LSE-listed Pembridge Resources is set to restructure the share ownership of its Minto copper mine, in Canada.
In light of the current financial market conditions owing to the outbreak of Covid-19 globally, and the potential for material cash calls on Pembridge, the company, with other Minto shareholders, has agreed to remove certain future funding obligations of Pembridge and to restructure the mine’s share ownership.
The board of Pembridge has concluded that it is in the best interests of the company to seek an agreement with US investors, whereby Pembridge reduces its percentage ownership in Minto in exchange for removing certain future financial liabilities, thereby ensuring the financial stability of the company.
This decision was aided, in part, by the additional risk posed by a potential legal dispute between Pembridge and the US investors under the shareholders’ agreement of June 2019.
Previously, the joint advisory committee of Minto authorised a $3-million capital call to fund working capital, which was due to be paid by Pembridge under the shareholders' agreement. Here, Pembridge loaned Minto the equivalent of $3-million via payment into an escrow surety account on behalf of Minto and, thus, considered that Pembridge had met its obligations with respect to its $3-million cash call contribution to Minto.
The US investors’ legal advisers disagreed with the company's contractual interpretation, suggesting Pembridge should pay $3-million directly to Minto to satisfy the cash call requirement.
In an effort to avoid a potential legal dispute, the company engaged in a regular dialogue with the US investors to reach an amicable and mutually beneficial solution.
While Pembridge maintains its belief that its interpretation of the shareholders' agreement is accurate, any efforts to enforce this belief would most likely involve a fairly protracted legal dispute in New York, bringing with it significant costs.
Pembridge has reached an agreement in principle with the US investors that will provide cash for Minto to meet its current cash requirements, as well as assist Pembridge's liquidity in the current unprecedented market conditions.
The US investors will subscribe for new Class B shares in Minto to a value of $3-million so as to support the short-term financial needs of Minto, thereby ensuring its ability to continue to operate in the current challenging times.
As a result of this investment into Minto by the US investors, Pembridge's economic interest will be reduced from 33% to 11%.
In addition, the US investors have agreed to support a decision by the Minto board of directors for the company to take over Pembridge's future payment obligations with respect to the control account.
This action will reduce the future financing commitments of Pembridge by between C$2-million and C$3-million.
Further, the US investors have also agreed to support a decision to take over all future consideration payments due from Pembridge to Capstone Mining, in accordance with the share sale and purchase agreement from June.
Pembridge had previously been expected to pay between $5-million and $20-million out of the income that it derived from Minto.
Pembridge CEO and board chairperson Gati Al-Jebouri noted that the current unprecedented market conditions had led to this development.
The agreement with the US investors would result not only in Pembridge removing potentially crippling financial liabilities, but would also ensure that Minto was in a stronger financial position to continue with the development, he explained.