Catalyst amends deal to acquire La Verde from Teck

2013-10-08 16:04 ET - News Release

Mr. John Greenslade reports

CATALYST COPPER ENTERS LETTER OF INTENT TO ACQUIRE 100% INTEREST IN LA VERDE COPPER PROJECT, MEXICO

Catalyst Copper Corp. has entered into a non-binding letter of intent with Teck Resources Ltd. (TRL) to modify the terms of an agreement dated April 9, 2013, for the acquisition of the La Verde project by Catalyst, subject to completion of formal documentation and appropriate approvals, including TSX Venture Exchange approval.

The property is currently held 60 per cent Catalyst and 40 per cent indirectly by TRL through a wholly owned subsidiary (TRL Holdco), all subject to a 0.5-per-cent net-smelter royalty held by a third party Mexican corporation.

The letter of intent sets out certain general terms for an agreement pursuant to which Catalyst would, on closing of the revised agreement, indirectly acquire a 100-per-cent interest in the property (subject to the existing NSR) on the following basis.

Equity issue

Catalyst will issue to TRL Holdco or a designated TRL affiliate a number of common shares of the company that will result in Teck owning 19.9 per cent of Catalyst's issued and outstanding shares.

TRL Holdco will have the right, not the obligation, for as long as it owns at least 5 per cent of the issued and outstanding shares of Catalyst, to participate in any future equity financings to the extent of its percentage ownership at the time of such financing.

Participation on future sale of property

If Catalyst sells or options, directly or indirectly, all or a portion of the property to a third party at any time during a 24-month period commencing from the date of the revised agreement, Catalyst shall pay TRL Holdco in kind, exclusive of the first $1-million, as follows:

We seek Safe Harbor.

My summary:

- CCY has obtained 100% of La Verde

- CCY is issuing shares to Teck which results in Teck owning 19.9% of CCY. CCY already has approximately 279,000,000 shares out (not considering fully diluted amount for simplicity). An additional 69,400,000 shares bringing the total to 348,400,000 would make the new shares for Teck to ~equal 19.9%. The current value of these shares is 69,400,000 x .015 = $1,041,000.

- Teck can take part in private placements. Their involvement is limited to their percent of ownership. So currently they can buy up 19.9% of a private placement.

- If a part of La Verde (or all) is sold to another party, Teck receives 20% of the proceeds if the sale takes place within the first 12 months, 10% if in the later 12 months (two year time period). With a current market cap of 4,180,000, I will assume a major partner will want to be in control, so taking 60% of 4,180,000 x 20% proceeds (assuming sale within next 12 months) = 501,600.

- Teck receives 0.5% royalty related to property, CCY can buy this out for $10 million at any time.

- If La Verde goes to production, CCY pays $10 million to Teck. If there is a change of control of CCY (one party owning 50% or more of the outstanding shares of CCY). 50% of this 10,000,000 needs to be paid immediately.

- CCY needs to pay back the Teck subsidiary for La Verde related expenses. This will be done through a private placement or other financing. The financing/private placement needs to be at least for 1.2 million. I would assume this is the approximate amount for the expenses. This requirement does not appear to be immediate, however CCY clearly will need mone in the bank.

The April 9, 2013 agreement stated that CCY needed to pay Teck 20,000,000 cash, or 25,000,000 equivalent consisting of shares (no more than 19.9% of outstanding shares) and cash with a minimum being 12,500,000. As I showed above, 19.9% ownership with a new share issuance has a value of 1,041,000. With 12,500,00 cash (which CCY doesn't have) and shares of a value of 1,041,000, CCY could not reach the required 25,000,000.

So what exactly did CCY give (with 0.015 current share price)?

$1,041,000 worth of shares (.015 price per share)

$10,000,000 estimated value of a .5% royalty

$10,000,000 upon reaching a production decision

$501,600 - 20% or 10% of proceeds from sale of all or a portion of La Verde.

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$21,542,600

Now if the current share price was $0.06 (roughly the value in April before original agreement was presented). The cost is as follows:

$4,164,000 (1,041,000 x 4) worth of shares (.06 price per share)

$10,000,000 estimated value of a .5% royalty

$10,000,000 upon reaching a production decision

$2,006,400 (4 x $501,600) - 20% or 10% of proceeds from sale of all or a portion of La Verde.

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$26,170,400

So overall not a bad deal for both parties.