The nuance discussed is unclear in the details announced in the prospectus however assuming the worst case the JV would need to spend and additional $30M for the extra 5% to cost TRN $1.5m (which they would then get back when acquired). So doing calcs based on TRN having 25% at this stage makes sense to me.
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6.1 Elizabeth Creek Project Farm-in Agreement
On 17 March 2017, Gindalbie Metals Limited (ACN 060 857 614) and Terrace Mining Pty Ltd (ACN 161 377 340) (Terrace
Mining), a wholly owned subsidiary of the Company, entered into the Mt Gunson farm-in agreement (Farm-in Agreement). The
Farm-in Agreement was subsequently novated to Coda Minerals Limited (ACN 625 763 957) (Coda) in May 2018 (with the
conditions to the novation being satisfied in August 2018).
On 12 March 2020, Coda announced that it had renamed the project from “Mt Gunson” to “Elizabeth Creek” to reflect Coda’s
changing priorities and minimise confusion with other similarly named projects. The contract governing the farm-in retained the
legacy “Mt Gunson” name, and this has not been changed to reflect the new name. For the avoidance of doubt, any references
to the Mt Gunson project in the “Mt Gunson Farm-in Agreement” refers to the Elizabeth Creek project.
Under the Farm-in Agreement:
(a) Coda has, by satisfying its expenditure obligations during the specified time period, earnt a 51% interest in the Elizabeth
Creek project (stages one and two);
(b) Coda has elected to earn a further 19% interest in Elizabeth Creek by making additional expenditure of $2.75 million
to a total of $6.62 million before 19 May 2023 (to take its interest in Elizabeth Creek to 70% in total) (stage three) and,
if a decision to mine is made prior to Coda satisfying this earning obligation, Coda will pay the unexpended portion to
Terrace Mining;
(c) if Coda earns the stage three interest but no decision to mine has been made, Coda will contribute additional
expenditure up to $2 million as reasonably required to complete a bankable feasibility study and any other matters
needed for a decision to mine being made (i.e. up to a free carry limit of $8.62 million);
(d) within 60 days of Coda either earning the stage three interest or a decision to mine being made, whichever is later, Coda
can exercise an option for an exercise price of $1.5 million to earn an additional 5% interest in Elizabeth Creek (to take
its interest in Elizabeth Creek to 75% in total);
(e) if, after Coda earns the stage two interest, Coda elects (or is deemed to have elected) not to proceed to stage three,
Terrace Mining has been granted an option to acquire an additional 2% interest in Elizabeth Creek for nominal
consideration, which will dilute Coda’s interest in Elizabeth Creek to 49%;
(f) a steering committee has been created to oversee the development and progress of the farm-in, including the
management of the farm-in and the making of all strategic decisions in relation to the conduct of farm-in activities,
and the Farm-in Agreement contains clauses relating to the steering committee’s functions and meetings (and similar
provisions apply in relation to a joint venture management committee, which is to be established as soon as practical
after the Joint Venture is formed);
(g) Coda can elect not to proceed with the farm-in by giving Terrace Mining a notice to that effect (and in certain
circumstances will be deemed to have made such an election), in which case Coda will have no further obligations to
farm-in or contribute funding in relation to any remaining earning obligations and the Joint Venture will be formed);
(h) a joint venture (Joint Venture) will be formed on the earlier of the date on which:
(i) Coda elects not to proceed with the farm-in (or is deemed to have made such an election);
(ii) a decision to mine is made by the steering committee (provided no buy-out has been agreed and no buy-out
notice has been given - please refer below for further details); or
(iii) Coda contributes expenditure in respect of the Farm-in Agreement to the free carry limit of $8.62 million;
(i) the objectives of the Joint Venture will be to maintain the tenements and explore Elizabeth Creek for minerals and, if
exploration indicates the probable existence of commercially mineable minerals, carry out a feasibility study on the
development of any commercial deposits;
(j) Coda will be the manager of the Joint Venture unless one or more of certain events occur (such as an insolvency event
occurring in relation to Coda) or if the parties agree otherwise;
(k) all joint venture expenditure incurred in accordance with an approved program and budget, or as otherwise permitted by
the Farm-in Agreement, must be borne and paid for by Coda and Terrace Mining severally in their respective percentage
share interest in the Joint Venture; and
(l) after a feasibility study has been completed, a development proposal may be proposed to the steering committee (or
the joint venture management committee), and if a decision to mine is made following the receipt of that development
proposal the Farm-in Agreement contains a process under which:
(i) Coda and Terrace Mining will negotiate the terms of a buy-out of Terrace Mining’s interest in the Joint Venture
at first instance;
(ii) if those terms cannot be agreed, each party may elect whether it wishes to proceed with the development; if
only one party elects to proceed, that party is given the opportunity to purchase the other party’s joint venture
interest in the area the subject of the development proposal (at a price to be agreed or, if the parties are unable
Material Contracts
MATERIAL CONTRACTS 61
PROSPECTUS TORRENS MINING LIMITED
to agree the price, fair market value) and if both parties elect to proceed they will negotiate in good faith with
a view to entering into a separate mining joint venture agreement in respect of the area the subject of the
development proposal; and
(iii) if a party’s interest is diluted below 10%, then its interest will be converted to a net smelter return. If the
parties cannot reach agreement on the percentage of the net smelter return within 28 days, the return must be
determined by an expert.
The Farm-in Agreement contains other terms and conditions considered standard for an agreement of its nature.
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