Ranger Nickel Project - 17% interest Nickel Mines (option to move to an 80% interest)

In November 2018 Nickel Mines announced it had elevated an MoU to an executed binding Collaboration Agreement (‘CA’) with its partner Shanghai Decent to acquire up to an 80% equity interest in 2 additional RKEF lines currently under construction within the IMIP.

The additional RKEF lines, the Ranger Nickel Project, will be owned under a replica structure to the Company’s Hengjaya Nickel Project with Nickel Mines acquiring its interest through a Singaporean incorporated holding company, Ranger Investment Private Limited (Ranger) that will wholly own an Indonesian incorporated PMA operating company, PT Ranger Nickel Industry (Ranger Nickel) that will wholly own the Ranger Nickel Project.

The CA provides for Nickel Mines to acquire its interest in the three tranches:

·         An initial acquisition, the ‘First Acquisition’, saw Nickel Mines acquire an initial interest of 17% in Ranger and 17% of all shareholder loans due to Shanghai Decent (and its affiliates) at a cost of US$50 million (based on a valuation of US$300 million).

·         A ‘Second Acquisition Option’, will permit Nickel Mines to increase its interest in Ranger and in the total shareholder loans to between 51% and 60% before 31 December 2019.  If the Second Acquisition is completed within 60 days after the first batch of NPI is produced from the Ranger Nickel Project, the additional percentage acquired will be calculated based on a discounted valuation of US$280 million.  If the Second Acquisition is completed more than 60 days after the first batch of NPI is produced from the Ranger Nickel Project, the additional percentage acquired will be calculated based on a valuation of US$300 million.

·         Conditional upon completion of the Second Acquisition Option, a ‘Third Acquisition Option’, will permit Nickel Mines to increase its interest in Ranger and in the total shareholder loans to up to 80% within 18 months of the first batch of NPI being produced from the Ranger Nickel Project.  Any additional interest acquired under the Third Acquisition Option will be calculated based on a valuation of US$300 million.

The terms of the CA provide for Shanghai Decent to take a lead role in the design, construction and operation of the Ranger Nickel Project, with an annual production capacity of no less than 14,000 tonnes of equivalent contained nickel, to be funded by Shanghai Decent (or its affiliates) by way of shareholder loans to Ranger and for construction to be completed within 20 months from the date of the CA.

Construction Update

During the March 2019 quarter, Shanghai Decent advised that an expedited schedule will now see the first kiln of the Company’s 17% owned Ranger Nickel Project now scheduled to commence commissioning in early May 2019 with the second kiln to commence commissioning about 45 days later.

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Intention to move to a 60% interest in Ranger

In April 2019 Nickel Mines announced its decision to increase its current 17% ownership interest in the Ranger Nickel Project to 60%.  This decision has been made in consultation with the Company’s collaboration partner, Shanghai Decent, which currently holds the other 83% interest in Ranger Nickel.

The Company’s move to 60% of Ranger Nickel will be funded via a US$160M financing package comprising US$100M of senior secured debt and US$60M of equity.  The financing package surplus above the Ranger Nickel acquisition consideration will be used to facilitate a number of strategic initiatives being undertaken at the Hengjaya Mine and for general working capital purposes.

The Company has mandated Sprott Private Resource Lending II (Collector), L.P. to finance the US$100M senior secured debt component of the financing package.  Targeted financing completion date of 31 May 2019 is subject to a number of conditions precedent including completion of due diligence by the lender and receipt by the Company of all required regulatory and shareholder approvals.

The US$60M equity component of the finance package will be funded in part by Shanghai Decent increasing its direct investment in Nickel Mines by accepting ~US$40M of the Ranger Nickel acquisition consideration as Nickel Mines’ shares and the balance by placements to a selection of current and/or new professional investors.

Corporate Income Tax Relief for Ranger Nickel

During the March quarter, the Minister of Finance of the Republic of Indonesia granted the Company’s Indonesian operating entity, PT Ranger Nickel Industry (‘Ranger Nickel’), material corporate income tax relief for its 17% owned Ranger Nickel Project.

The tax concessions mirror those previously granted to the Company’s 60% owned Hengjaya Nickel Project.

Notice of the tax relief was communicated to the Company by official decree from the Minister of Finance of the Republic of Indonesia on the basis that Ranger Nickel had “met the criteria and requirements for the reduction of corporate income tax as regulated in Article 3 of the Regulation of the Minister of Finance Number 35/PMK.101/2018 concerning Provision of Corporate Income Tax Reduction Facilities”.

The corporate income tax reduction will be as follows:

§  a Corporate Income Tax Reduction of 100% for a period of seven tax years, starting from the tax year in which commercial production is achieved;

§  a Corporate Income Tax Reduction of 50% of payable income tax for a period of two tax years, starting from the end of the initial seven year period; and

§  exemption from withholding and tax collection by third parties on sales proceeds that would normally be remitted to the Indonesian Revenue Department for a period of seven years, also commencing from the tax year in which commercial production is achieved.

It should be noted that these concessions may be revoked and are maximum periods that may be amended or adjusted if certain conditions are not met, the most important condition being the satisfaction of a minimum investment realisation which Ranger Nickel’s project comfortably exceeds.

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