BAKER STEEL RESOURCES TRUST LIMITED
(Incorporated in Guernsey with registered number 51576 under the provisions of The Companies (Guernsey) Law, 2008 as amended)
14 February 2019
Agreement to Invest US$3M into Azarga Metals Corp
· Baker Steel Resources Trust Ltd ("BSRT" or "the Company"), has conditionally agreed to invest US$3m into TSXV listed Azarga Metals Corp. ("Azarga Metals") (AZR.CN) via a 4 year term 8% secured convertible loan, convertible at C$0.14/share ("the Convertible Loan")
· Azarga Metals to mainly use the Convertible Loan proceeds to undertake a second-phase drilling and exploration programme to increase the existing resource estimate of its 100%-owned Unkur Copper-Silver Project, Russia
· Existing positive Preliminary Economic Assessment ("PEA") on Unkur (post tax net present value at 8% discount rate of US$147.5m)
· Approximately 13.4m 2-year warrants to be issued to BSRT with an exercise price of C$0.17/share ("Warrants")
· Investment subject to securing an option for BSRT to acquire up to a 2% net smelter revenue royalty on the Unkur Project for US$5m
· Investment values Azarga Metals at US$9.0m on a pre-money basis
· Unkur Project currently has a NI 43-101 compliant resource of 724 million pounds of copper and 76.8 million ounces of silver (M oz) equating to total silver equivalent resources at Unkur of 182 M oz (compared with the Prognoz Silver project with silver equivalent resources of 256 M oz)
BSRT is pleased to announce that it has executed a binding term sheet with Azarga Metals setting out the proposed terms for the investment of US$3 million in three tranches via a 4 year convertible loan with an 8.0% per annum interest rate and conversion price of C$0.14/share. Other client funds of Baker Steel Capital Managers LLP ("BSCM") may invest up to an additional US$0.5m on the same terms as BSRT, such that the Convertible Loan will total a maximum of US$3.5m.
As part of the transaction, Azarga Metals will issue BSRT with approximately 13.4 million, 2-year common stock warrants with an exercise price of C$0.17/share.
If BSRT's interest in the Convertible Loan was fully exercised into the equity the Company would hold approximately 25% of the enlarged share capital of Azarga Metals (rising to approximately 32% if the Company exercises all the Warrants).
The Convertible Loan is repayable in cash after 4 years, if not exercised, and is secured on the shares of Azarga Metals BVI, the holder of 100% of the Unkur Project.
BSCM, will have the right to appoint one director to the board of Azarga Metals, increasing to two directors should BSCM clients' ownership be over 20% of Azarga Metals.
The vendors of the Unkur project to Azarga Metals have previously received a 5% net smelter royalty ("NSR") on future metal sales and have agreed in principle that BSRT shall be ceded the option to acquire up to 40% of the NSR (i.e. up to a 2% NSR), for a price of US$5m anytime up to first production.
Azarga Metals intends to use the bulk of the proceeds of the Convertible Loan to undertake a 2nd phase drilling and exploration program at its Unkur Copper-Silver Project, with a view to more than doubling the drilling undertaken by it to date. There is a reasonable expectation that the existing Inferred Mineral Resource estimate for Unkur of 62 million tonnes at 0.53% copper and 38.6g/t silver, containing 328,600 tonnes of copper and 76.8 million troy ounces of silver (0.56 Mt of copper equivalent) can be significantly increased, with the ultimate potential on the Unkur license believed to be up to 2 Mt contained copper equivalent resources. Azarga Metals holds an Exploitation Permit issued by the Russian government authorities which is valid until 2039.
Azarga Metals completed a positive PEA in 2018 envisaging an open pit operation with an 8-year mine life producing 13.2kt of copper and 3.7M oz of silver per year, at a C1 cash operating cost of US$ 38 cents per pound of copper (net of silver as a by-product credit) and resulting in an estimated pre-tax net present value of US$206.3M (post-tax US$147.5M) at an 8% discount rate and internal rate of return of 28.9%, with pre-production capex of US$186.6m. A significant increase in the Resource is anticipated to lead to a further improvement on the initial positive PEA results. The project benefits from good existing infrastructure such as grid power, road access and nearby rail and is located around 20km from Udokan, one of the world's largest copper development projects.
The transaction remains subject to conditions, including TSX Venture Exchange and any required regulatory and Azarga Metals shareholder approvals, definitive documentation, and is subject to satisfactory due diligence by the Company and is currently anticipated to complete within two months.
STATUS OF UNKUR COPPER-SILVER PROJECT
The Unkur Copper-Silver Project is a sediment-hosted stratiform copper-silver deposit in the Zabaikalsky administrative region of eastern Russia (relatively near the China-Russia border). The copper-silver bearing horizon has been traced, from historic drill holes, trenches and outcrop, for a length of about 5 km northwest-southeast in the southwest limb of the Unkur Syncline. Unkur was initially explored during the 1960s through 1980s.Various non-NI 43-101 resource estimates were prepared during that time including a 'prognostic' resource estimate of 143 million tonnes at 0.77% copper and 68.3 g/t silver (historic resource estimates were prepared before Azarga Metals acquired an interest in the project and they have not been reviewed by a Qualified Person in the context of NI 43-101 and so cannot be considered as a current Mineral Resource).
Azarga Metals acquired the Unkur Copper-Silver Project in mid-2016 and then embarked on a successful initial exploration program. In 2016-2017, Azarga completed 16 diamond core drill-holes at Unkur for 4,580 cumulative linear meters. A maiden NI 43-101 Resource was published in April 2017 and then in March 2018 the Resource was enlarged and a PEA was undertaken.
The Unkur PEA was filed at the end of August 2018 and was positive, envisaging an 8-year mine life producing 13.2kt of copper and 3.7M oz of silver per year and resulting in an estimated pre-tax net present value of US$206.3M (post-tax US$147.5M) at an 8% discount rate and internal rate of return of 28.9%.
The Unkur Copper-Silver Project remains open in both directions along strike and at depth. Azarga Metals believes there is potential to at least double the size of the existing Resource with a second phase drilling program. Azarga plans to finalise the next exploration program in conjunction with working to complete the Convertible Loan transaction such that physical exploration can re-commence at Unkur in the summer of 2019. If Azarga's resource development objectives are met or exceeded, the subsequent phase would be to complete an enhanced PEA or pre-feasibility study for Unkur.
Further details on Azarga Metals are available on its website www.azargametals.com
Further details of the Company and its investments are available on the Company's website www.bakersteelresourcestrust.com
Baker Steel Resources Trust Limited +44 20 7389 8237
Numis Securities Limited +44 20 7260 1000
David Benda (corporate)
James Glass (sales)
The Net Asset Value ("NAV") figure stated is based on unaudited estimated valuations of the underlying investments and not necessarily based on observable inputs. Such estimates are not subject to any independent verification or other due diligence and may not comply with generally accepted accounting practices or other generally accepted valuation principles. In addition, some estimated valuations are based on the latest available information which may relate to some time before the date set out above.
Accordingly, no reliance should be placed on such estimated valuations and they should only be taken as an indicative guide. Other risk factors which may be relevant to the NAV figure are set out in the Company's Prospectus dated 26 January 2015.
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