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Message: Donner Forfeits Interest in Bracemac-Mcleod
MONTREAL, QUEBEC--(Marketwired - Sept. 3, 2013) - Donner Metals Ltd. (TSX VENTURE:DON)(FRANKFURT:D4M) ("Donner" or the "Company") reports that, as a result of an uncured default under the Metal Purchase Agreement (the "Metal Purchase Agreement") dated July 12, 2011, entered into by Donner, Sandstorm Metals & Energy Ltd. ("Sandstorm Metals Parent"), Sandstorm Metals & Energy (Canada) Ltd. ("Sandstorm Metals") and Sandstorm Gold Ltd. ("Sandstorm Gold"), Donner forfeited its interest in the Bracemac-McLeod mine and mine property area ("Bracemac-McLeod") located in Matagami, Quebec and operated by a subsidiary of Glencore Xstrata plc ("Glencore").
In summary, Donner, Sandstorm Metals and Sandstorm Gold and Glencore have agreed the following:
- Glencore has issued a 3% net smelter returns royalty ("NSR") to Sandstorm Metals on 100% of production from Bracemac-McLeod, in consideration for the interest in Bracemac-McLeod acquired by Sandstorm Metals from Donner and for an option to acquire certain Donner shares and warrants, as described below.
- Sandstorm Metals and Sandstorm Gold have relinquished their copper stream and their gold stream respectively.
- Sandstorm Metals will issue 1.33 million shares of Sandstorm Metals to Donner and Donner has provided each of Glencore and Sandstorm Metals with an irrevocable and unconditional release and discharge of any claim by Donner against Glencore or Sandstorm Metals and Donner agreed to an orderly execution of the agreement.
- Donner will receive a 1% NSR from Sandstorm Metals and Sandstorm Gold from any proceeds from the 3% NSR that exceed CDN$49 million.
As previously disclosed on August 13, 2013, Donner failed to pay amounts owing under the Development and Operating Agreement (the "Development Agreement") dated as of July 12, 2011 entered into by and between Glencore and Donner with respect to Donner's share of the approved and budgeted monthly expenditures with respect to Bracemac-McLeod.
By letter dated August 30, 2013, Sandstorm Metals advised Donner that, as of August 15, 2013, Donner is in default of the Metal Purchase Agreement and that there has occurred a Donner event of default under the Metal Purchase Agreement.
As required by the Intercreditor Agreement dated as of July 12, 2011 entered into by Donner, Sandstorm Metals and Glencore (the "Intercreditor Agreement"), on August 30, 2013, Sandstorm Metals delivered to Glencore a notice of Donner's default under Metal Purchase Agreement.
Donner does not have the cash available to pay the cash call that was payable on August 12, 2013.
Each of the Development Agreement and the Metal Purchase Agreement sets out the respective rights and obligations of Glencore and Sandstorm Metals should there be a default or an occurrence of an event of default by Donner under the Development Agreement or the Metal Purchase Agreement, as the case may be. In both cases, the exercise by Glencore or Sandstorm Metals of its rights under the Development Agreement or the Metal Purchase Agreement, as the case may be, in the case of a default or the occurrence of an event of default by Donner, is subject to the provisions of the Intercreditor Agreement.
The Intercreditor Agreement requires each of Glencore and Sandstorm Metals to deliver to the other a default notice in the event of the occurrence or existence of an event of default pursuant to their respective agreements. Under the Intercreditor Agreement, Donner and Sandstorm Metals have granted Glencore an irrevocable right and option to acquire Donner's interest in the Bracemac-McLeod mine and project and all rights or title related thereto each time Glencore receives a copy of a default notice.
Upon, the earlier of: (i) Sandstorm Metals becoming aware that Glencore will not exercise its option, and (ii) the expiry of the period during which Glencore has the right to exercise its option (i.e., on the 15th day after the receipt of a default notice), Sandstorm Metals will have the right to cure any event of default of Donner under the Development Agreement.
The Intercreditor Agreement has attached thereto the form of assignment and assumption agreement (the "Assignment and Assumption Agreement") to be executed and delivered by Donner, Glencore and the assignee of Donner's interest in Bracemac-McLeod and all rights or title related thereto if, among other things, Glencore does not exercise its option and Sandstorm Metals chooses to purchase Donner's interest in Bracemac-McLeod and all rights or title related thereto.
In order to memorialize the assumption by Sandstorm Metals of Donner's interest in Bracemac-McLeod and all rights or title related thereto, the Metal Purchase Agreement provides that Sandstorm Metals will execute and deliver the Assignment and Assumption Agreement and will then forward the same to Donner who shall immediately execute and deliver the Assignment and Assumption Agreement. The Metal Purchase Agreement further provides that if Donner fails to immediately execute and deliver the Assignment and Assumption Agreement, then Sandstorm Metals will have the full and restricted right to sign the Assignment and Assumption Agreement as attorney in fact for and on behalf of Donner.
As a result of the interplay between the Metal Purchase Agreement, the Development Agreement and the Intercreditor Agreement, a default or an occurrence of an event of default by Donner can result in the forfeiture of Donner's interest in Bracemac-McLeod and all rights or title related thereto to either Glencore or Sandstorm for no or little consideration.
On August 30, 2013, Donner and Sandstorm Metals entered into a settlement agreement (the "Settlement Agreement") which provides, among other things, for the manner in which Sandstorm Metals shall exercise its rights pursuant to the Metal Purchase Agreement, the irrevocable and unconditional mutual release and discharge by Donner, Glencore and Sandstorm Metals of each other from any claim, Donner's covenant not to commence any action or proceeding or to make any claims whatsoever against Sandstorm Metals or Sandstorm Metals Parent with respect to what was Donner's interest in Bracemac-McLeod and all rights or title related thereto and the consideration that shall be delivered by Sandstorm Metals to Donner in exchange therefor. See below for a further description of the Settlement Agreement.
Immediately after the execution and delivery of the Settlement Agreement, Sandstorm Metals sold to Glencore what was Donner's interest in Bracemac-McLeod and all rights or title related thereto pursuant to an agreement of purchase and sale (the "Purchase and Sale Agreement") executed by Sandstorm Metals, Glencore and Donner. The consideration Sandstorm Metals received from Glencore under the Purchase and Sale Agreement includes a 3% NSR on production from certain mining leases (the "Sandstorm Metals' New Royalty") on the terms and conditions set out in a royalty agreement between Glencore and Sandstorm Metals (the "Royalty Agreement").
In consideration of Donner's agreement to enter into a tripartite release which includes the release to Donner of any Bracemac-McLeod mine closure obligations, to agree to an orderly execution and delivery of the Assignment and Assumption Agreement, including its execution of the Settlement Agreement, of the Purchase and Sale Agreement, Sandstorm Metals has agreed that: (i) Sandstorm Metals will issue to Donner common shares having a value of CDN$2.0 million at an issue price per common share equal to the closing price of the common shares on the date prior to the issue date, subject to the rules and requirements of the TSX Venture Exchange from treasury, subject to a hold period equal to four months plus one day and (ii) Sandstorm Metals will agree to pay to Donner a certain amount of the proceeds to be received from Glencore under the Royalty Agreement pursuant to the Sandstorm Metals' New Royalty; in each case, all on and subject to the terms and conditions contained in the Settlement Agreement.
In deciding to cooperate with the orderly execution and delivery of the Assignment and Assumption Agreement, the Board of Directors of Donner took into account, among other things, the recommendation of the Special Committee of independent directors formed to, amongst others, explore, analyze and assess the effect, desirability and consequences of a full range of strategic options, including, but not limited to, acquisitions, alliances with strategic partners, resale arrangements, merger or other business combination transactions involving the Corporation and a third party, the sale of all or substantially all of the Corporation's assets, the sale of the Corporation, the sale of some of the Corporation's assets, a recapitalization of the Corporation, proceeding in bankruptcy, reorganization or arrangement for the appointment of a receiver or trustee or any other proceeding under any law for the relief of creditors, each with the objective of enhancing value for all stakeholders of the Corporation.
The Board of Directors of Donner also considered the impacts that the exercise of contractual recourses by either one or both of Glencore and Sandstorm Metal under its respective agreement would have had on the business, operations, prospects, financial condition of, or capital of Donner, including the very real possibility that Donner would lose its interest in Bracemac-McLeod without receiving any or little consideration therefor. The Board of Directors of Donner determined that, in the circumstances, it was in the best interest of Donner to cooperate with the orderly execution and delivery of the Assignment and Assumption Agreement as it was the sole scenario that provided some value to Donner and a viable possibility to develop a restructuring plan.
Donner continues to hold interests in the remaining five Matagami joint ventures, where exploration continues. Going forward, Donner will evaluate various options to seek maximum value from those interests. Donner is also committed to manage its obligations to the Quebec lenders.
The Settlement Agreement
Pursuant to the Settlement Agreement, Donner has agreed to execute and deliver to, and with, Sandstorm Metals and/or Glencore, the Settlement Agreement, the Assignment and Assumption Agreement, the tripartite release and the Purchase and Sale Agreement.
Sandstorm Metals and Donner agreed that effective upon August 30, 2013, without any further or other act or formality by either of them, and from then on, each of the Metal Purchase Agreement and the Security Agreement is deemed to be terminated and extinguished and the parties irrevocably and unconditionally released and discharged each other and their respective successors and assigns from any and all claims (with respect to Sandstorm Metals, including Sandstorm Metals Parent) which they have now or may have in the future against each other with respect to the Metal Purchase Agreement and the Security Agreement, other than claims involving fraud, bad faith, breach of fiduciary duty or willful misconduct.
Donner also covenanted and agreed not to commence any action or proceeding or to make any claims whatsoever against Sandstorm Metals or Sandstorm Metals Parent with respect to the Affected Assets or the Participating Interest.
Sandstorm Metals will issue to Donner 1.33 million common shares of Sandstorm Metals.
Sandstorm Metals agreed, that from and after the date upon which Sandstorm Metals has received an aggregate of the net sum of CDN$49 million from the Sandstorm Metals' New Royalty under the Royalty Agreement (the "Recoupment Date"), Sandstorm Metals shall pay to Donner, a 1% NSR royalty (the "Sandstorm Metals To Donner Royalty") on sales of ore produced from the mining leases of Bracemac-McLeod that is subject to the Sandstorm Metals' New Royalty under the Royalty Agreement. The Sandstorm Metals To Donner Royalty shall only be payable and paid by Sandstorm Metals to Donner to the extent that, and as and when Sandstorm Metals shall receive royalty payments in respect of the Sandstorm Metals' New Royalty under the Royalty Agreement.
In order to enable Donner to verify whether or not Sandstorm Metals has received an aggregate of the net sum of CDN$49 million from the Sandstorm Metals' New Royalty under the Royalty Agreement and to enable Donner to verify the receipt by Sandstorm Metals of royalty payments in respect of the Sandstorm Metals' New Royalty under the Royalty Agreement: (i) until the Recoupment Date, within 45 days after the end of each calendar year, Sandstorm Metals shall forward to Donner, all Royalty Statements (if any), received from Glencore during the said calendar year; and (ii) from and after the Recoupment Date, upon delivery of 10 business days advance notice, on a twice yearly basis, Donner or its authorized representatives shall be entitled, during normal business hours of Sandstorm Metals, in a manner that does not unreasonably interfere with Sandstorm Metal's business, to review and examine information Sandstorm Metals has obtained from Glencore under the Royalty Agreement.
In the event that: (i) any action shall be commenced against Sandstorm Metals with respect to the transaction contemplated by the Settlement Agreement for which a final and unappealable judgment is obtained that is adverse to the interests of Sandstorm Metals; or (ii) Donner shall become subject to an insolvency event (as defined in the Settlement Agreement), regardless of whether or not the payments from Sandstorm Metals have commenced, then in each or either of such instances, the obligation of Sandstorm Metals to pay to Donner the Sandstorm Metals To Donner Royalty shall terminate and be extinguished.
The Settlement also provides that Sandstorm Metals shall have the right to set off against any payments of the Sandstorm Metals To Donner Royalty any amounts that may become due and owing to Sandstorm Metals from Donner as a result of the indemnification provisions set out in the Settlement Agreement. Moreover if the applicable indemnification results from a breach by Donner of its representation and warranty with respect to its title in Donner's interest in Bracemac-McLeod and all rights or title related thereto, the obligation of Sandstorm Metals to pay to Donner the Sandstorm Metals To Donner Royalty shall terminate and be extinguished. Additionally, if Sandstorm Metals shall owe money to Glencore as a result of the indemnification provisions of the Purchase and Sale Agreement and Glencore is entitled to the recoupment of payments previously made to Sandstorm Metals by Glencore under the Royalty Agreement, then to the extent that Donner has received its pro rata share of any such payments that must be repaid by Sandstorm Metals to Glencore, Donner shall be obligated to repay to Sandstorm Metals the full pro rata share of such payments that Donner received.
Glencore Option to Acquire Donner Shares and Warrants
In connection with Glencore's issuance of a 3% NSR to Sandstorm Metals from Bracemac-McLeod, Glencore acquired from Sandstorm Metals an option to acquire 40,360,330 Donner common shares and 26,500,000 warrants exercisable for the same number of Donner common shares. The option is exercisable for $2 million and the warrants are exercisable for $0.10 per share. Assuming Glencore's exercise in full of its option and the warrants, Glencore would own approximately 19.5% of Donner's outstanding shares calculated on a partially diluted basis.
This news release contains forward-looking information within the meaning of applicable Canadian securities laws. All information other than historical fact is forward-looking information. Forward-looking information relates to future events or future performance and is based on Donner's current internal expectations, estimates, projections, assumptions and beliefs. Forward-looking information is often, but not always, identified by the use of words such as "expect", "project", "proposed", "intend", "seek", "anticipate", "budget", "plan", "continue", "estimate", "forecast", "may", "will", "predict", "potential", "targeting", "could", "might", "should", "believe" and similar expressions.
Although management considers the assumptions and estimates, reflected in forward-looking information, to be reasonable, based on information currently available, there can be no assurance that such information will prove to be correct. As a consequence, actual results may differ materially from those anticipated.
In particular, this news release contains forward-looking information relating to, but not limited to, statements with respect to management's assessment of future plans regarding the remaining five Matagami joint ventures or the various options to seek maximum value from those interests and with respect to Donner's commitment to manage its obligations to the Quebec lenders.
Undue reliance should not be placed on forward-looking information which is inherently uncertain, and subject to known and unknown risks and uncertainties (both general and specific) and other factors that contribute to the possibility that the future events or circumstances contemplated by the forward-looking information will not occur or that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. These risks include, but are not limited to risks associated with general economic conditions, the actual results of current exploration activities, conclusions of economic evaluations, changes in project parameters as plans continue to be refined, future metal prices, financial risks and substantial capital requirements. Further information regarding certain of these risks (as well as risks relating generally to the Company's business) may be found under the heading "Financial risk factors" in the Company's Management's Discussion & Analysis. Readers are cautioned that the foregoing list of factors that may affect future results is not exhaustive. The forward-looking statements contained in this news release are made as of the date hereof and Donner does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, except as required by applicable law. The forward-looking statements contained herein are expressly qualified by this cautionary statement.
Neither the TSX Venture Exchange nor its Regulation Service Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
FOR FURTHER INFORMATION PLEASE CONTACT:
Donner Metals Ltd.
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