Donner Metals crumbles as stake forfeited in Bracemac-McLeod venture

12:31 pm by Deborah Bacal

Shares of Donner, which is based in Vancover, fell as much as 80 per cent today, to half a penny, and were lately trading at one cent, down 60 per cent as of early afternoon. Its stock has lost almost 100 per cent since the start of the year.

Investors took a big chunk out of Donner Metals' (CVE:DON) market cap this morning as the company was forced to forfeit its interest in the Bracemac-McLeod mine in Quebec after failing to meet cash calls under a joint venture agreement with Glencore Xstrata to the tune of $4.3 million in June.

Donner held a 35 per cent participating interest in Bracemac-McLeod, and had metal purchase agreements for both future copper and gold production in place with Sandstorm Metals and Sandstorm Gold, respectively. The Canadian junior failed to pay amounts owing for expenditures under a development deal with Glencore signed more than two years ago, and amended its copper supply deal with Sandstorm Metals last month to allow it to meet capital obligations for the Glencore deal.

But Donner said it did not have the cash to pay the amount owed on August 12. Shares of Donner, which is based in Vancover, fell as much as 80 per cent today, to half a penny, and were lately trading at one cent, down 60 per cent as of early afternoon. Its stock has lost almost 100 per cent since the start of the year.

All the parties involved have agreed that Glencore will issue a 3 per cent net smelter returns royalty to Sandstorm Metals on 100 per cent of production from Bracemac-McLeod, in exchange for Donner's stake in the mine --that was acquired by Sandstorm-- as well as an option to acquire Sandstorm's Donner shares and warrants. The previous copper and gold stream rights to Sandstorm, which would have seen it buy 24.5 per cent of copper produced from the mine at 80 US cents per pound, have been relinquished, Donner said.

Sandstorm Metals will also issue 1.33 million shares to Donner, while Donner will receive a 1 per cent net smelter returns royalty from Sandstorm from any proceeds of the 3 per cent royalty that exceeds C$49 million.

In a separate release Tuesday, Sandstorm Metals said it had the option to remedy the default by making the cash call payments to Glencore, but decided against this move due to the significant equity raise that would have been required.

Donner said that it decided to cooperate with the "orderly execution and delivery" of the new agreement, "as it was the sole scenario that provided some value to Donner and a viable possibility to develop a restructuring plan". Its board also took into account the recommendations of the special committee formed to evaluate a full range of strategic options, including bankruptcy proceedings, restructurings, potential alliances, or sales.

Donner added that it continues to hold interests in the remaining five Matagami joint ventures, where exploration continues, and will look at various options to seek maximum value from these interests going forward.