Divestment of holdings in Ambershaw Metallics (AMI)

20.12.19 | Pressemeldinger

(Oslo, Norway,20 December, 2019) Element ASA ("Element" or the "Company") has today entered into agreements for the divestment of its holdings (the "Transaction") in Ambershaw Metallics Inc. ("AMI"), i.e. the 7,890,727 shares in AMI (the "Shares"), corresponding to 26.7 % of the currently outstanding share capital of the AMI, and convertible debt, consisting of USD 4,850,000 in principal and, as of 19 December 2019, USD 509,715 in incurred interest (the "Convertible Bond"). The divestment is completed through a sale of the Shares and a partial repayment and refinancing of the Convertible Bond, which will provide the Company with USD 2 million in cash upon closing, and an additional USD 500.000 in cash by July next year.

“We are happy to announce this agreement with AMI and Legacy Hill Resources. By divesting our equity stake in AMI and restructuring the convertible loan, we have reached another important milestone in our restructuring process. We have derisked our position significantly and increased our immediate cash significantly. The agreement provides Element with a much stronger financial platform to execute our new digital strategy from,” says Geir Johansen, Chief Executive Officer of Element.

Element initiated the investment in AMI in 2016, and formalized an investment and shareholders' agreement regarding AMI with Legacy Hill Resources Ltd. ("LHR") in February 2018. Pursuant to the investment and shareholders' agreement, Element had the option to increase its ownership in AMI to 51%. For further information, please refer to earlier stock exchange announcements, including https://newsweb.oslobors.no/message/443452.

In July 2019, the Company announced its intention to consider strategic alternatives for its holdings in AMI as the required resources and capital commitments needed to develop AMI could not be supported by Element's balance sheet and funding availability. Further, the AMI project did not longer have the cash flow profile that the Company was looking for at the time when the investment decision was made. Element consequently decided to enter into the Transaction described herein and further information is hereby given pursuant to Section 3.4 of the Continuing Obligations of the Oslo Stock Exchange.

“The Board is very pleased with the AMI agreement as it represents a cornerstone in the restructuring of the Company towards a new strategy. The unwinding of old investments, which de-risks our position and adds liquidity to the company, has been a key priority for the new board and management. The restructured position has a potential face value of up to USD 8.4 million, which could be reduced by USD 1.6 million if AMI/NewCo decides to repay the loans before maturity. This is a value accretive deal for our shareholders and gives Element financial strength and flexibility to implement our new digital strategy“ says Thomas Christensen, Chairman of Element.

DESCRIPTION OF THE TRANSEACTION
The Transaction consist of a sale of the Shares at a purchase price of USD 1,500,000 and a repayment and refinancing of the Convertible Bond, as further described below.

The sale of the Shares
The Shares are sold to Eardley Settlement Ltd ("NewCo") at a purchase price of USD 1,500,000. The purchase price shall be settled by NewCo by a promissory note to be issued by NewCo to Element at the date of consummation of the Transaction ("Closing").

The promissory note shall fall due for payment 5 years after closing, but can be prepaid, and shall carry an interest rate of 7% per annum. However, if NewCo settles the promissory note prior to 31 December 2020, Element shall give NewCo a discount of USD 45,000 on the purchase price.

NewCo's obligation to repay the promissory note shall be secured by a first priority pledge over the Shares.

Repayment and refinancing of the Convertible Bond
The agreements to repay and refinance the Convertible Bond has been entered into with AMI and LHR.

On closing, AMI shall repay USD 2,000,000 of the principal of the Convertible Bond in cash to Element.

The remaining principal and incurred interest of the Convertible Bond as of the repayment date, USD 3,342,042 as per 19 December 2019, shall be converted into two new balloon term loans.

The first term loan shall amount to USD 500,000 (the "Term Loan 1"), and shall together with accrued interest from the Closing date and until and including the repayment date be repaid on 31 July 2020.

The second term loan shall amount to USD 2,350,000 plus accrued interest of USD 492,042 as of the Closing date (the "Term Loan 2"), and shall together with accrued interest from the Closing date and until and including the repayment date be repaid 5 years after Closing.

If AMI repays Term Loan 2 before the final maturity date, AMI shall be granted a discount on the outstanding amount as set out below:

  • The outstanding amount of Term Loan 2 shall be discounted with 50% if the Term Loan 2 is repaid during 2020;
  • The outstanding amount of Term Loan 2 shall be discounted with 30% if the Term Loan 2 is repaid during 2021; and
  • The outstanding amount of Term Loan 2 shall be discounted with 15% if the Term Loan 2 is repaid during 2022;

Both loans shall carry an interest rate of 7% pro anno which shall be paid on the maturity date. Both loans shall be secured by a first ranking fixed and floating charge over the business and assets of AMI.

In the event that AMI obtains project finance (including overdraft facilities) from an un-affiliated person of AMI to progress the existing project of AMI, and such project finance lender(s) requires a first ranking security over the assets of the Company (including the assets secured by the Term Loans) and any associated reasonable intercreditor agreement with Element, Element shall enter into such a reasonable intercreditor agreement and execute any other reasonable, related documentation to give effect to such requirements, provided that the new priority charge shall not exceed USD 3,000,000.

DESCRIPTION OF AMI
AMI is a metals and mining company incorporated under the laws of the Province of British Columbia, Canada. AMI is controlled by LHR who has experience in magnetite mining and pelletising technology. 

In 2016, AMI acquired the Bending Lake iron deposit in NW Ontario, Canada, which hosts a NI 43-101 compliant resource of 336 Mt magnetite ore upgradable to 68% Fe. The deposit has been intermittently explored since 1953 and is well defined. It is located in a region with well-developed infrastructure; road access to the Trans-Canada highway, 60 km from railroad yard at Ignace, and 310 km by road from the Port of Thunder Bay on Lake Superior.

The Bending Lake iron deposit is located in the Bending Lake and Wapegeisi Lake areas approximately 65 kilometers southeast of Dryden and 40 kilometers west of Ignace, Ontario, Canada.The property is comprised of 73 freehold mining patents covering 4864 hectares and 3 licences of occupation covering 127 hectares.

The Board of Directors of AMI consists of Project Director, Mr. Georgi Doundarov, Board Director (Chairman), Mr. Saradhi Rajan and Board Director, Mr. Johannes Petersen. For 2018 the audited financial statements show that the company had zero revenues, operating loss of USD 1.16 million, and a net loss of USD 1.38 million. Book value of equity at the end of 2018 was USD 1.64 million, and total assets USD 6.98 million. Today there are 1 employee and 8 consultants working for the company.

THE SIGNIFICANCE OF THE TRANSACTION FOR THE COMPANY
The sale of the Shares and repayment/refinancing of the Convertible Bond imply that Element has completed its strategic review of its holdings in AMI, providing Element with fresh capital that can be used for investments and for the Company's operations.

OTHER
The transaction will not involve any specific rights to the benefit of the members of the Board of Directors or the executive managements of Element, AMI, NewCo or LHR, nor are any such agreements expected to be entered into.

For further information, please contact:
Geir Johansen
CEO
E-mail: gj@elementasa.com
+47 4771 0451

Thomas Christensen
Chairman
+47 9225 5444

This information is subject to the disclosure requirements pursuant to section 5 -12 of the Norwegian Securities Trading Act and Section 3.4 of the Continuing Obligations of the Oslo Stock Exchange