Mega Precious Metals Inc MPRXF

Pacific Road Capital Management's corporate profile

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https://www.pacroad.com.au/content_common/pg-capital-management.seo

"Pacific Road Capital Management (PRCM) is a Sydney-based private equity manager investing in the global mining industry. PRCM provides expansion and buyout capital for mining projects, mining related infrastructure and mining services businesses located throughout resource rich regions of the world."

https://www.pacroad.com.au/content_common/pg-capital-management-about-us.seo

About Us

Pacific Road Capital Management (PRCM) is managing or advising the US$320 million Pacific Road Resources Fund I and the US$476 Pacific Road Resources Fund II (the Funds). The Funds invest in mining projects, related infrastructure and services businesses, as a direct investor or joint venture partner.

PRCM is distinguished by its focus on project potential and our team has an operating orientation. The business strategy is grounded on establishing a true partnership between investees and investors. PRCM strives to be a real partner with its portfolio investment entities, providing not only capital, but business expertise and access to networks and resources enhancing prospects for long-term success. The PRCM team has committed its own capital to the Fund, aligning their interests with those of investors.

PRCM has the financial resources, technical expertise, and breadth of experience to identify opportunities at a stage when others might not and the ability to move quickly to capitalise on opportunities that fit our criteria.

The PRCM team comprises experienced investment professionals that have extensive knowledge and experience in the mining and infrastructure sectors including considerable operating, project development, transactional and investment banking experience.

https://www.pacroad.com.au/content_common/pg-capital-investment-strategy.seo

Investment Strategy

Investment Size

PRCM is focused on expansion capital opportunities to take mining projects through feasibility, financing and construction stages. The Fund will also target sector-related infrastructure, services and buy-out opportunities. The typical targeted investment size will be US$15 million to US$40 million, which may occur in stages. Larger investments can be made in conjunction with investors in our Fund who are interested in co-investment opportunities.

Attractive to Potential Purchasers

PRCM seeks to invest in projects and companies that can provide superior rates of return and will utilise its extensive resources industry operating experience, financial skills and broad network of contacts to help investee companies achieve this. PRCM will invest in quality projects that are, or have the potential to be developed into, low cost mines that can be sustained throughout the commodity price cycle.

Commodities and Development Stage

Investments will be via equity, quasi-equity and debt securities and will be broadly focused on precious metals, base metals and some bulk commodities. Investment will be at the scoping/pre-feasibility stage or later with a view to taking the project through feasibility and construction to an operating mine. Pure exploration opportunities will be avoided.

Active Partnership with Management

PRCM will be actively involved in each investee company or joint venture and will seek to appoint a director or equivalent to the Board or management committee. The competence and experience of management teams of target assets will be a critical factor in the consideration of potential investments. PRCM expects to add value to, and have significant involvement in, the strategic direction and operational management of its portfolio investments. PRCM is a patient investor with a typical hold period of 3 to 5 years, however a clear exit strategy will be required prior to making any new investment.

An Operating Approach

PRCM’s approach to investing is to acquire/invest in businesses with attractive operating fundamentals and then work in partnership with management to strengthen the strategic and financial position through growth strategies and operating improvements. Our commitment is to earn return through enhancing the long-term fundamental value of a business rather than through the use of excessive leverage. A relatively conservative capital structure mitigates risk and provides companies with the financial flexibility to grow. This is the traditional model of successful mining companies.

Risk Management

PRCM adopts a strong focus on risk management in the investment decision process and thereafter, taking a conservative approach to process technologies for extraction of metal from ore. Investment will be in projects with risks that are understood and able to be managed.

Geographic Constraints

PRCM will access investment opportunities in the resource rich regions of the world including Australia, Asia, Africa and the Americas, in locations where country risk is manageable.

Asset Realisation

The typical investment hold period is three to five years. This time horizon will be refined in the context of the timing of follow on investments, where appropriate, and market conditions. Possible exit strategies will be identified prior to any investment and may include sale to a joint venture partner, conversion into parent company stock, IPO, market placement to institutional investors and trade sale. Where circumstances permit, contractual exit rights will be incorporated into transaction documentation.

https://www.pacroad.com.au/content_common/pg-capital-investment-approval-process.seo

Investment Approval Process

PRCM has a structured investment review and approval process that is followed prior to entering into a transaction. This process generally involves:

- Preliminary desktop review to determine if opportunity is attractive and meets the Fund’s investment criteria

- Discussions with management and preparation of an indicative term sheet

- Site visits

- Detailed due diligence including technical, operational, financial, legal and country specific issues

- Review by specialist external consultants if required

- Finalisation of term sheet and submission to our Investment Committee for approval to invest

- Preparation of legal documentation once the investment is approved

- Equity funding following finalisation of all necessary approvals

PRCM seeks to establish a realistic timetable for the approval process. We can move quickly provided that sufficient information is obtained at each stage of the process and confidence with partners is established.
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https://www.megapmi.com/2013-releases/content/2013-releases/article/mega-precious-metals-announces-convertible-note-financing-agreement-with-pacific-road-resources-funds-for-up-to-us40-million-with-an-initial-tranche-of-us30-million

Pacific Road Financing Details

The Tranche 1 Convertible Notes will be unsecured and bear no interest, will have a term of five years and will be convertible into Common Shares at a conversion price of C$0.112, which represents the 20-day VWAP of the Common Shares on the TSX-V at the time of signing the Definitive Agreement. The purchase of the Tranche 1 Convertible Notes is expected to close on or about December 20, 2013, subject to the satisfaction of certain conditions, including the approval of the TSX-V.

The Tranche 1 Convertible Notes will be convertible at any time in whole or in part into up to 28,797,207 Common Shares at the conversion price, representing approximately 19.9% of the currently outstanding Common Shares of the Company (assuming an exchange rate of US$1.00 = C$1.066). PRRF will have a preferential right, but not an obligation, to participate in any future equity or convertible financings of the Company for aggregate proceeds to the Company of up to US$100 million for so long as Pacific Road holds Common Shares or securities of the Company that would represent at least 10% of the outstanding Common Shares. In addition, PRRF will have the right to participate in any future equity or convertible financings of the Company in order to maintain its proportionate interest in the Company, provided that PRRF holds Common Shares or securities of the Company that would represent at least 10% of the outstanding Common Shares. Upon closing of the purchase of the Tranche 1 Convertible Notes, PRRF will also be entitled to nominate such number of directors as equates to its pro rata percentage interest in Mega on a converted basis, and in any event, at least one nominee. PRRF will have the right to appoint additional nominees if Pacific Road completes the subsequent investments described below. Mega has also agreed to grant PRRF certain registration rights and has made certain covenants in favour of PRRF.

Pursuant to the terms of the Definitive Agreement, Pacific Road has the right, but not the obligation, to participate in three further tranches of unsecured convertible notes. If the completion of any such tranche would result in Pacific Road becoming a new "control person" (holding more than 20% of the issued and outstanding voting shares) of the Company, the Company has agreed to obtain shareholder approval for the purposes of TSX-V policies.

Pacific Road has a right to purchase up to approximately US$7.0 principal amount of unsecured convertible notes (the "Tranche 2 Convertible Notes")within60 days after an updated internal resource analysis condition is completed with respect to the Monument Bay project. The conversion price of the Tranche 2 Convertible Notes will be based on the VWAP on the TSX-V for the 10 trading days prior to and the 10 trading days following the satisfaction of the Tranche 2 resource analysis condition, subject to approval of the TSX-V.

Under the third tranche, Pacific Road has the right to purchase up to US$10,000,000 principal amount of unsecured convertible notes (the "Tranche 3 Convertible Notes") within 60 days after the successful completion of a preliminary economic assessment in respect of the Monument Bay project. Pacific Road also has the right to purchase up to US$20,000,000 principal amount of unsecured convertible notes (the "Tranche 4 Convertible Notes") within 60 days after the successful completion of a pre-feasibility study in respect of the Monument Bay Project. The conversion prices of the Tranche 3 Convertible Notes and the Tranche 4 Convertible Notes will be based upon the 20-day VWAP of the Common Shares following the public announcement of the respective studies, subject to approval of the TSX-V.

As the number of Common Shares of the Company issuable to PRRF pursuant to the Tranche 2 Convertible Notes, Tranche 3 Convertible Notes and Tranche 4 Convertible Notes is contingent, in part, upon future values and share prices and PRRF has not made any decision to purchase the additional tranches of convertible notes or to convert, the number of such Common Shares which PRRF may acquire should it exercise all of its rights cannot be determined at this time.

Net proceeds from the purchase of the Tranche 2 Convertible Notes, if completed, will be used to fund ongoing drilling, metallurgical work, resource expansion, permitting and working capital, which the Company expects will cumulate into a Preliminary Economic Assessment by the end of 2014. Net proceeds from Tranche 3 Convertible Notes and the Tranche 4 Convertible Notes, respectively, if completed, will be used to fund a Pre-Feasibility Study, permitting and a Feasibility Study.