Alternative Earth Resources' Black Sea Merger Update

VANCOUVER, Dec. 24, 2015 /CNW/ - Alternative Earth Resources Inc. ("AER") (TSX.V: AER) is pleased to provide an update and additional background to the proposed acquisition by AER of Black Sea Copper & Gold Corp. ("Black Sea"). Refer to the AER News Releases dated October 20, 2015, and December 3, 2015 for additional background details of the proposed transaction.

As was disclosed in the News Release dated December 11, 2015, the Supreme Court of British Columbia (the "Court") has rendered its decision with respect to legal proceedings commenced by Jaguar Financial Corp. ("Jaguar") against AER and its directors in connection with the proposed acquisition of Black Sea by AER. The Court ruled, among other things, that AER cannot complete the acquisition of Black Sea until the transaction has been approved by the shareholders of AER at a special meeting of the shareholders.  AER will file an appeal to the Court decision.

Management and the board of directors of AER (the "Board") wish to provide context for existing shareholders and potential new investors with an overview of their business plan and actions over the past 18 months. For the record, the Board is composed of three-long standing directors whom have expertise related to the mining industry and considerable experience serving as directors and senior officers of TSX Venture Exchange ("TSXV") listed companies.

AER Business Plan: August 2014 - Present

AER's business strategy since August, 2014 has been to generate cash from the sale of remaining geothermal development assets and to pursue mineral project acquisitions and/or merger opportunities. This plan was approved by shareholders at AER's August 22, 2014 Annual and Special General Meeting, which included a resolution to change the business of AER from geothermal to mineral exploration. Specifically, shareholders granted a mandate for management of AER to investigate the acquisition of one or more properties without the need for further shareholder approval, subject to TSXV acceptance (the "2014 Mandate"). AER closed the sale of geothermal assets on August 27, 2014 bringing total working capital at that time to C$2.75M (US$2.53), and thereafter implemented significant cost reduction measures to preserve cash and maintain low overhead while investigating mineral projects acquisitions and merger opportunities.

From August 2014 - August 2015, AER investigated a large number (approximately 100) of advanced and exploration-stage mineral prospects. AER considered in detail approximately 25 advanced-stage properties, with NI 43-101 technical reports outlining indicated and/or inferred resources, including several for which comprehensive study by AER lead to extensive negotiations with a view towards project acquisition.

As a matter of normal business, AER looked into all types of mineral projects and companies, and throughout this time AER has included in its planning consideration of merger opportunities in keeping with our 2014 Mandate from shareholders and with our public disclosure.

Description of Black Sea's Business 

Management and the Board believe that the Black Sea merger opportunity brings more value to AER than any of the other properties and/or merger situations that we have considered. Black Sea's business plan, mineral property assets acquired over the past two years and its management team, taken as a whole, underlies the value which is attractive to AER.  Black Sea identified the "West Tethyan Metallogenic Belt", extending 1500 kilometers through Romania, Serbia and Bulgaria to Turkey, as an under explored emerging region of interest to western capital. The Belt includes five major producing copper-gold mines (for example Majdanpek, Bulgaria -1000 Mt @ 0.6% copper and 0.35 g/t gold; in "Porphyry Copper Assessment of Europe, Exclusive of the Fennoscandian Shield", USGS Scientific Investigations Report 2010–5090–K, 2013) and two large producing gold mines (for example Kislagdad, Turkey  – 548 Mt @0.63 g/t gold or > 10M ounces of gold; from www.eldoradogold.com) and several active prospects including "Cukaru Peki", a Joint Venture between Reservoir Minerals Inc. (see www.reservoirminerals.com and Reservoir Minerals News Release, December 1, 2015) and Freeport-McMoRan Exploration Corporation. Black Sea's experienced management and technical team have global experience and a track record of discovery. Black Sea has assembled a "local" technical support team in Eastern Europe to conduct data reviews and to investigate situations in the field with a goal to acquire 100 percent ownership interests in exploration projects and to advance projects to discovery.

Three initial projects, Zlatusha and Kalabak in Bulgaria, and the recent option to acquire the Alankoy property in Turkey, have been acquired. All display both classic high sulphidation epithermal and porphyry style deposit footprints having large deposit discovery potential.

The Alankoy project is located in the Biga Peninsula area of western Turkey in a porphyry-epithermal gold-copper district that includes the Halilaga, TV Tower (Pilot-Gold/Teck), Agi Dagi and Kirazli (Alamos Gold) deposits. The project area is underlain by an extensive alteration footprint and gold-copper soil geochemical anomalies. Targets include porphyry copper-gold, epithermal gold, and structurally-controlled gold deposits.

The Zlatusha project is situated in the Upper Cretaceous Timok-Srednogorie volcanic belt of Serbia/Bulgaria. Porphyry and epithermal copper-gold deposits in this belt include Cukaru Peki (Reservoir Minerals/Freeport) and Chelopech (Dundee Precious Metals). The project area is underlain by alteration footprints characteristic of the upper parts of porphyry copper-gold systems, and includes high-grade gold-in-rock samples at surface, as well as significant historic drill hole intercepts. Targets include epithermal gold and porphyry copper-gold deposits.

The Kalabak project is located in the Southern Rhodopes region of Bulgaria in geology analogous to the Biga Peninsula area of Western Turkey.  Significant epithermal gold systems in the region include Ada Tepe (Dundee Precious Metals), and the region is considered prospective for porphyry copper.  Kalabak is an early-stage project in an emerging metallogenic belt segment, with porphyry-style alteration mapped at surface. 

Black Sea has developed an extensive geological database throughout Bulgaria, Romania and Serbia, including extensive field reconnaissance and identification of up to 5 additional target areas to launch future property acquisition applications.  Black Sea's plans include the evaluation and pursuit of more advanced stage third party acquisitions throughout the region.

The Proposed Black Sea Transaction

In early September 2015, management of AER commenced discussions concerning a potential transaction with Black Sea, and held a pre-filing conference with representatives of the TSXV.

Gavin Cooper, in addition to being a director of AER, is the CFO and a minority shareholder of Black Sea. At the outset of AER's dealings with Black Sea, and again at the first AER Board meeting to consider Black Sea held on September 11, 2015, Mr. Cooper disclosed his interest in Black Sea to the other directors of AER. Following this disclosure, a special committee comprised of disinterested directors (James Yates and Brian Fairbank) was formed to review and negotiate the terms of a potential transaction with Black Sea (the "Special Committee"). Mr. Cooper was not involved in the assessment, consideration, or voting in relation to the Black Sea transaction.

The Special Committee promptly engaged a qualified and respected independent expert on the valuation of mineral projects, Ross Glanville & Associates Ltd. ("Glanville"), to review information concerning Black Sea and its assets and prepare a memorandum on the relative values of AER and Black Sea. This memorandum was delivered to the Special Committee prior to signing the non-binding letter of intent to acquire Black Sea on October 19, 2015 (refer to the AER News Release dated October 20, 2015 for details of the letter of intent). Glanville was also engaged by the Special Committee to provide a fairness opinion in connection with the proposed Black Sea transaction which was delivered to the Special Committee on December 1, 2015. Glanville estimates that AER's "total net asset value would be about C$2.8M, or about 8.5 cents per share"  after the private placement financing; Black Sea's value is estimated to be approximately C$3.3m based on the median value of several valuation methods, thus AER's cash shareholders gain an estimated premium  of about 18%.  Glanville concludes that "the terms of the proposed Acquisition (pursuant to which Alternative Earth will acquire all of the shares of Black Sea by issuing 33 million shares pro-rata to the shareholders of Black Sea) are fair from a financial point of view to the existing Alternative Earth shareholders (and to the new shareholders participating in the financing of 8,000,000 units at six cents per share)."

In the month prior to AER's News Release of October 20, 2015 outlining the letter-of-intent ("LOI") between AER and Black Sea, AER stock was trading between 3 ½ and 4 cents per share for an implied market cap of around $1 million (C$0.04 X 25 million shares outstanding). The private placement financing of AER of 8,000,000 units at 6 cents per share (the "Financing") outlined in the News Release as part of the deal, represented a 50% premium over the 30-day August 20-October 20, 2015  trading prices.  Aside from raising new funds, the Financing increases the approximate value of AER to $2.8 million post-financing as compared Black Sea's approximate value of $C$3.3 million. The implied value of the combined companies from Glanville's estimated values is approximately $6.1 million or 9 cents per share post-merger ($6.1 million divided by 66,000,000 shares post-merger outstanding).     

On October 22, 2015, the TSXV issued a letter granting conditional acceptance to the proposed acquisition of Black Sea by AER, stating that shareholder approval was "not applicable" and required AER to provide a NI 43-101 technical report for the Alankoy property. An NI 43-101 technical report authored by Erdem Yetkin, Ph.D., CPG, a Qualified Person under the 43-101, was commissioned by Black Sea.  On November 30, 2015, a draft NI 43-101 technical report concerning the Alankoy property (the "Technical Report") was received by AER from Black Sea and submitted to TSXV and for its review. Assuming that the Black Sea transaction does proceed, the final Technical Report will be filed on SEDAR and be publicly available once it has been vetted by TSXV.

The proposed acquisition of Black Sea is structured as a share exchange agreement among AER, Black Sea and the thirty-seven shareholders of Black Sea.  This structure complies with all applicable corporate laws and the policies of the TSXV. Under TSXV policy, the proposed transaction would not be a "reverse takeover" ("RTO"), requiring shareholder approval, unless the transaction results in a "change of control". Based upon the significant number of Black Sea shareholders that are engaged in the share exchange, and after review by management of AER and a preliminary meeting with the TSXV, it was considered that there would be no change of control that would result in an RTO; therefore AER shareholder approval would not be required.

AER was due to hold its 2015 annual general meeting ("AGM") by November 22, 2015, however the final determination of the RTO and shareholder approval issue would not be made until the TSXV had received and reviewed the definitive final agreement for the Black Sea transaction, and in any event would not have been enough time to set up a meeting for a shareholder vote on the Black Sea by the November 22, 2015 AGM date. Accordingly, in early November AER applied to the British Columbia Registrar of Companies, and was granted, an extension to hold the AGM at any time before March 28, 2016. The rationale for the AGM extension application was that, in the event that the TSXV did require shareholder approval for the Black Sea transaction, the AGM and approval of Black Sea could be combined into one meeting, thereby saving the substantial cost of holding two shareholder meetings (the AGM plus a special meeting for Black Sea) in a relatively short period of time. AER has now scheduled the AGM to be held on February 26, 2016.

Jaguar Court Proceedings

On November 24, 2015, Jaguar filed its petition in Court and announced that it will seek an order preventing AER from closing the Black Sea transaction without first obtaining shareholder approval. Further, Jaguar stated that it was considering making a take-over bid for the shares of AER.

A news release dated December 3, 2015 discloses that the definitive Share Exchange Agreement dated December 2, 2015 (the "Agreement") was signed and that, due to time constraints, AER was proceeding with its plan to close the acquisition of Black Sea on or before December 18, 2015, subject to the outcome of the Jaguar Court proceedings and final TSXV acceptance.

The decision of the Court on December 10, 2015 found that the Black Sea transaction was not fair and reasonable to AER and granted the relief sought by Jaguar. Amongst other things, AER cannot complete the acquisition of Black Sea without first obtaining approval from AER shareholders at its next AGM scheduled for late February 2016. As a result, management and the Board of AER are very concerned regarding the consequences of the Court decision for the following reasons:

1. Black Sea may allow the Agreement to terminate on December 18, 2015 (now extended to December 31, 2015), so that it can pursue other business opportunities;
   
   
2. In the event that the Black Sea transaction is terminated, the concurrent $480,000 private placement financing for AER (which is fully subscribed) will also be terminated;
   
   
3. In the event that the Black Sea transaction is not terminated, the cost of preparing an information circular containing prospectus-level disclosure concerning Black Sea, which is not otherwise required under corporate law or TSXV policy, will be substantial and, in light of the 2014 Mandate, may not be in the best interests of the shareholders of AER;
   
   
4. AER will have incurred substantial transaction and court costs for a failed transaction and related financing;
   
   
5. In light of Jaguar's attempts to block two transactions announced by AER (Kiska and Black Sea), as well as similar actions taken by Jaguar against other public companies (for example Galway Metals Inc.), management of AER have concerns regarding Jaguar's intentions.

Under the circumstances, management of AER will continue to consider all alternative courses of action that are available, with a view to protecting the interests of AER and its shareholders, which may involve an appeal of the Court decision.

Forward Looking Statements: This news release contains forward looking statements that are subject to a number of known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those anticipated in our forward looking statements. Forward-looking statements in this release include statements regarding the timing and completion of the private placement, and closing of the Black Sea acquisition. Factors that could cause such differences include: the financing and the acquisition may not be completed for any reason whatsoever, including that the regulators may not approve them, changes in world commodity markets, equity markets, costs and supply of materials relevant to the mining industry, change in government and changes to regulations affecting the mining industry. In addition to other factors and assumptions which may be identified in this press release, assumptions have been made regarding and are implicit in, among other things, the timely receipt of any required regulatory approvals. Although we believe the expectations reflected in our forward looking statements are reasonable, results may vary, and we cannot guarantee future results, levels of activity, performance or achievements.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Alternative Earth Resources Inc.

Information Contact: Brian D. Fairbank, P. Eng. President & CEO, http://www.alternative-earth.com, Telephone: [phone], Toll Free: 866-688-0808, Email: [email protected]; AER Investor Inquiries: Telephone: [phone], Toll Free: 866-688-0808, Email: [email protected]