Otterburn Resources Corp. ("Otterburn") is pleased to announce that K92 Holdings International Limited ("K92") has entered into financing agreements with CRH Funding II Pte. Ltd. ("CRH"), an affiliate of Cartesian Royalty Holdings and Cartesian Capital Group, consisting of a gold prepayment investment and an equity investment (the "Financing"). Upon signing, K92 drew down the first tranche under the gold prepayment agreement (the "GPA").
The Kainantu Gold Project ("Kainantu") comprises a number of gold-copper deposits, including Irumafimpa and Kora. The proceeds from the Financing are expected to be used to refurbish and bring Irumafimpa back into production in 2016.
K92 purchased Kainantu from Barrick Gold Corporation in 2014 when Barrick initiated its divestiture program in South East Asia. Barrick originally purchased Kainantu from Highland Pacific Group in 2007 for US$141.5 million and proceeded to invest significantly in underground mine development, drilling, regional exploration work, roadworks and camp amenities.
Ian Stalker, Chief Executive Officer of K92, stated, "The Kainantu Gold Project is an attractive gold mine restart project with existing infrastructure in place and is coupled with almost 400sqkm of adjacent prospective exploration properties. We have now attracted a supportive financial partner to assist us in our restart. After extensive due diligence including time onsite, Cartesian has decided to move forward with K92 as we advance this very unique opportunity. The financing has been structured in a way that is less dilutive to the K92 share structure than a traditional equity investment, and involves the prepayment of gold, based on a percentage of our production from Irumafimpa."
Highlights of the Financing include:
- Under the GPA, CRH has committed to provide K92 with up to US$4.8 million over four (4) tranches in exchange for a percentage of gold produced at Irumafimpa over a 36 month period, subject to a minimum of 18,000 ounces of gold and a maximum of 20,000 ounces of gold.
- CRH advanced K92 the first tranche of US$962,795 under the GPA. Remaining tranches will be advanced upon K92 fulfilling certain technical milestones and other conditions, including the initiation by February 29, 2016 of the previously announced reverse take-over transaction with Otterburn ("RTO").
- In addition to the advances under the GPA, CRH has committed to an equity investment of up to CDN$3.5 million in K92 (or Otterburn following completion of the RTO) over two (2) tranches, pursuant to which CRH will subscribe for up to 10,000,000 units of K92 (or Otterburn) at CDN$0.35 per unit (the "Equity Component"). Each unit will consist of:
- one Class A Preferred Share, convertible into one ordinary share of K92 (or Otterburn). Each Class A Preferred Share will be redeemable by CRH at 1.5 times the original subscription price if K92 is unable to meet certain conditions, including the delivery requirements of gold under the GPA; and
- one warrant entitling CRH to purchase one ordinary share of K92 (or Otterburn), exercisable at CDN$0.75 per share for a period of two (2) years following the date of issue. A forced exercise clause will exist on these warrants if shares of K92 (or Otterburn) trade at CDN$1.25 or greater for 10 consecutive days during the 2-year term.
- If K92 fails to meet certain requirements of the GPA, CRH may elect to receive up to 30,000 ounces of gold rather than subscribing for units under the Equity Component.
- As security for K92's obligations under the GPA and the Class A Preferred Shares to be issued to CRH under the Equity Component, K92 has granted CRH a comprehensive general security interest in all of K92's present and after acquired property, together with specific security granted by K92's subsidiaries in Papua New Guinea.
- As additional consideration for the Financing, K92's wholly owned subsidiaries in Papua New Guinea have granted CRH a 0.25% net smelter return (NSR) royalty on Kora (with a buy-back provision) and a 0.5% NSR on Irumafimpa.
- CRH will be entitled to representation on the Board of Directors of K92 (or Otterburn) so long as the GPA remains outstanding or CRH maintains at least a 5% equity ownership in K92 (or Otterburn).
- Following completion of the RTO, K92's commitments under the Financing will become commitments of Otterburn. If CRH completes the Equity Component, it will receive no less than 15% of the total equity of Otterburn upon the RTO.
The full details of the Financing will be provided in a revised Filing Statement in connection with the RTO, which is expected to be filed by Otterburn with the TSX Venture Exchange during the first quarter of 2016.
K92 is also expected to file an updated National Instrument 43-101 compliant Technical Report for the Kainantu Gold Project in connection with the RTO. This Technical Report will not constitute a preliminary economic assessment, a pre-feasibility study or a feasibility study. K92 advises that its decision to refurbish and restart Irumafimpa is not based on a feasibility study demonstrating economic and technical viability and, as a result, there is increased uncertainty and multiple technical and economic risks that are associated with this decision. These risks include areas that are analyzed in detail in a feasibility study, such as applying economic analysis to resources and reserves, more detailed metallurgy, and a number of specialized studies in areas such as mining and recovery methods, market analyses and environmental and community impacts. Project failure may adversely impact K92's and Otterburn's (following completion of the RTO) future profitability. Additional risks will be outlined in Otterburn's Filing Statement.