Key points
- The bridge loans carry 8-per-cent annual interest, mature in one year, and are expected to form part of a larger $34-million (U.S.) secured credit facility.
- Nautilus issued the lender 3,221,649 warrants exercisable at 17 cents per share for five years in connection with the initial loan advances.
- Under the new mandate, M. Horn & Co. Ltd. becomes exclusive financial adviser for up to $350-million (U.S.) in remaining Solwara 1 project financing, replacing the Oct. 9, 2017 agreement.
- The adviser will earn cash fees of 6 per cent on equity financings, 5 per cent on debt or trade financings, and 1 per cent on unsolicited investment proposals.
NAUTILUS ARRANGES BRIDGE LOANS AND SIGNS NEW FUNDING MANDATE
Nautilus Minerals Inc. has arranged to receive bridge loans from Deep Sea Mining Finance Ltd. and has also entered into a financing mandate agreement with M. Horn & Co. Ltd.
Bridge loans
The bridge loans, which the company expects to be in the amount of up to $7-million (U.S.), will assist the company’s immediate working capital requirements and facilitate payments required to continue the development of the company’s sea floor production system to be first utilized at the company’s Solwara 1 project. The loans bear interest at 8 per cent per annum, payable biannually in arrears with a one-year maturity date.
The company will be entitled to prepay each loan prior to maturity, by paying 108 per cent of the outstanding principal of the loan plus accrued and unpaid interest. Each loan will be represented by a promissory note and will initially be secured against the assets of the company through a general security agreement. The lender may subsequently require the loan to be guaranteed by the company’s material operating subsidiaries and secured against the assets of such subsidiaries.
The bridge loans are expected to form part of a larger secured structured credit facility of up to $34-million (U.S.) to be provided by the lender to the company, on terms currently being negotiated between the lender and the company. There can be no assurance that the company will be successful in concluding the larger credit facility transaction or that any further financing will be secured by the company.
In conjunction with initial advances under the bridge loans, the company issued to the lender 3,221,649 warrants of the company. Each warrant entitles the lender to purchase one common share of the company at a price of 17 cents for a period of five years from the date of issuance of the warrant.
As previously disclosed, the lender is a recently incorporated private company in the British Virgin Islands and intended to be 50 per cent owned by each of: (i) USM Finance Ltd., a wholly owned subsidiary of USM Holdings Ltd., an affiliate of Metalloinvest Holding (Cyprus) Ltd.; and (ii) Mawarid Offshore Mining Ltd., a wholly owned subsidiary of MB Holding Company LLC.
As the lender will be controlled by two insiders of the company, the lender is a related party of the company and the loan transaction constitutes a related-party transaction of the company under MI 61-101 Protection of Minority Security Holders in Special Transactions. The transactions comprising the bridge loans and the warrants will be exempt from the formal valuation and minority shareholder approval requirements of MI 61-101.
The independent committee of directors of the company, consisting of Russell Debney and John McCoach, approved, prior to Mr. Debney’s resignation, the bridge loans and the financing mandate.
The company did not file a material change report more than 21 days before the expected closing of this transaction, as the details of the transaction were not finalized until immediately prior to the closing and the company wished to close the transaction as soon as practicable for sound business reasons.
New financing mandate
Pursuant to the financing mandate, the adviser has been appointed as the company’s exclusive financial adviser, for a period of one year, in respect of the remaining project financing of up to $350-million (U.S.) required to complete the development of the Solwara 1 project. The financing mandate replaces the existing financing mandate agreement dated Oct. 9, 2017, between the company and the lender.
The adviser, a private company controlled by Mark Horn, is a corporate finance business authorized in the United Kingdom by the Financial Conduct Authority. Mr. Horn is a previous director of the company.
Under the financing mandate, the company will pay the following to the adviser:
A cash fee on the aggregate consideration received by the company in a financing transaction equal to 6 per cent in respect of equity financings, or 5 per cent in respect of any debt financing, trade financing or other form of financing transaction during the term of the agreement, and for a period of 12 months following its cancellation in respect of investors introduced to the company by the lender. The commission will be payable on the bridge loans and other financings provided by the lender;
A cash fee equal to 1.0 per cent of the amount raised by the company in a financing transaction arising from an unsolicited investment proposal received from a third party pursuant to the terms of the financing mandate.
- A cash fee on the aggregate consideration received by the company in a financing transaction equal to 6 per cent in respect of equity financings, or 5 per cent in respect of any debt financing, trade financing or other form of financing transaction during the term of the agreement, and for a period of 12 months following its cancellation in respect of investors introduced to the company by the lender. The commission will be payable on the bridge loans and other financings provided by the lender;
- A cash fee equal to 1.0 per cent of the amount raised by the company in a financing transaction arising from an unsolicited investment proposal received from a third party pursuant to the terms of the financing mandate.
The lender will have a right of first refusal in respect of matching any unsolicited investment proposals.
The financing mandate will remain in effect for a period of one year, or until terminated earlier by: mutual agreement; automatically upon the closing of financing transactions of $350-million (U.S.); or upon a sale of the company.
A copy of the financing mandate will be available under the company’s profile on the SEDAR website.
The company requires significant additional funding in order to complete the build and deployment of the sea floor production system to be utilized at the Solwara 1 project by the company and its joint venture partner (as to 15 per cent), the Independent State of Papua New Guinea’s nominee.
There can be no assurances that the company will be successful in securing the necessary additional financing transactions within the required time or at all, including in connection with the financing mandate. Failure to secure the necessary financing may result in the company undergoing various transactions including, without limitation, asset sales, joint ventures and capital restructurings.
The company will provide further updates as circumstances warrant.
About Nautilus Minerals Inc.
Nautilus is the first company to explore the ocean floor for polymetallic seafloor massive sulphide deposits. Nautilus was granted the first mining lease for such deposits at the prospect known as Solwara 1, in the territorial waters of Papua New Guinea, where it is aiming to produce copper, gold and silver. The company has also been granted its environmental permit for this site.
