RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Expecting Stock To Double Very Near Term !! Unde
r the terms of the Amended Loan
, Nuinsco agreed to provide a standby commitment for any equity offering
initiated by Victory Nickel. This commitment was triggered for the rights offering of Victory Nickel which closed on July
30, 2013.
Under the agreement, Nuinsco subscribed for 50,316,018 units for cash of $1,207,584 (Note 8). Each Unit
comprise
d
one common share and one common share purchase warrant. This br
ought
cumulative advances under
the Amended Loan to Victory Nickel to $2,207
,584 and cap
ped
the Amended Loan amount at $2,707,584 (from a
maximum possible $
3,000,000
) with $500,000 remaining for draw down and to be used to develop Victory Nickel’s frac
sand business. The subscription under the standby commitment
, among other thin
gs,
is included in the calculation of
Nuinsco’s potential participation under the Conversion of the Amended Loan.
I
nterest income has been
received in cash of $
2
0
,000
and $50,000
in the
three
and six
months ended
June 30
, 2014
(
2013
-
$30,000 and
$
6
9
,000;
$9,
000 of which related to 2012).
On February 4, 2014, both Nuinsco and Victory Nickel agreed to cancel the amount available to be drawn down under
the Amended Loan. This fixed the commitment fee to be paid in shares at $12,000 and also
amended
the
range of
the
Company’s participation in
the net cash flows earned from the sale of frac sand to a maximum of $10,222,831 with
a minimum of $7,667,124
on the basis of a sharing percentage of 52.16%
.
The Conversion feature
requires the
classifi
cation of
the loan as a financial asset at fair value through
the statement
of
operations.
From initial recognition until the fourth quarter
, the Company considered that the fair value of the loan
was equal to its amortized cost since the Company ha
d
not converted
its loan and
Victory Nickel’s frac sand
processing plant near Medicine Hat, Alberta (the
“
7P Plant
”)
was
under construction with significant parts to be
completed
and there were other significant uncertainties
.
During the fourth quarter
, the plant constr
uction was well
underway and the probability of Conversion increased
substantially.
Accordingly, the Company revalued the loan
at
that time
using
an effective interest
rate of
22
%
(equivalent to a discount rate of 14%)
and
a
probability
-
weighted
average
e
stima
tion of
future expected cash flow
scenario
s
of approximately 55% of the ceiling maximum of
$10,222,831
based on current expectations of business results, capital costs and pre
-
operating expenditures.
These
cash flows were on the bas
is of Phase 1
completion only.
On April
22
, 2014, the Company announced that it had converted its secured loan into an unsecured participation in
net cash flows
–
the “Participating Interest”
. Victory Nickel has announced its first sales
of frac sand
from preliminary
production at the 7P Plant and
wa
s in the final stages of completing
a working capital facility to assist in financing its
operations.
As described earlier, the percentage participation in net cash flows is 52.16% and the applicable ceiling for Phase 1 is
$10,222,831. Based on the estimated cash flows
, payments could commence as early as
mid
-
2015.
These assum
p-
tions resulted in an estimated fair value of the
Participating Interest
as at
June 30
, 2014 of $
4,
386
,000 (December 31,
2013
-
$4,100,000
and, accordingly $
249
,000 was recorded as a
change in the fair value of a financial asset
through
the
statement of
operations
for the period ($3,261,000 was recorded in the fourth quarter of 2013)
.
Effective
June 30
, 2014, certain adjustments were made to the expected cash flows to reflect more current business
expectations. In particular, because of the harsher winter and the effects of the subsequent
spring
break
-
up at the
site, additional expenditures will be req
uired. The effect of this adjustment has
chang
ed the expected date of future
payment of the net participation in cash flows but, due to the effects of the passage of time on cash flows, the revised
fair value of the loan
has increased.