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.
Forward-Looking Information
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.
David Patterson
Chairman
604.683.0564
donner@bed-rock.com
www.donnermetals.com
(TSXV:DON)
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