The transaction amount is payable in Taseko common shares.

Taseko president and CEO Russell Hallbauer said: “Our management and technical teams are pleased with this transaction and both Taseko and Yellowhead shareholders should be as well.Yellowhead’s project now has a path forward and with over $60 million having been spent on a Feasibility Study and Environment Plan to-date, we are excited to continue advancing the project towards production. The project is at a stage where we can advance technical work and reinitiate permitting activities using internal resources, without significant cash expenditures. There is potential for this project to be shovel ready soon after our Florence Copper project begins commercial production.”

Hallbauer continued: “The Yellowhead 2014 Feasibility Study proposed a 70,000 tonne per day concentrator with total pre-production capital costs of roughly C$1 billion and an average operating cost of US$1.46 per pound of copper. Using US$3.00 per pound copper, a foreign exchange rate of C$/US$ 0.80, and an 8% discount rate results in a pre-tax net present value of C$1.1 billion.”

“Based on the current Feasibility Study(1), copper production will average approximately 170 million pounds for the first three years after start up, plus significant gold and silver by-products.The metallurgical work performed to-date has confirmed that the overall soft ore of the deposit will result in power usage in the lower quartile of similar sized mines. Combined with an extremely low strip ratio of 0.76:1 and short waste hauls, the mine will benefit from low C1 costs, especially in the first three years with production costs under US$1.20 per pound of copper,(1)” added Hallbauer.

Hallbauer continued, “Our technical team has been assessing engineering alternatives over the past few years and believe there are many improvements which can be made to enhance the project’s economics.We have identified a number of optimizations which will increase the overall average mine life head grade and reduce costs. The Yellowhead project has an extremely large, long-life orebody that will span numerous metal cycles and fits perfectly with our core strengths and is also very similar to our Gibraltar Mine. Additionally, we have already identified many synergies due to the proximity of the project to Gibraltar. With Proven and Probable Reserves(1) of 3.6 billion pounds of recoverable copper, supplemented by 370,000 ounces of gold and 15.6 million ounces of silver over its life, this project will be a world-class, long-life, low cost mine.”

Hallbauer concluded, “This transaction, at a cost of a half a penny per pound of copper in the reserve base, supports our long-term strategy of conservatively growing our production by way of meaningful and manageable acquisitions. We have minimized shareholder dilution while protecting our balance sheet. The Yellowhead project increases our near-term pipeline of 100% owned global reserves to nine billion pounds of contained copper, and the project can be advanced without significant capital expenditures for the next few years. When Yellowhead is in production, and combined with our producing Gibraltar Mine and near-term production from Florence Copper, we anticipate that our annual copper production would exceed 320 million pounds per year, making Taseko one of the largest copper producers in North America.”

Summary of the Transaction

Under the terms of the transaction between Taseko and Yellowhead (the “Arrangement”), each Yellowhead shareholder other than Taseko will receive 1.1484 Taseko common shares for each Yellowhead common share held, representing consideration of $1.00 per share based on Taseko’s 5-day volume weighted average price (“VWAP”) for the period ending December 3, 2018. Taseko’s acquisition cost, after taking into account the existing 21% ownership, is $15.1 million in Taseko common shares and will be settled through the issuance of 17.3 million Taseko common shares.

The transaction is structured as a plan of arrangement (the “Arrangement”) pursuant to the Business Corporations Act (British Columbia) and will require the approval of the Supreme Court of British Columbia and the approval of: (i) at least two-thirds of the votes cast by Yellowhead shareholders; and (ii) a majority of the votes cast by Yellowhead shareholders excluding Taseko, at a special meeting of Yellowhead shareholders which is expected to be held in January 2019.

In connection with the Arrangement, Matco Investments Ltd., the holder of approximately 45.5% of the outstanding Yellowhead common shares, has entered into a hard lock up agreement with Taseko, and a director who holds approximately 7.2% of the outstanding Yellowhead common shares has entered into a customary support agreement (collectively, the “Locked-Up Shareholders”) pursuant to which they have agreed to vote their Yellowhead shares, representing in the aggregate 52.7% of the issued and outstanding Yellowhead shares, in favour of the Arrangement. Together with Taseko, the Locked-Up Shareholders hold 73.7% of the issued and outstanding Yellowhead common shares.

The Board of Directors of Yellowhead (the “Board”), having received a unanimous recommendation from a special committee of the Board consisting entirely of independent directors (the “Special Committee”) has unanimously approved the Arrangement and recommends that Yellowhead shareholders vote in favour of the Arrangement. The Special Committee, in conducting its review of the Arrangement, has engaged Evans & Evans, Inc. (“Evans & Evans”) as its financial advisor. Evans & Evans has provided the Special Committee and Board with a fairness opinion, stating that in its opinion, based upon and subject to the assumptions, limitations, and qualifications set forth therein, the consideration to be received by Yellowhead shareholders (other than Taseko) under the Arrangement is fair, from a financial point of view, to the Yellowhead shareholders (other than Taseko).

In addition to the aforementioned approvals, completion of the Arrangement is subject to other customary conditions, including the approval of the TSX Venture Exchange (for Yellowhead), and the issuance of the Taseko shares is subject to the approval of the TSX and the NYSE American. The Arrangement is expected to close in the first quarter of 2019.

The Arrangement Agreement provides for customary non-solicitation covenants on the part of Yellowhead and a right in favour of Taseko to match any unsolicited superior proposal. In the event that the Arrangement is not completed in certain circumstances, Yellowhead has agreed to pay Taseko a termination fee of $1.0 million.

Source: Company Press Release