Copper-hungry Sherwood taking over Western Keltic (November 26, 2007)

Vancouver – Fresh off the success of its newly opened and already growing Minto mine, Sherwood Copper (SWC-V) has launched a friendly takeover bid for Western Keltic Mines (WKM-V, WLKTF-O) in a deal valued at $37 million.

The prize in the deal is Western Keltics Kutcho Creek copper-zinc deposit in northern B.C., which a recent pre-feasibility study gave a net present value of $154 million. The project, accessed via a 100-km 4-wheel-drive road from Dease Lake, holds probable reserves of 17.1 million tonnes grading 1.63% copper, 2.26% zinc, 26 grams silver per tonne and 0.32 gram gold per tonne.

The deal would see Sherwood issue 0.08 of a share for each share of Western Keltic. Sherwoods offer values each share of Western Keltic at roughly 47, based on Nov. 23rd closing prices, and represents a 53% premium for Western Keltic shareholders. Based on 79.8 million Western Keltic shares outstanding, the offer carries a $37-million value.

Structured as a takeover, 66.6% of Western Keltic shares must be tendered for the offer to proceed. The transaction would then require Sherwood to issue 6.4 million shares, which would equate to 12.5% of Sherwoods outstanding shares. Both companies have agreed to use their best efforts to finalize and execute the definitive support agreements by Dec. 7th.

John McConnell, CEO of Western Keltic, says the deal offers two important benefits. This transaction represents an attractive premium for our shareholders while providing an excellent opportunity for Western Keltic shareholders to participate in the development of the Kutcho property without experiencing the level of dilution that would be necessary if Western Keltic were to advance the project independently, he says. Overall, I think this is a win-win for Western Keltic shareholders.

Western Keltics board has unanimously approved the terms of the agreement and is recommending shareholders tender into Sherwoods offer. Western Keltic board members, including its largest registered shareholder representing 26.8 million shares, have agreed to enter into lock-up and support agreements. As a result of the offer, Western Keltic will no longer pursue the previously-announced $30-million equity financing.

For Sherwood, the acquisition would more than double the companys copper resources. Sherwood demonstrated its mine development prowess in developing the Minto mine ahead of schedule and below budget, a feat the company wants to replicate with Kutcho.

The high-grade Minto mine should generate significant free cash flow at current metal prices that could be reinvested in the development of a second mine at Kutcho Creek, significantly reducing overall financing needs and share dilution versus Western Keltic going it alone, says Stephen Quin, Sherwoods president and CEO.

The prefeasibility study for Kutcho Creek, completed in mid-September, predicted annual metal production for the first five years would average 75.5 million lbs. copper, 93.5 lbs. zinc, 753,550 oz. silver, and 7,813 oz. gold after a capital cost investment of $299 million. Initial mining life is forecast at eight years, with capital payback achieved in the first 2.6 years. Production could be realized by 2010; under normal operations, the mine would employ 250 permanent workers.

The main deposit is to be developed as an open pit, 1,500 metres long by 450 metres wide. After five years, underground production from the higher-grade Esso deposit will supplement the open-pit operation. And the Sumac deposit, which was not included in the pre-feasibility study, contains an inferred resource of 10.6 million tonnes at 0.94% copper, 1.45% zinc, 13.96 grams silver and 0.14 gram gold that could add to mine life.

Daily mill feed will be 6,000 tonnes, resulting in 17.1 million tonnes mined over eight years. A conventional flotation plant will operate year-round, at an annual rate of 2.2 million tonnes.

As for Sherwoods Minto mine, the phase 2 expansion should be complete by year end. In addition, Sherwood is awaiting the results of a prefeasibility study on incorporating the Area 2 deposit into the mine, which would catalyze a phase 3 expansion to the new mill. The company also recently announced four new discoveries of copper-gold mineralization on the property.

Western Keltics share price moved up on the news, gaining 11 or 36% to close at 41.5. The company has a 52-week trading range of 25 to 59. In contrast, Sherwood fell 45 or 7.7% to close at $5.40. Sherwoods 52-week trading range is from $3.54 to $8.26.