Talon Metals Now Has All Funding Needed to Earn an Interest at Tamarack

Talon Metals (TSX:TLO) has entered into definitive agreements to receive US$15 million from Resource Capital Fund VI L.P. to earn an 18.45 percent interest in the Tamarack nickel-copper-PGM project. All funds will be used for additional exploration at the project.
Kennecott, a subsidiary of Rio Tinto (NYSE:RIO,LSE:RIO), which owns the project, has forgiven an unsecured loan of US$3.5 million to Talon, as well as cash payments of US$6.5 million until after the earn in period.
As quoted in the press release:

• RCF has agreed to provide Talon with US$15 million, as follows: (a) US$1 million via a private placement subscription (the “RCF Subscription“) for common shares in the capital of Talon (each, a “Common Share“) at a subscription price of C$0.12 per common share (the “RCF Subscription Price“); and (b) US$14 million via an unsecured convertible loan (the “RCF Unsecured Loan“, and together with the RCF Subscription, the “RCF Financing“). The RCF Unsecured Loan will mature on the maturity date (the “Maturity Date“) being the earlier of: (i) the date that is three years from the Closing Date (as defined below); and (ii) the date upon which RCF elects to accelerate the due date upon the occurrence of certain events, including an event of default.
• The RCF Unsecured Loan will bear interest at the rate of 12% per annum. All interest will accrue and become payable on the Maturity Date. Talon may only prepay the RCF Unsecured Loan (including accrued interest), in full or in part, with the prior approval of RCF.
• Under the terms of the RCF Unsecured Loan, RCF may elect to convert all or part of the principal amount of the RCF Unsecured Loan (including all capitalized interest) into Common Shares at any time at a conversion price of C$0.156 per Common Share (the “Conversion Price”), representing a 30% premium to the RCF Subscription Price. Interest that has not been capitalized is to be converted at a price equal to the volume weighted average trading price for the 20 trading days prior to the conversion. Any amount being converted pursuant to RCF’s conversion right shall be converted from United States dollars into Canadian dollars based on the currency exchange rate as reported by Bloomberg as of 5:00 p.m. (EST) on the first business day preceding the conversion date.
• For as long as the RCF Unsecured Loan agreement is in effect or while RCF and its affiliates, on a partially diluted basis, hold Common Shares equal to or exceeding 10% of all Common Shares issued and outstanding, RCF has the right to participate in any equity or debt financings of the Company (other than certain exempt issuances) at the same price and on the same terms, on a pro rata basis, such that RCF may maintain its percentage interest in Common Shares on a partially diluted basis, assuming the full exercise of all rights under the RCF Unsecured Loan to receive Common Shares, including all rights of conversion.
• At all times, (a) while any obligation remains outstanding under the RCF Unsecured Loan agreement, or (b) RCF and its affiliates, on a partially diluted basis, hold Common Shares equal to or exceeding 10% of all Common Shares issued and outstanding, RCF will have the right to nominate one individual to serve on the Company’s board of directors.
• A number of events constitute an event of default under the RCF Unsecured Loan agreement, including certain material adverse changes, the delisting of the Common Shares from the Toronto Stock Exchange (“TSX“), the abandonment or termination of a material portion of the Tamarack Project or a change of control of the Company. Upon an event of default, interest will accrue at the default interest rate of 17% per annum.

Highlights of amendments to the Kennecott agreement included:

• Kennecott has agreed to: (a) forgive the principal amount of the unsecured loan previously granted by Kennecott to Talon (i.e., US$4.5 million), and (b) defer the US$2.5 million and US$4 million option payments originally due by Talon on June 26, 2015 (previously deferred to December 21, 2015) and June 26, 2016, respectively, until after the earn-in period, and convert the interest payable thereunder (i.e.,US$349,114) into Common Shares at a conversion price of C$0.09 per Common Share (the “KennecottShare Issuance”) which represents a 25% discount to the RCF Subscription Price. Consequently, Talon will no longer have any debts payable to Kennecott.
• Kennecott and Talon have also agreed to amend the Exploration and Option Agreement dated June 25, 2014 between Talon Nickel (USA) LLC (as subsidiary of Talon) and Kennecott (the “Earn-in Agreement”) to provide, among other things, that upon receipt by Kennecott from Talon of the sum of US$15 million, Talon will earn an 18.45% interest in the Tamarack Project. Notably, Talon will have no further funding requirements to earn its interest in the Tamarack Project, including no longer being required to make payments of US$6.5 million to Kennecott to earn its interest in the Tamarack Project.
• Once Kennecott has spent the funds advanced by Talon on exploration activities in respect of the Tamarack Project, subject to certain self-funding rights by Kennecott during the earn-in period, Kennecott will have 180 days to elect whether to: (a) proceed with a 81.55/18.45 joint venture on the Tamarack Project, with Kennecott owning an 81.55% participating interest, and Talon owning an 18.45% participating interest; or (b) grant Talon the right to purchase Kennecott’s interest in the Tamarack Project for a total purchase price of US$114 million (previously US$107.5 million). In the event Kennecott grants Talon the right to purchase its interest in the Tamarack Project, and Talon elects to proceed with the purchase option, Talon will have up to 18 months to close the transaction, provided it makes an upfront non-refundable payment of US$14 million (previously US$6.5 million), thereby reducing the purchase price to US$100-million (same purchase price as before).

Henri van Rooyen, CEO of Talon, said:

Kennecott’s forgiveness of the unsecured loan in the amount of US$4.5 million and deferral of the cash payments in the amount of US$6.5 million until after the earn-in period, combined with RCF’s new US$15 million investment (approximately C$20 million), allows Talon to earn its proportionate interest in the approximate 18 km Tamarack Intrusive Complex. Notably, the entire US$15 million to be received from RCF will be used by Kennecott to advance the Tamarack Project, with not a penny being spent on Talon salaries or overhead. This transaction constitutes one of the largest capital raisings in 2015 (on the TSX and TSX Venture Exchange) amongst exploration companies, and is a testament to the quality and potential of the Tamarack Project.

Click here for the full press release.