Fancamp Exploration Provides Position on Canadian Chrome’s Magpie Mines Special Shares Acquisition Announcement
VANCOUVER, British Columbia , Aug. 11, 2023 (GLOBE NEWSWIRE) -- Fancamp Exploration Ltd. (“Fancamp” or the “Corporation”) (TSX Venture Exchange: FNC) would like to provide comment on a recent announcement made by The Canadian Chrome Co. (“Chrome Co.”), a registered business style of KWG Resources Inc., with respect to Chrome Co.’s acquisition of two thirds of the issued and outstanding special shares in the capital of The Magpie Mines Inc. from Peter Smith and Fouad Kamaleddine (the “Transaction”).
Fancamp is a major shareholder of The Magpie Mines Inc., with ninety-six percent (96%) of the issued and outstanding common shares in the capital of Magpie Mines. In addition, Fancamp has a two-percent (2%) net smelter return royalty on the Magpie deposit and is the largest creditor of Magpie Mines.
Each common share of Magpie Mines carries one (1) vote for the election of forty-nine percent (49%) of the total number of Directors of Magpie Mines, while each special share of Magpie Mines carries one (1) vote for the election of fifty-one percent (51%) of the total number of Directors of Magpie Mines. As a result of the issuance of special shares, which were allocated to previous Directors of Fancamp and of Magpie Mines, holders of these special shares control decisions relating to the election of Magpie Mines Directors and, as a result, decisions taken by its Board of Directors.
The announcement of the Transaction came as a surprise to Fancamp. Smith’s and Kamaleddine’s ownership of the Magpie special shares is disputed and the subject of pending litigation, as described in Fancamp’s news release dated May 14, 2021:
One of the self-dealing transactions that Fancamp is aware of involves The Magpie Mines Inc. (“Magpie”), a subsidiary of Fancamp.……Mr. Smith caused Magpie to be incorporated with a capital structure that included a class of special shares (the “Special Shares”). The Special Shares carried the right to appoint 51% of Magpie’s directors and, as a result, the holder(s) of the Special Shares could effectively control Magpie. The Special Shares should have been issued to Fancamp, but Mr. Smith issued them to himself and two individuals. This meant that Mr. Smith and the two individuals personally controlled Magpie’s Board of Directors.
Mr. Smith ultimately caused Fancamp to acquire 96% of Magpie’s common shares, but none of the Special Shares. This scheme conferred on Mr. Smith and the two individuals’ personal control of Fancamp’s almost wholly-owned subsidiary.To make matters worse, Mr. Smith then had a falling out with the two individuals. This falling out has effectively paralyzed Magpie as well as the Corporation’s ability to unlock value from the deposit, and destroyed value for Fancamp’s shareholders.
On May 27, 2021, the Company discontinued the lawsuit against the third individual after the special shares issued to that individual were returned to treasury for cancellation.
By way of the Transaction, it appears that Smith and Kamaleddine seek to sell their Special Shares for millions of dollars of personal benefit to the further prejudice of Fancamp. This is an egregious further breach of their fiduciary duties as well as a breach of trust. If completed, the Transaction is liable to be set aside by the Court.
On August 8, 2023, Fancamp wrote to Chrome Co. to advise that:
- There is pending litigation with respect to the validity and ownership of the special shares;
- In light of that information Fancamp expects that Chrome Co. will not proceed with its acquisition of the special shares, and that it will issue a news release to that effect by no later than Friday, August 11, 2023; and
- Chrome Co. now has full knowledge of Smith’s and Kamaleddine’s breaches of fiduciary duty and of trust, and would be proceeding as a knowing participant in those breaches. If Chome Co. proceeds with the Transaction despite that knowledge Fancamp anticipates it would be entitled to seek relief directly against Chrome Co., including injunctive relief and compensation for its damages (including legal fees).
On August 10, 2023, Fancamp received a response from Chrome Co. in which it indicated that Fancamp’s letter “does provide some clarifications as part of our ongoing due diligence efforts in this matter.” It is unclear to Fancamp whether Chrome Co. intends to proceed with the Transaction.
Fancamp will continue to take appropriate steps to protect its interests including but not limited to the recovery of the special shares.
Fancamp’s continues to maintain its shareholdings and position with respect to holding the previously announced secured convertible promissory note in the principal amount of C$34.5 million in Chrome Co., as it relates to the sale of Fancamp’s beneficial interests in Koper Lake-McFaulds mining claims previously announced on July 21, 2022, August 10, 2022, September 1, 2022, and September 2, 2022.