business development opportunities worldwide.
Ivanhoe Energy trades on the NASDAQ Capital Market with the ticker symbol IVAN and on the Toronto Stock Exchange (TSX) with the symbol IE. On the TSX, Ivanhoe Energy is listed and traded in both Canadian and U.S. dollars. The U.S. dollar trading symbol on the TSX is IE.U.
Information contacts: ---------------------
All locations: Cindy Burnett 1-604-331-9830 (North America) In Asia: Patrick Chua 86-1370-121-2607, 852-9193-4056 Website: www.ivanhoe-energy.com
FORWARD-LOOKING STATEMENTS: This document includes forward-looking statements, including forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements relating to the continued advancement of Ivanhoe Energy's projects, statements related to the expected outcome of the proposed merger with CMA, including Ivanhoe Energy's shareholding in the resulting company and the effect of the proposed merger on the resulting company's prospects for success, statements related to the valuation of Sunwing, Sunwing's acquisition from CITIC Resources of an additional 40% interest in the Kongnan project and the anticipated increase in Sunwing's gross production of oil resulting therefrom, statements concerning drilling exploration and development wells in the Sichuan Basin and other statements, which are not historical facts. When used in this document, the words such as "could," "plan," "estimate," "expect," "intend," "may," "potential," "should," and similar expressions relating to matters that are not historical facts are forward-looking statements. Although Ivanhoe Energy believes that its expectations reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements include the fact that the terms of the MOU pertaining to the proposed merger are non-binding and that the proposed merger may not be completed as contemplated or at all, the possibility that Ivanhoe Energy's purchase from CITIC of a 40% working interest in the Kongnan project may not occur, the company's projects will experience technological and mechanical problems, geological conditions in the reservoir may not result in commercial levels of oil and gas production, environmental risks, changes in product prices, our ability to raise capital as and when required, competition, the risk of doing business in foreign countries and other risks disclosed in Ivanhoe Energy's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on EDGAR and the Canadian Securities Commissions on SEDAR.
-------------------------------------------------------------------------------- Source: Ivanhoe Energy Inc.
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