RESOURCE CAPITAL FUND III L.P.
NEWMONT FINANCE LIMITED
IN PRINCIPLE TERM SHEET FOR DISCUSSION PURPOSES ONLY
THIS TERM SHEET CONTAINS NEITHER EXPRESSED NOR IMPLIED COMMITMENTS
ON THE PART OF RESOURCE CAPITAL FUND III L.P. OR NEWMONT FINANCE LIMITED AND IS SUBJECT TO THE APPROVAL OF THE INVESTMENT
COMMITTEE OF RESOURCE CAPITAL FUND III L.P. AND THE BOARD OF DIRECTORS
OF NEWMONT FINANCE LIMITED.
Terms and Conditions associated with the Acquisition of QMAG Joint
Venture and associated assets from Australian Magnesium Corporation
Vendor Australian Magnesium Corporation Ltd. (" AMC" ) and various subsidiaries (" Subsidiaries" )
Acquired Assets All the interests of AMC and the Subsidiaries in the QMAG Joint Venture and assets related thereto, (collectively the " QMAG JV" ) including Mineral Development Licence MDL344, Mineral Development Licence MDL256 (" Oldman South" ) and associated freehold title.
Funders Resource Capital Fund III L.P. (" RCF" ) and Newmont Finance Limited (" Newmont" )
Acquisition RCF will acquire via a newly established entity or entities (" Acquisition Entity" ) 100% of the equity interests in the QMAG JV, in accordance with the Term Sheet attached as Appendix 1 (the " Acquisition" ).
Financial Support Each of RCF and Newmont will concurrently, but on a several and not a joint basis, provide financial support for the Acquisition in the manner provided in this term sheet. Newmont will contribute a maximum of A$30 million and RCF will provide a minimum of A$30 million.
Closing Date Subject to satisfaction of the conditions precedent set forth below, the concurrent closing of the RCF Equity, RCF Debt and Newmont Debt facilities will take place on October 30, 2004 as part of the closing of the Acquisition.
Equity RCF will provide A$18 million in equity to the Acquisition Entity representing a 100% equity interest in that Acquisition Entity (" RCF Equity" ). RCF will fund all closing costs anticipated to total A$2.75 million. In addition RCF is guaranteeing a contingent payment to AMC of A$2M as described in the AMC purchase term sheet. Total potential " equity" cost to RCF is A$22.75 million.
RCF Sub Debt RCF will provide two tranches of debt (" RCF Debt" ):
(i) Tranche One: US$ equivalent of A$15 million debt facility to the Acquisition Entity on the Debt Facility Terms set forth below (the " RCF Tranche one Debt" ).
(ii) Tranche Two: A$7 million will be provided to fund capital expenditure requirements (' Capital Program" ) as described in the ABN AMRO Senior Debt (' Senior Debt" ) term sheet attached as appendix II. The terms of this tranche are described in the Debt Facility Terms. (the " RCF Tranche Two Debt" ). The RCF Tranche Two Debt will not be drawn down until the RCF Tranche One Debt has been fully drawn down.
Newmont Sub Debt Newmont will provide A$30 million as a debt facility to the Acquisition Entity on the Debt Facility Terms set forth below (the " Newmont Debt" ). The RCF Debt and the Newmont Debt are together referred to as the " Debt" .
Debt Terms The Debt will be on the following terms.
ullet Expiry: 10 years after closing date.
ullet Repayment: The Debt will be repaid from the cash flow of QMAG JV that is in excess of amounts required to be paid to the Senior Lender, or required by the Senior Lender to be maintained by the QMAG JV pursuant to the Senior Debt and that is in excess of the working capital requirements of the QMAG JV. Such available cash flow will be applied in the following order of priority -
(a) accrued interest on all RCF Debt;
(b) accrued interest on Newmont Debt;
(c) principal and other amounts due with respect to the RCF Tranche Two Debt;
(d) principal and other amounts due on the RCF Tranche One Debt; and
(e) principal and other amounts due on the Newmont Debt. Each category must be fully discharged before funds are applied to the next category.
ullet Prepayment: The Debt may be prepaid at any time, in whole or in part, provided that any prepayments will be applied as provided above.
ullet Interest: RCF Debt: 2% per annum Newmont Debt: 1% per annum
ullet Use of Proceeds: The proceeds of the Debt will be used exclusively:
(a) to effect the Acquisition;
(b) to repay the interim working capital loan of approximately $2.5 million provided to AMC and certain Subsidiaries at about the time of this term sheet (the " Bridge Loan" ); and
(c) fund the Capital Program.
ullet Collateral Security: The RCF Tranche One Debt and the Newmont debt will be secured on a pari passu basis by all material real and personal property assets of the Acquisition Entity and the QMAG JV, now held or later acquired. The RCF Tranche Two Debt will hold the same security but rank senior to the Newmont and RCF Tranche One Debt.
ullet Subordination to Senior Debt: All entitlements of RCF and Newmont to payment of the Debt, and all collateral security provided by the Acquisition Entity and the QMAG JV to secure
payment of the Debt, will be subject and subordinate to the Senior Debt and the collateral security therefore.
ullet Covenants: Usual and customary, including maintenance of existence, compliance with laws, compliance with provisions of the Senior Debt, reporting requirements, including quarterly financial reporting, copies of audited financial statements etc.
ullet Default: Usual and customary provisions, including cross default among the RCF Debt, the Newmont Debt and the Senior Debt.
ullet Modifications: Neither RCF nor Newmont will modify the terms of the RCF Debt or the Newmont Debt without the consent of the other party, which will not be unreasonably withheld.
ullet Transfer of Newmont Debt: Newmont may not transfer any interest in the Newmont Debt without the prior consent of RCF except that Newmont may transfer the Newmont Debt to related bodies corporate without RCF consent subject to giving notice to RCF.
ullet Dividends can only be paid in the event that an equivalent amount is used to repay the Newmont Debt. For the avoidance of doubt and subject to the terms of the Senior Debt, Dividends may be paid prior to the full repayment of RCF Debt.
Senior Debt Facility RCF and Newmont recognize and agree that the Acquisition Entity and/or the QMAG JV will establish the Senior Debt Facility in accordance with the Senior Debt term sheet in appendix II (" Senior Debt" ) and that the Senior Debt will be senior to and entitled to repayment in accordance with its terms prior to the Debt, and that the collateral security securing payment of the Senior Debt will be senior and prior to the collateral security securing payment of the Debt.
i) Receipt of legal opinions and execution of definitive documentation satisfactory to RCF and Newmont.
ii) Release of all liens, encumbrances or other security arrangements associated with existing indebtedness at all corporate levels
iii) Receipt by AMC, RCF and Newmont of all necessary regulatory approvals.
iv) Absence of a material adverse change in the business or prospects of the QMAG JV .
v) Concurrent closing of the Senior Debt and the Acquisition.
vi) Concurrent payment in full of the Bridge Loan.
Attachment: Appendix I Acquisition term sheet Appendix II Senior Debt term sheet
Signed by an authorized representative of
Resource Capital Fund III L.P.
By Resource Capital Associates III L.P., G.P.
By RCA III GP L.L.C., G.P Date: September 26, 2004
/s/ James McClements
James McClements, Senior Partner
Signed by an authorized representative of Newmont Finance Ltd Date: September 27, 2004
/s/ Phillip James Garrard
Phillip James Garrard, Attorney Under Power
Sale & Purchase of QMAG
The parties to this Term Sheet are:
Australian Magnesium Corporation Limited (' AMC' )
Australian Magnesium Operations Pty Ltd (' AMO' )
QMCI Investments Pty Ltd. (' QMCI' )
QMC (Kunwarara) Pty Ltd (' QMCK' )
QMC Refmag Pty Ltd (' QMCR' )
Queensland Magnesia Pty Ltd (' QMPL' )
Resource Capital Fund III L.P. (' RCF' )
Newmont Australia Limited (' Newmont' )
Recitals & Purpose
A. Queensland Magnesia (' QMAG' ) is an unincorporated joint venture operating under the QMAG Joint Venture Agreement (the ' QMAG Joint Venture' ).
B. The participants in the QMAG Joint Venture are:
AMC 50% QMCK 40% QMCR 10%
The manager of the QMAG Joint Venture is QMPL, which is wholly owned by QMCK.
C. QMCI is the sole owner of the shares in QMCK and QMCR.
D. QMC Finance Pty Ltd (' QFPL' ), a wholly owned subsidiary of AMC, is the borrower of a loan facility (the ' QMAG Loan Facility' ) and the counter-party of various foreign exchange hedge contracts and options with ANZ Banking Group Limited (' ANZ' ). The amount currently outstanding under the QMAG Loan Facility is A$58.5 million.
1 E. Newmont Mining Corporation and 15 subsidiary companies, one of which is Newmont (' Newmont Guarantor Entities' ), are each co-guarantors with AMC and the AMC subsidiaries of the QMAG Loan Facility and the foreign exchange hedge contracts and options with ANZ.
F. AMC holds Mineral Development Licence MDL344, which covers magnesite deposits at Kunawarara.
G. AMO holds Mineral Development Licence MDL256, which covers a magnesite deposit known as Oldman South and the freehold land covered by it. H. AMC owes Newmont an amount of A$5.0 million in respect of a loan established under the Heads of Agreement of 13 June 2003. I. QMAG owes Newmont an amount of approximately A$2.8 million in respect of outstanding guarantee fees in relation to the QMAG Loan Facility and foreign exchange hedge contracts and options.
J. QMAG owes AMC an amount of approximately A$4.0 million in respect of an intercompany loan.
K. RCF, a limited partnership with US$240 million of committed capital, has expressed an interest to acquire through its nominee and/or wholly owned subsidiaries of its nominee (" Acquisition Entity" ) QMAG by purchasing AMC' s 50% share of the rights, title and interest in the assets, liabilities and obligations of the QMAG Joint Venture, and AMC' s shares in QMCI including the shares it holds in QMCK, QMCR and QMPL; AMC' s shares in QFPL; MDL344 held by AMC; and MDL256 and the Oldman South freehold land covered by it, held by AMO. The precise structural arrangements whereby the Acquisition Entity would acquire such interests remain to be determined by RCF, based upon tax and other advice being obtained by RCF from its advisors.
L. This Term Sheet records the terms and conditions under which AMC is prepared to sell, and RCF through the Acquisition Entity is prepared to acquire, QMAG (including AMC' s shares in QMCI and the shares it holds in QMCK, QMCR and QMPL, and the shares AMC holds in QFPL), MDL344, and MDL256 and the Oldman South freehold land covered by it, held by AMO, and further records the terms and conditions under which Newmont is willing to facilitate such sale and purchase.
Terms & Conditions
1. The Acquisition Entity will acquire on Settlement Date:
(i) AMC' s 50% share in the rights, title and interest in the assets, liabilities and obligations of the QMAG Joint Venture; (ii) At RCF' s election:
(a) AMC' s shares (being 100%) in QMCI; or
(b) QMCI' s shares (being 100%) in QMCK and QMCR; or
(c) All the rights, title and interest in the assets, liabilities and obligations of QMCK and QMCR in the QMAG Joint Venture; (iii) At RCF' s election, QMCK' s shares (being 100%) in QMPL or all the rights, title and interest in the assets, liabilities and obligations of QMPL;
2 (iv) AMC' s shares (being 100%) in QFPL or, at RCF' s election, the Acquisition Entity will repay the QMAG Loan Facility or assume all the obligations of QFPL in the manner set out in clause 2.(i)(b);
(v) AMC' s rights (being 100%) in MDL344 covering the Kunwarara magnesite deposit; and
(vi) AMO' s rights (being 100%) in MDL256 covering the area known as Oldman South, and the freehold land covered by it. 2. As consideration for acquiring the assets referred to in clause 1:
(i) On Settlement Date, the Acquisition Entity must:
(a) Unconditionally pay (or cause to be paid) to AMC A$5.0 million;
(b) In respect of the QMAG Loan Facility, at its election, either unconditionally pay (or cause to be paid) to ANZ, or assume all the obligations of QFPL being:
I. the amount of the principal amount currently outstanding under the QMAG Loan Facility of A$58.5 million (it being understood that A$30 million of such amount will be provided by Newmont Finance Pty Ltd as a subordinated loan to the Acquisition Entity in return for being released as guarantor of the QMAG Loan Facility) (' Newmont Loan' ); II. the amount of any interest accrued but not yet due and payable in respect of the QMAG Loan Facility to Settlement Date (provided that QMAG will continue to meet all interest payments due under the QMAG Loan Facility up to the Settlement Date);
III. the amount due and payable, or net of any amount receivable, from the close out of the foreign exchange hedge contracts and options with ANZ; and IV. any other amounts due and payable to ANZ pursuant to the terms of the QMAG Loan Facility arising from settlement of the QMAG Loan Facility. (c) Ensure that the Newmont Guarantor Entities are fully released from their guarantee of the QMAG Loan Facility and associated foreign exchange hedge contracts and options.
(d) Ensure that the interim working capital loan of approximately A$2.5 million provided by RCF and Newmont Finance Pty Ltd to AMC, QMCK and QMCR at about the time of this Term Sheet is repaid from funding arranged to complete the acquisition.
(ii) By no later than 31 March 2005, the Acquisition Entity must unconditionally pay (or cause to be paid) to AMC a further A$3.0 million.
3 (iii) On Settlement Date, RCF will provide AMC an unconditional guarantee up to a maximum amount of A$2.0 million (' RCF Guarantee' ) for (I) rehabilitation obligations in relation to the Gladstone demonstration plant, and (II) provision for AMT staff entitlements, so referred to in Dr Chris Rawlings letter of 2 August 2004 to Mr James McClements and Mr David Harquail (' Guaranteed Obligations' ) on the following terms:
(a) AMC will use commercially reasonable efforts to reduce the Guaranteed Obligations;
(b) AMC will have the right to call all or part of the RCF Guarantee with effect from Settlement Date for a period of up to 12 months after Settlement Date, only in the event (I) AMC is required to pay the Guaranteed Obligations and has insufficient funds on hand to make such payments, and (II) the Directors of AMC have resolved to close down the magnesium business of AMC; (c) if the full amount of the RCF Guarantee is called by AMC, (I) RCF will be issued such number of fully paid ordinary shares in AMC as would take their shareholding in AMC to 14.9%, and (II) the number of fully paid ordinary shares issued will reduce proportionally with lesser amounts of the RCF Guarantee so called;
(d) RCF will be issued 66,265,465 options in AMC, exercisable into fully paid ordinary shares in AMC from Settlement Date for a period of up to 36 months after Settlement Date, at an exercise price of A$0.035 per option. If during the tenure of the RCF Guarantee described in this clause 2.iii) RCF converts all of the options into fully paid ordinary shares in AMC, the RCF Guarantee will be extinguished. In the event of a reorganization of the share capital of AMC after Settlement Date, the number of fully paid ordinary shares issued upon conversion of the options, and the exercise price will be adjusted in accordance with the ASX Listing Rules; and
(e) If during the tenure of the RCF Guarantee described in this clause 2.iii), AMC issues shares to raise new equity capital exceeding A$2.0 million, (I) the RCF Guarantee will be extinguished in full, and (II) the amount of the RCF Guarantee will reduce proportionally with lesser amounts of new equity capital so raised by the issue of AMC shares.
(iv) If, by the date 36 months after Settlement Date, AMC or any successor thereof is able to structure and implement a finance co-operation agreement in respect of the existing tax losses of AMC in accordance with the Income Tax Assessment Act, that generates additional value to AMC, then RCF or its nominee will be entitled to receive an amount equal to 25% of that additional value generated and will receive a payment in such amount as such value is realized. RCF will assist AMC in identifying any structures or arrangements that might lead to realization of any such additional value, but any decision to pursue any such arrangements shall be at the sole discretion of AMC.
4 3. AMC will:
(i) Provide an indemnity to the Acquisition Entity and RCF in respect of any loss they suffer with respect to claims now or in the future by investors or any other persons in any way relating to the AMC distribution entitled securities, except where such loss is caused by the fraud or negligence of the Acquisition Entity or RCF (" AMC Indemnity" ); (ii) On the Settlement Date, forgive the A$4.0 million loan to the QMAG Joint Venture and all amounts payable with respect thereto and any other debt that is owed by the QMAG Joint Venture, QMCK, QMCR and QMPL (or payable out of its assets) to AMC or any subsidiary of AMC that is not being acquired by the Acquisition Entity;
(iii) [ Provide, in a form satisfactory to Newmont, a full release by AMC and its affiliates, and by the officers and directors of AMC and its affiliates, from any and all payments, liabilities, obligations and claims against the Newmont Guarantor Entities and each of the officers, directors and employees of the Newmont Guarantor Entities ;] and
(iv) On the Settlement Date and on the date every three months thereafter, provide RCF with (I) a statement of cash position including an estimate of projected cash inflows and outflows of the AMC business for the period up to the date 12 months after Settlement Date (being the tenure of the RCF Guarantee) in a form consistent with Dr Chris Rawlings letter of 2 August 2004 to Mr James McClements and Mr David Harquail, and (II) a report on the status of the Guaranteed Obligations.
4. Newmont will, in return for it being released as guarantor of the QMAG Loan Facility, for all other Newmont entities so being released, and for the release of any and all other payments, liabilities or obligations with respect to the QMAG JV, the employees of QMPL, and AMC and its subsidiaries, employees, directors, and officers (including any remaining obligations to AMC and its subsidiaries under the Heads of Agreement, subject to the consent (if required) of the State and Commonwealth):
(i) Forgo outstanding guarantee fees in relation to the QMAG Loan Facility and foreign exchange hedge contracts and options with ANZ; (ii) Forgive the loan of A$5.0 million owed by AMC to Newmont established under the Heads of Agreement;
(iii) Forgo amounts in dispute in respect of Mr David Grander;
(iv) Procure that Newmont Finance Pty Ltd provides the Newmont Loan, subject to execution of definitive agreements acceptable to Newmont (acting reasonably), regarding such Loan, including subordination and security terms;
(v) Release QMAG, QMCI, QMCK, QMCR, QMPL and QFPL from any and all other claims it may have against those entities or any of their assets; and (vi)
Provide an indemnity to the Acquisition Entity and RCF in respect of any loss they suffer with respect to claims made now or in the future by investors or any other persons in any way relating to the AMC distribution entitled securities (" Newmont Indemnity" ). The Acquisition Entity and RCF agree to exhaust all reasonable recourse against AMC under the AMC Indemnity prior to enforcing the Newmont Indemnity but where the loss is
caused by the fraud or negligence of Newmont, the Acquisition Entity and RCF must exhaust all reasonable recourse against Newmont under the Newmont Indemnity prior to enforcing the AMC Indemnity.
5. RCF will endeavour to arrange by the close of business in Queensland on 28 October 2004, a third party financier to have obtained credit approval and entered into formal documentation to provide a new term loan and working capital facility for QMAG of a combined amount in the order of A$15 to 20 million on terms acceptable to RCF (acting reasonably), and a performance guarantee in respect of QMAG' s environmental bond obligations to the Queensland Department of Natural Resources and Energy, subject to usual conditions to drawdown.
6. AMC will withdraw following Settlement Date an amount of approximately $1.8 million in cash held in bank accounts with NAB and Westpac, collateralizing QMAG' s environmental bond obligations to the Queensland Department of Natural Resources and Energy. AMC is required to pass on these funds to the Queensland State and Commonwealth Government' s under the Deed of Transfer and Release of 6 July 2004.
7. The following are conditions precedent to completion of the transaction contemplated by this Term Sheet.
(i) AMC specific conditions include:
(a) RCF acknowledges that the current QMAG management and employees are required to operate the QMAG business and undertakes to cause the Acquisition Entity to assume the responsibilities and liabilities pertaining to their employment contracts and any other employee and industrial arrangements in force as at Settlement Date.
(ii) RCF specific conditions include:
(a) Successful arrangement of a new term loan and working capital facility and performance guarantee facility for QMAG in accordance with clause 5; (b) Newmont Finance Pty Ltd entering into formal documentation to provide the Newmont Loan, subject only to usual conditions to drawdown; and (c) Foreign Investment Review Board approval (if required).
(iii) General conditions include any other regulatory approvals (other than Foreign Investment Review Board approval) or third party consents required in respect of the sale and purchase of QMAG on the terms set out in this Term Sheet, including but not limited to any AMC shareholder approvals required under the ASX Listing Rules and the Corporations Act.
8. AMC agrees to use its best endeavours to do the following on or before the Settlement Date:
(i) obtain waivers from the former holders of the land underlying the QMAG mining leases waiving their pre-emptive rights to re-purchase AMC' s 50% interest in that land on its sale to the Acquisition Entity;
6 (ii) obtain confirmation from the Queensland Department of Natural Resources and Energy that no water licence is required in relation to the Kunwarara mine; (iii) obtain approval by the EPA of the Environmental Management Overview Strategy submitted by AMC in July 2003; (iv) obtain the approval of Ergon Energy Pty Ltd to an amendment to the Electricity Connection Agreement for the Parkhust facility by reducing the load factor to 0.8; and
(v) complete the assignment of the trade mark " QMAG" from ASIC to the Acquisition Entity or its nominee.
In addition, AMC agrees to provide RCF with the draft meeting materials in respect of the AMC shareholder approval required to give effect to the transaction contemplated by this Term Sheet and with a draft of any public announcement in relation to the transaction contemplated by this Term Sheet, prior to release.
9. The following general conditions apply in respect of the transaction contemplated by this Term Sheet.
(i) Settlement Date
Settlement Date is defined to mean the date that is 2 Business Days after the date on which all conditions precedent to completion of the transaction contemplated by this Term Sheet have been satisfied.
(ii) Legal Costs
Each party shall pay its own legal and other costs and expenses of negotiating, preparing, executing and performing its obligations in respect of the transaction contemplated by this Term Sheet. (iii) Stamp Duty
The Acquisition Entity shall pay all stamp duty assessed in relation to the sale and purchase contemplated by this Term Sheet.
(iv) Governing Law
This Term Sheet and any document arising from it will be governed by the law in force in Queensland. (v) Goods and Services Tax
Any supply in respect of the transaction contemplated by this Term Sheet is GST exclusive and to the extent that GST is payable in relation to any taxable supply with respect to the transactions contemplated by this Term Sheet, the party liable to pay that GST will be indemnified by the other party for the amount of that GST, provided that the first party provides the other party with a tax invoice for that amount.
(vi) Time is of the Essence
Each party to this Term Sheet acknowledges the time and cash constraints imposed on AMC under the Deed of Transfer and Release, in particular the requirement to remit A$3 million to the Queensland State and
Commonwealth Government' s if AMC has not become an externally administered body corporate or the Directors of AMC have not resolved to close down the business of AMC (other than QMAG) by 30 September 2004.
Each of the parties shall therefore use their best endeavours to satisfy all of the conditions precedent outlined in clause 7 of this Term Sheet (other than the requirement for Shareholder and FIRB approval), and to negotiate and execute formal documentation to effect the transaction, by the close of business in Queensland on 28 October 2004. AMC agrees to use its best endeavours to obtain shareholder approval by 4 November 2004. RCF will use its best endeavours to obtain FIRB approval as soon as possible.
(vii) RCF shall procure:
(a) incorporation of the Acquisition Entity;
(b) that the Acquisition Entity enters into the formal documentation in relation to the sale and purchase contemplated by this Term Sheet; and (c) subject to satisfaction of the conditions precedent in the sale and purchase agreement, that the Acquisition Entity has adequate funds to meet its financial obligations set forth in clause 2, paragraphs (i), (ii) and (iii) of this Term Sheet.
(viii) Binding Agreement
This Term Sheet binds each of the parties hereto to act in good faith and to use its best efforts to enter into appropriate definitive documentation memorializing the transactions summarized herein as soon as practicable, and in all events by no later than the close of business in Queensland on 28 October 2004. Such formal documentation will be consistent with but set out more fully the terms of the transactions contemplated by this Term Sheet and will include commercially reasonable representations, warranties, undertakings, indemnities and events of default consistent with usual industry practice for transactions of the type contemplated by this Term Sheet, including, without limitation, in relation to the sale agreement representations by the vendors in relation to the matters listed in schedule 1 to this Term Sheet and such other representations as considered appropriate following completion of RCF' s due diligence investigations, and representations by the Acquisition Entity, RCF and Newmont in relation to the matters listed in schedule 2 to this Term Sheet.
(ix) Effective Date
The effective date hereof will be 24 September 2004, regardless of the dates of execution by the respective parties. (x) Obligations interdependent
The obligations of each of the parties under the Term Sheet are dependent upon the other parties fulfilling their obligations under this Term Sheet.