Tri-Star Resources Plc Settlement Agreement

 
TIDMTSTR 
 
Tri-Star Resources PLC / AIM: TSTR / Sector: Natural Resource 
 
3 November 2020 
 
         Tri-Star Resources plc ("Tri-Star", "TSTR" or the "Company") 
 
                             Settlement Agreement 
 
Tri-Star Resources plc (AIM: TSTR), the minerals processing company, announces 
an update on its investment in Strategic & Precious Metals Processing LLC 
("SPMP"), an antimony and gold production facility in the Sultanate of Oman in 
which the Company is a joint venture partner with the Oman Investment Authority 
LLC ("IAC") and DNR Industries Limited ("DNR"), part of Dutco Group in Dubai . 
 
Introduction 
 
The last 18 months have been a very frustrating period for Tri-Star.  SPMP, 
TSTR's sole investment, has achieved a number of important milestones but there 
have been significant delays, costs continue to increase and the funding of 
SPMP has looked uncertain. 
 
On the positive side, SPMP produced and sold its first batches of antimony 
metal and of gold dore and has been operating individual parts of the plant for 
short periods at 50% of capacity. This proved that the plant was capable of 
producing in small quantities but efforts to ramp up production have been 
hampered in part by the continued lack of funding for SPMP. 
 
Delays over several years have meant that the total funding required to 
complete the plant has increased enormously. TSTR has not invested further in 
SPMP since 2018 and SPMP has been seeking debt finance from both domestic and 
international institutions from the middle of the year 2019. By the end of 2019 
it was clear that SPMP would need to rely upon funding from local banks rather 
than international ones. 
 
At the end of 2019, a local institution ("Local Bank") had shown interest and 
SPMP was actively engaged with the bank to agree terms.  However, it transpired 
that the Local Bank was only prepared to lend on terms unacceptable to SPMP's 
shareholders. 
 
At the end of the year and in January 2020, IAC (previously Oman Investment 
Fund Holding Company LLC) injected a further USD32m in SPMP and DNR a further 
USD8m ("December 2019 Funding").  It had not been agreed with TSTR the terms on 
which this funding would be made. 
 
In April 2020, IAC instituted arbitration proceedings in order to try and force 
the December 2019 Funding to be treated as equity on a valuation to be agreed 
only after the event.  TSTR had a veto right over this and, based on legal 
advice, the Board were confident that it would prevail. 
 
We continued to negotiate with our fellow shareholders in SPMP in order to find 
an equitable solution in the knowledge that TSTR was unlikely to be able to 
provide any future funding for SPMP.  Circumstances were exacerbated as the 
magnitude of the final funding required to complete the SPMP project was 
uncertain and likely to increase. It was announced in January 2020 that SPMP 
required further debt funding of cUSD120m comprising USD60m for rectification 
costs and a further USD60m for working capital, (the "Funding Gap") in addition 
to the substantial sums already invested by the shareholders of SPMP. 
 
The Board is pleased to report that we have reached a settlement agreement with 
IAC, DNR and SPMP (the "Settlement Agreement"), which provides greater 
certainty of funding for SPMP, redresses the imbalance of the amounts invested 
by the three shareholders and provides certainty over TSTR's shareholding going 
forward with no further need for TSTR to finance SPMP. 
 
It is the Board's view that this solution, whilst reducing the Company's equity 
stake, greatly increases the chances of the shareholders of TSTR achieving a 
liquidity event in the future.  There was ultimately no alternative for TSTR 
with the possibility of SPMP going into liquidation, at which point the TSTR 
shareholders would receive nothing.  The agreement that we have achieved is, in 
the Board's view, a better result than would have been achieved through 
arbitration which would have cost at least GBP250,000 in costs and fees; funds 
that TSTR, absent this Settlement Agreement, does not have. 
 
Investment to date 
 
In January 2020 TSTR announced the Funding Gap referred to above, in addition 
to the substantial sums already invested by the shareholders of TSTR and an 
additional equity requirement of cUSD40m. Tri-Star's inability during 2019 and 
2020 to make further investments pari passu with its shareholding in SPMP had 
led to an imbalance of funding between the shareholders of SPMP.  As a result, 
TSTR's investment in all forms comprises approximately 16.3% of the total 
amount invested to date of cUSD206m, the balance being provided by IAC and DNR. 
 
The Settlement Agreement 
 
Over the last few months, Tri-Star and its joint venture partners have been in 
discussions to find a resolution to the dispute. These concluded on 1 November 
2020 with a settlement  agreement between the parties embracing a number of 
constitutional and financial changes.  In broad terms, IAC and DNR have agreed 
to provide sufficient further funding in order for the plant to reach 
completion, without further equity dilution to TSTR and that all sums invested 
to date are converted into equity and equity loans ("Equity Loans") 
proportionately. The Equity Loans are zero coupon, undated and repayable at the 
option of SPMP, subordinated but ranking above equity. 
 
As a result of the Settlement Agreement, TSTR's investment in SPMP will 
comprise equity of USD 2.6m (16.3% of total equity) and Equity Loans of USD30.8 
million (16.3% of the total Equity Loans).  The balance is held by IAS and 
DNR.  Each shareholder of SPMP owns an equal percentage of equity and equity 
loans. 
 
Tri-Star's claim to a final USD2m payment due from the assignment of the 
intellectual property rights to SPMP has been settled by USD500,000 payable in 
cash and the balance forming part of TSTR's total funding of SPMP.  A further 
sum of USD100,000 representing settlement for other outstanding amounts will 
also be paid in cash to TSTR by SPMP. 
 
It is envisaged that future SPMP funding until plant completion will be sought 
first from third party sources; failing that, shareholders may fund SPMP with 
subordinated non-convertible debt with a coupon of 20% ("New Loans"). IAC has 
agreed to fund TSTR's share thereby avoiding dilution of TSTR's equity 
interest. Of the Funding Gap noted above, USD40m has already been provided as 
equity and equity loans.  The balance, and any extra funding needed, is likely 
to be provided in the form of New Loans at a rate of 20% interest. 
 
TSTR's interest may only be diluted if shareholders with 75% or more of the 
voting rights agree (which currently requires at least 2 shareholders): a) that 
capital is required to expand the project in a material way; b) to apply for a 
listing on a recognised stock exchange which results in the free float being at 
least 25% of the issued share capital; c) that an independent third party 
investor injects equity in the business on an arms-length basis; or d) in order 
to continue compliance with bank facility covenants, the banks require  any of 
the New Loans to be converted to equity. 
 
In the light of the change in shareholdings, it has been agreed that TSTR will 
no longer have a seat on the board of SPMP, neither will it have any veto 
rights over previously reserved matters, which will now require  the consent of 
shareholders holding 75% or more of the voting rights, i.e. at least two 
shareholders. 
 
The bank guarantee provided by TSTR, IAC and DNR in favour of Bank Nizwa and 
Alizz Islamic Bank remains in place, although all parties have agreed to seek 
to renegotiate the terms to ensure that it is released once the plant is 
commissioned.  TSTR's exposure to the guarantee has been reduced to reflect its 
decreased shareholding of 16.3%.  As a result of the Settlement Agreement, 
which provides for the ongoing funding of SPMP, it is the Board's view that the 
risk of the guarantee being called has been significantly reduced.  The current 
expected date of completion of the plant is in H1 2021 at which point the 
guarantee should be expunged. 
 
Total exposure to Bank Nizwa and Alizz Bank at 31 December 2020 stood at 
USD57.3m. 
 
Odey Loan 
 
It has been agreed that interest on the Odey loan to TSTR will reduce to 5% on 
completion of the Settlement Agreement.  At 30 September 2020, the loan stood 
at USD2.3m. 
 
Cancellation of admission to AIM 
 
As a result of the Settlement Agreement, TSTR will become a passive investor in 
SPMP.  Accordingly, the Board is of the view that the costs involved in keeping 
TSTR admitted to AIM are not warranted.  Accordingly, a shareholder circular 
will be sent shortly to all shareholders recommending that TSTR's admission to 
AIM is cancelled. It is intended that arrangements will be made for matched 
market transactions to take place. 
 
As a result of the Settlement Agreement, TSTR will receive cash of USD600,000. 
Subject to the cancellation being approved by TSTR shareholders at a general 
meeting, the current board will resign. A single director will be appointed and 
running costs will be reduced to a minimum which are expected to be less than GBP 
50,000 per annum. 
 
Adrian Collins, Chairman of Tri-Star commented:  "I am aware that this may not 
be the outcome that some shareholders had envisaged, but I do believe that we 
will have a liquidity event in the foreseeable future and I hope this will give 
shareholders the opportunity to either receive a cash payment or shares in a 
listed SPMP. 
 
"I would like to thank our partners, the management team and our shareholders 
for their dedication, commitment and efforts during this difficult time." 
 
Certain information contained in this announcement would have been deemed 
inside information for the purposes of Article 7 of Regulation (EU) No. 596/ 
2014 until the release of this announcement. 
 
                                   **S** 
 
For further information, please visit www.tri-starresources.com or contact: 
 
Tri-Star Resources plc                                              c/o SBP

David Facey, CEO/ CFO                              Tel: +44 (0)20 7236 1177 
 
St Brides Partners (Financial PR) 
Isabel de Salis / Beth Melluish                    Tel: +44 (0)20 7236 1177 
 
SP Angel Corporate Finance (Nominated 
Adviser)                                           Tel: +44 (0)20 3470 0470 
Jeff Keating/ Caroline Rowe 
 
finnCap Ltd (Broker) 
Christopher Raggett                                Tel: +44 (0)20 7220 0500 
 
 
 
END

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November 03, 2020 02:00 ET (07:00 GMT)

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