Mountain Province to sell Diamonds of US$50mn!
Mountain Province Diamonds proposes to enter into an agreement to sell US$50,000,000 of diamonds to Dunebridge Worldwide Ltd. The first sale for approximately US$ 22,000,000 is expected to occur on June 11th, 2020 following the execution of a binding agreement.
The transaction with Dunebridge will permit the Company to sell its run of mine diamonds (below 10.8 carats) at the prevailing market price at the time of each sale. The transaction will also allow the Company to participate, after fees and expenses in a portion of any increase in the value of the diamonds realized by Dunebridge upon its future sale of the diamonds to a third party.
The fees, calculated per each sale, are fixed at 10% of the value of each sale for the first year and 10% per year pro-rated for years 2 and 3. The expenses relate to any future sale costs. Once all fees and expenses have been deducted any surplus will be shared equally between Dunebridge and the Company.
The traditional markets for rough diamonds have been closed since mid-March 2020 due to the impacts of COVID-19. In the interim, and as previously announced, the Company had been seeking alternative sales channels and sources of financing to ensure sufficient funding for operational and corporate expenses as the mine continues to be operational.
This transaction is expected to provide the liquidity required in the short term whilst the Company waits the gradual re-opening of the global economy and traditional selling methods. A committee of directors of Mountain Province, all of whom are independent of management and the major shareholder of Mountain Province, and comprised of Mr Tom Peregoodoff, Ms Karen Goracke, Mr. Dean Chambers, and Mr William Lamb, undertook a deliberate and full consideration of the Sale and various alternatives and financing options available to Mountain Province and concluded that the Sale is reasonable and represents the best alternative for Mountain Province in the circumstances, having regard to the best interests of Mountain Province and its stakeholders.
The Independent Committee has unanimously recommended the Sale to the board of directors of the Company. The Board has received the recommendations and findings of the Independent Committee, and Mr. Jonathan Comerford and Mr. Brett Desmond having declared conflicts of interest and not attending any part of any meeting where the Sale was discussed and not voting on the Sale, has unanimously found that that the Company is in serious financial difficulty, that the Sale is designed to improve the financial position of the issuer, that Section 5.5(f) of National Instrument 61-101 is not applicable, and approved the Sale.
Dunebridge is controlled by Dermot Desmond, an insider and related party of Mountain Province. Mr. Desmond owns just above 32% of the Company's stock. The transaction therefore constitutes a "related party transaction" within the meaning of Multilateral Instrument 61-101 – Protection of Minority Shareholders in Special Transactions. Mountain Province relied on exemptions from the formal valuation and minority approval requirements of MI 61-101 contained in Section 5.5(g) and Section 5.7(e), respectively, on the basis of financial hardship.
The terms of the Sale were unanimously approved by the Independent members of Mountain Province's Board of Directors. Mountain Province was not in a position to file a material change report 21 days prior to closing because the terms of the Sale and insider participation were not yet established by that time, and Mountain Province elected to expedite closing of the Sale for sound business reasons.
The completion of the Sale is subject to approval of the TSX, the Company's lenders, and all other necessary regulatory approvals. Proceeds of the Sale will be used for operations and corporate expenses, including the funding of bond interest, all in the ordinary course as having been budgeted by the Company prior to Covid-19.
In connection with this transaction, the Independent Committee was advised by its financial advisor Lazard Canada. Stikeman Elliott LLP acted as counsel to the Independent Committee and Bennett Jones LLP acted as counsel to the Company.
