that it has secured litigation funding for its arbitration proceedings (the
Arbitration) brought by the Company against the Republic of Colombia
(Colombia) to enforce the Companys rights to compensation under the
Canada-Colombia Free Trade Agreement (the FTA), as previously described in
its news releases of March 27, 2018, February 25, 2019, February 10, 2020,
November 23, 2021, September 1, 2023 and October 5, 2023, and subject to
certain conditions and approvals as noted below.
Background of the Claim
Montauk contends that Colombia breached its obligations owed to the
Company, including specific obligations under the FTA. The claims include
Colombias refusal or failure to compensate the Company for the losses
incurred as a consequence of Colombias prohibition of mining in the pramos
(high altitude eco-systems). On March 21, 2018, Montauk filed a Request for
Arbitration against the Republic of Colombia before the International
Centre for Settlement of Investment Disputes (ICSID).
The Arbitration is being conducted in two phases. Phase One will
determine whether the ICSID Tribunal adjudicating Montauks claims (the
Tribunal) under the FTA has jurisdiction over this case and whether
Colombia has breached its obligations under the FTA and is liable for
compensation to the Company. Assuming that ICSID decides in favour of
Montauk in Phase 1 (the Phase 1 Decision), Phase 2 will involve determining
the quantum of damages awarded to Montauk to compensate it for losses
incurred. The Company estimates it has suffered more than USD $16 million
in sunk costs and total loss of the value of up to USD $180 million in the
Reina de Oro project, as well as legal and arbitration fees. Typically, an
arbitral award will include an award of costs payable by the unsuccessful
party to the successful party to reimburse it for its legal and arbitration
fees.
Certain costs of the proceedings, including arbitration fees and
disbursements, have exceeded the Companys original estimates as the Company
was also required to pay Colombias 50% share of the arbitration fees. The
Company must make an additional payment of US$200,000 to ICSID (the ICSID
Payment) before a ruling on Phase 1 is rendered. If the Company fails to
pay the required amount of US$ 200,000 to obtain a ruling on or before
November 9, 2023 (the Payment Deadline), the ICSID Acting Secretary-General
may exercise its discretion to discontinue the Arbitration. The ICSID
Payment is expected to result in the issuance of a decision on jurisdiction
and liability.
Extension of the Payment Deadline
The Company expects to apply today to ICSID to request an extension to
the Payment Deadline (the Extension). The Company refrained from submitting
an Extension application until it had received a litigation funding
commitment, with such commitment being received today following the
approval of the Omnis (as defined below) investment committee. The Company
strongly believes in the merits of its case and has obtained litigation
funding to fund the ICSID Payment, subject to certain conditions as noted
below. The Company is optimistic that ICSID will consider the Extension
request.
Litigation Funding
Montauk has entered into a loan and option agreement (the Loan
Agreement) with Omni Bridgeway (Fund 5) Canada Investments Ltd. (Omni),
pursuant to which Omni has agreed to lend the Company US$200,000 (the Loan
Amount) to fund the ICSID Payment in order for the Tribunal to render a
ruling on Phase One.
The Loan Amount will accrue interest at a rate of twenty percent
(20%), compounded annually. In the event the Tribunal in the Arbitration
finds that it does not have jurisdiction over the dispute and/or that
Colombia did not breach its duties to the Company and/or any outcome which
otherwise renders a Phase 2 Election (as defined below) non-viable in the
sole view of Omni, the Loan Amount and any and all accrued interest must be
repaid by the Company within sixty (60) days after Omni notifies the
Company that Omni will not make the Phase 2 Election. The repayment of the
Loan Amount and any such accrued interest shall be payable regardless of
whether the Arbitration is successful and is a recourse obligation of the
Company, payable from any and all assets of the Company. In connection with
the Loan Agreement, the Company will deliver a promissory note (the Note)
to Omni evidencing its obligation to repay Omni the Loan Amount and any
accrued interest.
In addition, the Company has granted Omni an option, exercisable in
the sole discretion of Omni (the Phase 2 Election) to provide litigation
funding to the Company pursuant to a litigation funding agreement (the
LFA). The LFA is expected to provide an initial amount of up to
US$2,325,000 (the Non-Recourse Funding Amount) subject to certain
conditions. The Non-Recourse Funding Amount may be increased in certain
circumstances as may be agreed upon between the Corporation and Omni.
If Omni elects to provide the Non-Recourse Funding Amount for Phase 2
and the enforcement of any award obtained by the Company in the
Arbitration, the Loan Amount and interest shall be repaid through proceeds
recovered in the litigation (and in the event there are no proceeds
recovered in the litigation, such amount inclusive of such interest shall
be payable by the Company at the conclusion of the litigation).
Omnis return on the Non-Recourse Funding Amount (the Omni Return) will
be limited solely to recovery from the amount of money for which the
Arbitration is settled, or for which a final, non- appealable award is
given in favour of the Corporation (the Litigation Proceeds). The Omni
Return shall be an amount calculated as the sum of (i) a multiple of the
amounts actually incurred of the Non-Recourse Litigation Funding Amount and
(ii) a percentage of the gross recovery proceeds, both calculated when the
recovery proceeds are received, as set out in the table below:
Months Multiple Percentage
0-12 2.0x 12 %
12-24 3.0x 14 %
24+ 3.5x 16 %
The Litigation Proceeds, if received, will be disbursed in the
following order of priority: (a) Omni shall be reimbursed the Recourse Loan
and the amounts actually incurred of the Non-Recourse Funding Amount; (b)
Omni shall be paid the Omni Return and legal counsel shall be paid their
legal fees; and (c) the balance shall be paid to the Corporation.
In connection with the Loan Agreement, Note and LFA, the Company has
agreed to grant Omni a continuing first priority security interest over any
and all assets of the Company (whether presently held or acquired after the
date hereof), including the Companys interest in any Litigation Proceeds.
The Loan Agreement is subject to certain conditions and the receipt of
all necessary approvals and regulatory approvals, including the approval of
the TSX Venture Exchange and the approval of the shareholders of the
Company. The LFA is subject to the foregoing conditions and approvals and
is subject to the settlement of the definitive LFA. The principal terms and
conditions and the LFA have been agreed upon in the Loan Agreement. The
Company has scheduled a special meeting of shareholders to be held on
December 14, 2023 (the Meeting) at which shareholders of the Company will
vote to ratify the Loan Agreement and approve the LFA. Additional
information pertaining to the Loan Agreement and LFA may be found in the
management information circular pertaining to the Meeting that is expected
to be available on the Companys profile on SEDAR+ on or around November 22,
2023.
The Company cannot guarantee that it will be successful at the
Arbitration, or that the estimated amounts disclosed herein will not be
revised as the Arbitration proceeds. The Company also cannot guarantee that
it will be able to recover all or part of its legal and arbitration costs
from Colombia even if it is successful at the Arbitration. Assuming the
Extension is granted and the Arbitration proceeds, the ruling from the
Tribunal would be expected to be on or about the first quarter of 2024.
Management of the Company will continue to provide updates on material
developments of the status of the Arbitration.
RISK DISCLOSURE STATEMENT: At the present time, the Companys payment
obligations are substantially in excess of its cash balances and it has no
other assets. The Company is not solvent and cannot continue as a going
concern. Trading in shares of the Company and any investment in the
Company is highly speculative. No trading in securities of the Company or
investment should be made without being able to lose the entire amount of
such funds. See below, Cautionary Note Regarding Forward-Looking
Statements. Investors are advised to seek professional advice before making
any decision to trade in or invest in the securities of the Company.
Montauk Metals Inc.
Mari Doren
VP Administration
775-748-5221