PERE.L Regulatory News (PERE)

6 April 2020

Pembridge Resources plc

Restructuring to Remove Direct Ongoing Pembridge Financial Commitments of $6.4M-$22.1M

London, United Kingdom - Pembridge Resources plc (LSE: PERE) ("Pembridge" or the "Company"), and together with its subsidiaries, the "Group"), provides the following update with respect to its funding obligations to Minto Explorations Ltd ("Minto") and future capital requirements:

Proposed Changes to Ownership and Reduction of Financial Liabilities

In light of the current financial market conditions as a result of the COVID-19 pandemic and the potential for material cash calls on Pembridge, the Company has agreed with the other shareholders of Minto (collectively "the US Investors") to remove certain future funding obligations of Pembridge and to restructure the Minto share ownership. This decision was in part aided by the additional risk posed by a potential legal dispute between Pembridge and the US Investors under the Shareholders' Agreement dated 3 June 2019 between Pembridge, Minto, and the US Investors (collectively the "Shareholders' Agreement"), which is outlined below. 

Previously, the Joint Advisory Committee of Minto (consisting of representatives from Pembridge and the US Investors) authorized a $3 million capital call to fund working capital, which was due to be paid by Pembridge under the Shareholders' Agreement. As previously reported, Pembridge has loaned Minto the equivalent of US$3 million via payment into an escrow surety account on behalf of Minto (the "Control Account") and thus considered that Pembridge had met its obligations with respect to its US$3 million cash call contribution to Minto.

The US Investors informed Pembridge that their legal advisers disagreed with the Company's contractual interpretation, suggesting Pembridge should pay US$3.0 million directly to Minto to satisfy the cash call requirement. In an effort to avoid a potential legal dispute, the Company engaged in a regular dialogue with the US Investors to reach an amicable and mutually beneficial solution. Whilst Pembridge maintains its belief that its interpretation of the Shareholders' Agreement is accurate, any efforts to enforce this belief would most likely involve a fairly protracted legal dispute in New York (which governs the Shareholders' Agreement), bringing with it significant costs.

In light of the potential cash needs of Minto in the current environment and the subsequent future financial commitments on Pembridge that this would impose, having undertaken a strategic review the Board of Pembridge has concluded it is in the best interests of the Company to seek an agreement with the US Investors, whereby Pembridge reduces its percentage ownership in Minto in exchange for removing certain future financial liabilities, thereby ensuring the financial stability of the Company.

Agreement with the US Investors

Pembridge has reached an agreement in principle with the US Investors, which is subject to final documentation, that will provide cash for Minto to meet its current cash requirements as well as assist Pembridge's liquidity in the current unprecedented market conditions.

The US Investors will subscribe for new Class B shares in Minto to a value of US$3 million so as to support the short-term financial needs of Minto, thereby ensuring its ability to continue to operate in the current challenging times. As a result of this investment into Minto by the US Investors, Pembridge's economic interest will be reduced from 33% to 11%.

In addition, the US Investors have agreed to support a decision by the Minto Board of Directors for Minto to take over all of Pembridge's future payment obligations with respect to the Control Account (as described below). This action will reduce the future financing commitments of Pembridge by a minimum of CAD$2 million and up to CAD$3 million.

Further, the US Investors have also agreed to support a decision by the Minto Board of Directors for Minto to take over all future consideration payments due from Pembridge to Capstone Mining Corporation ("Capstone") in accordance with the Share Sale and Purchase Agreement ("SPA") dated 3 June 2019 (as explained below). Previously Pembridge had been expected to pay a minimum of US$5 million and up to US$20 million out of the income that it derived from Minto.

With respect to the Minto Board, two new additional independent directors are to be appointed. Further changes to the Minto Board are potentially possible based on certain trigger events, which may or may not occur.

Control Account Funding

As announced on 14th February 2020, Pembridge has loaned Minto the equivalent of US$3 million (CAD$ 4.0 million) for the purpose of funding Minto's Control Account, which supports its environmental liability insurance and for the purpose of meeting the Company's obligation under the Shareholders' Agreement for the first US$3.0 million cash requirements.

Pembridge has a contractual commitment to fund the Control Account at a rate of CAD$1 million per quarter until 60 days after Minto reaches its Restart Date, being the earlier of the occurrence of 60 consecutive production days during which ore has been processed through the Minto Mine mill facilities at a rate of production of not less than 2,400 tonnes per day ("Commercial Production") and January 31, 2021. At that point, Minto is responsible for making contributions in the Control Account until the account reaches a balance of CAD$10 million. Minto will then continue to pay CAD$1 million each quarter to Pembridge until it has repaid the CAD$4 million that has been advanced to the Control Account by Pembridge, together with accrued interest on the funding provided by Pembridge.

Currently it is expected that Minto will reach Commercial Production some time in Q4 of 2020, and therefore Pembridge's commitments for funding the Control Account could amount to at least an additional CAD$2 million (US$1.4 million at current exchange rates) and could be up to CAD$3 million (US$2.1 million at current exchange rates) if the specified level of production is not attained prior to January 31, 2021. These payments are now to be made by Minto rather than Pembridge under the agreement reached with the US Investors.

Minto Acquisition Funding

In addition to the Control Account funding commitments described above, in accordance with the SPA, Pembridge has an obligation to pay up to US$20 million for the Minto acquisition. The first US$5 million of this obligation is due no later than 31 March 2021. It has been Pembridge's expectation that it would be able to fund the payments to Capstone from Minto cash flow that it receives; however in light of the current market conditions and a current market cap of circa US$4 million, the Board believes it would be highly improbable that Pembridge could raise sufficient funds to cover the payment(s) to Capstone under the SPA without more heavier dilution in Pembridge than is being proposed at the asset level. The proposed agreement with the US Investors extinguishes this direct liability, as outlined above.

Gati Al-Jebouri, Chief Executive Officer and Chairman of the Board said:

"The current unprecedented market conditions have led to this development. The agreement we have reached with the US Investors will result not only in Pembridge removing potentially crippling financial liabilities, but also ensure that Minto is now in a much stronger financial position to continue with the development.

Pembridge will retain an 11% interest in Minto and has now removed the direct liabilities, which potentially stood somewhere between US$6.4 million and US$22.1 million. In addition, Pembridge can reasonably expect the repayment of its loan to Minto, arising from previous contributions of CAD$4 million into the Control Account, in 2022.

As the largest shareholder in Pembridge, having personally invested over £4M in the Company since October 2019, I am pleased that the Board of Directors of Pembridge have taken these steps to ensure our company will have the best chances of continuing to operate and develop the Minto opportunity. I remain focused on ensuring Pembridge becomes a success and look forward to updating shareholders in what hopefully proves more advantageous times."

ENDS

NOTES TO EDITORS

About Pembridge Resources plc

Pembridge is a mining company that is listed on the standard segment of the Official List of the FCA and trading on the main market for listed securities of London Stock Exchange plc. Minto is a British Columbia incorporated business operating the Minto mine in Yukon, Canada. Pembridge owns 11% (in Class A shares) of Minto.

About Minto Explorations Limited

Minto operates the underground copper-gold-silver mine located in central Yukon, approximately 240 kilometres north of the capital Whitehorse along the Klondike Highway. In excess of US$350 million of capital expenditure has been invested into Minto operations since site construction began in 2006. The Minto mine was in continuous production between 2007 and 2018, when the mine was placed onto temporary care and maintenance. Pembridge acquired Minto from Capstone Mining Corporation in June 2019 and restarted operations in October 2019.

For further information contact:

Pembridge Resources plc: +44 (0)20 7917 2968

Gati Al-Jebouri, Chief Executive Officer and Chairman of the Board

David James, Chief Financial Officer

Brandon Hill Capital - United Kingdom broker: +44 (0)20 3463 5016

Jonathan Evans