Simmer and Jack Convertible Loan Agreement
During the fourth quarter of fiscal year 2006, the Company loaned US$10,000,000 to Simmer and Jack Mines, Limited (“Simmers”). The loan had a three-year term maturing December 31, 2008, a 3% coupon at gold prices up to US$400 per ounce (2.5% at gold prices above US$400 per ounce) and a net smelter royalty (“NSR”), tied to the price of gold, ranging from a 0.5% NSR at US$300 per ounce to a 4.75% NSR at gold prices of US$750 per ounce or higher, on a graduated scale. The NSR was payable against gold produced from Simmers’ northwest assets and included First Uranium Corporation’s (First Uranium”) Mine Waste Solutions tailings recovery operation. Repayment of the Convertible Royalty Loan, including interest and royalty payments, is in US dollars.
The Convertible Royalty Loan also had an option that allowed the Company to call for its conversion into equity of Simmers at ZAR 0.80 per share at any time from January 1, 2007 to December 31, 2008, subject to Simmers shareholders’ approval. On October 16, 2008, the Company called for conversion to equity and a shareholder vote was held on February 16, 2009, where the Simmers’ shareholders voted against the conversion as unanimously recommended by Simmers’ board of directors. As a result, it is Aberdeen’s position that the US$10,000,000 loan was due, as of its maturity date of December 31, 2008, and Aberdeen was entitled to a 1% life of mine net smelter royalty (“NSR”) on the gold produced on the underlying assets would commence October 16, 2008. In addition, it is the Company’s position that a payment of $1,623,586 is due from Simmers, which is the graduated royalty calculated at a rate of 4.75% on the gold produced between October 16, 2008 and December 31, 2008, the maturity date of the loan, in addition to the 1% life of mine NSR royalty on gold produced starting October 16, 2008.
However, it is Simmers’ position that the request for conversion into equity has caused the loan facility to terminate, ending the remaining graduated royalty payment and forfeiting repayment on the US$10,000,000 principal and remaining interest payments. Accordingly, Simmers’ management contends that the shareholder vote to deny the conversion request has resulted in Aberdeen receiving only the 1% NSR, but not the US$10,000,000 principal.
In contrast, Aberdeen management believes that, pursuant to section 2.6 of the Convertible Royalty Loan agreement, the graduated royalty is calculated on production until December 31, 2008, notwithstanding Aberdeen’s request for conversion. In addition, pursuant to section 2.10 of the Convertible Royalty Loan agreement, if the Simmers shareholders do not approve the loan conversion the 1% NSR would be in addition to the repayment of the US$10,000,000 principal and, pursuant to section 2.4 of the Convertible Royalty Loan agreement, the principal is repayable in cash until shareholders approve the equity conversion. Aberdeen intends to aggressively contest any alternative interpretation of the Convertible Royalty Loan agreement.
The Company provided Simmers’ management and directors with a demand letter and a letter from Aberdeen’s legal counsel outlining Aberdeen’s interpretation of the Convertible Royalty Loan agreement in advance of the February 16, 2009 Simmers shareholder meeting. Aberdeen also filed the Convertible Royalty Loan agreement between the Company and Simmers on SEDAR (www.sedar.com) under the Company’s profile. Following the vote by Simmers’ shareholder not to allow for the conversion, the Company provided Simmers’ board and management with a letter reiterating Aberdeen understanding of Simmers’ obligations under the Convertible Royalty Loan agreement. Aberdeen was told by Simmers’ board and management that their position regarding the agreement, as described above, had not changed. >>>As a result, the Company has engaged a leading South African law firm to enforce its rights under the loan agreement. Aberdeen firmly believes that its interpretation of the agreement is correct and expects to realize the values attached to the royalty and loan on the balance sheet as of January 31, 2009. (Key Phrase - Eigen337)<<< The description of the Convertible Royalty Loan agreement herein is subject to, and qualified in all respect by, the provisions of the Convertible Royalty Loan agreement.
In connection with the Convertible Royalty Loan agreement, Aberdeen holds a notarial special covering bond in the amount of US$10,000,000 plus ZAR5,000,000 ($605,000) over the assets of the North Plant on the Simmers’ Buffels property.