Chatham Rock Phosphate Announces Convertible Note Issue

Further to the company’s announcement on Jan. 11, 2019, Chatham Rock Phosphate Ltd. has arranged a convertible note issue to raise up to $1-million ($1.1-million (New Zealand)). The offer is restricted to qualified investors and is not open to retail investors. The offer remains subject to acceptance by the TSX Venture Exchange.

The offering

The private placement consists of $1 ($1.10 (New Zealand)) unsecured convertible promissory notes that mature five years from the closing date.

Size of offering

The offering is for up to $1-million ($1.1-million (New Zealand)).

Minimum subscription

The minimum subscription is $2,000 ($2,200 (New Zealand)).

Interest

The interest rate is 10 per cent per year, calculated and payable annually, in arrears, on Dec. 31 of each year of the term of the notes, commencing on the first business day following the closing date, with the first payment being made on Dec. 31, 2019.

Redemption

The notes will be redeemable at the company’s option at any time following the closing date upon payment of the outstanding principal amount of the note and interest due or accruing up to the date of redemption, subject to the investor’s right of conversion. Payment of the redemption price for the notes shall be satisfied, at the company’s option, in cash or, if redeemed within two years of the closing date, by issuance of units of the company. If redeemed after two years following the closing date, payment of the redemption price for the notes shall be satisfied, at the company’s option, in cash or common shares of the company. If the company elects to pay the redemption price in units or shares, as applicable, the deemed redemption price shall be the same as the conversion prices, as set forth in this news release.

Conversion

Investors shall have the right, at any time, to convert the principal amount of the notes into units or, if converted after two years following the closing date, into shares, at any time prior to maturity at the following conversion prices:

If converted on or before Dec. 31, 2020, at a conversion price of 14.286 cents per unit (equivalent to seven units per $1 of note principal);

If converted after Dec. 31, 2020, and/or before Dec. 31, 2021, at a conversion price of 25 cents per unit or share, as applicable (equivalent to four units or shares per $1 of note principal);

If converted after Dec. 31, 2021, and on or before Dec. 31, 2022, at a conversion price of 33.33 cents per share (equivalent to three shares per $1 of note principal);

If converted after Dec. 31, 2022, and on or before Dec. 31, 2023, at a conversion price of $1 per share (equivalent to one share per $1 of note principal).

• If converted on or before Dec. 31, 2020, at a conversion price of 14.286 cents per unit (equivalent to seven units per $1 of note principal);
• If converted after Dec. 31, 2020, and/or before Dec. 31, 2021, at a conversion price of 25 cents per unit or share, as applicable (equivalent to four units or shares per $1 of note principal);
• If converted after Dec. 31, 2021, and on or before Dec. 31, 2022, at a conversion price of 33.33 cents per share (equivalent to three shares per $1 of note principal);
• If converted after Dec. 31, 2022, and on or before Dec. 31, 2023, at a conversion price of $1 per share (equivalent to one share per $1 of note principal).

Unit terms

Each unit issuable upon redemption or conversion of the notes shall comprise one share and one-half of one non-transferable share purchase warrant, with each whole warrant entitling the investor to purchase one additional share at a price of 45 cents per share for a period of two years from the closing date. If the notes are redeemed or converted after two years from the closing date, only shares will be issued upon such redemption or conversion.

Interest payments

All interest payment obligations under the notes will be satisfied by the issuance of shares to the investor at a deemed price equal to the volume-weighted average trading price of the shares on the TSX-V during the 10 trading days prior to the date on which each of the interest payments are due.

Subscription bonus

Investors will be entitled to receive 10 free common shares of Pacific Rare Earths Ltd. for every $1 of note principal subscribed for. The Pacific Rare Earths shares will be transferred by the company from its existing holdings to the investor on the closing date.

Commentary

Relative to the most recent trading prices on the TSX-V, the conversion terms for the first two years are attractive.

Further, an investment in the convertible note entitles the investor to 10 free shares in Chatham Rock Phosphate subsidiary Pacific Rare Earths. As announced on Sept. 5, 2018, Pacific Rare Earths has been formed to manage a work program aimed at quantifying the extent, value and recoverability of rare earths elements (REE) and other potentially strategic or valuable minerals contained in the rock phosphate nodules and in the seafloor muds on the Chatham Rise.

Also, as announced in Chatham Rock Phosphate’s October update to shareholders, Pacific Rare Earths and Chatham Rock Phosphate have commissioned a substantial overseas company to undertake a research project aimed at separating valuable byproducts (including rare earths) contained within the sandy seafloor matrix that contains the rock phosphate deposit.

The company will also be investigating the feasibility of extracting rare earths also contained in the rock phosphate nodules. Fifteen of the 17 known rare earths are present in these nodules.

Use of proceeds

The proceeds of this convertible note issue will be used to provide interim working capital and to progress the reapplication for the environmental permit.

As previously advised, Chatham Rock Phosphate is still actively communicating with the Capital Trust Group stakeholders, as the company seeks to raise the capital which was a prerequisite to entering the transactions outlined in Chatham Rock Phosphate’s announcement on Nov. 22, 2018. These transactions included an injection of $10-million (U.S.) into Chatham Rock Phosphate and the acquisition by Chatham Rock Phosphate of the Capital Trust Group.

If these transactions proceed, they will likely provide a continuing solution to Chatham Rock Phosphate’s future financing requirements and, hence, the relatively small scale of this financing on such attractive terms.