Ottawa-based capital pool company Green Swan Capital Corp. (TSX-V:GSW.H) has signed a new option agreement with mining firm Melkior Resources Inc. (TSX-V:MKR) that will constitute Green Swan's qualifying transaction.
Green Swan said Monday that it's inked a pact allowing it to acquire an option to purchase up to a 70-per-cent interest in Melkior's RiverBank and Broke Back claims in the Ring of Fire area of northern Ontario.
The agreement involves 69 unpatented claims covering approximately 14,784 hectares or 36,532 acres. The Broke Back group is located roughly 10 kilometres north of Noront Resources Ltd. Eagle's Nest property, and the RiverBank group is immediately west of Melkior's wholly owned East Rim claims.
Green Swan noted that no exploration activity or ground work has been carried out on the claims, although Melkior – a fellow Ottawa company – has said that it may start exploring the property before Green Swan's qualifying transaction closes. However, the agreement includes a condition that Green Swan will have to reimburse Melkior by Dec. 31 of this year for the costs of any such activity, plus a 10-per-cent management fee, if Melkior decides to carry out exploration work.
As a capital pool company, Green Swan must complete a qualifying transaction, which usually involves buying up the shares of a private company with an operating business. The CPC program allows entrepreneurs to raise a limited amount of capital quickly and relatively inexpensively, in comparison to other ways of going public.
The option agreement with Melkior, as such, will be Green Swan's qualifying transaction. Following the deal, Green Swan will become operator of the claims, allowing it to earn up to a 70-per-cent interest in the RiverBank and Broke Back claims, subject to a net smelter royalty of not more than 2.5 per cent. Melkior will have to pay a 10-per-cent operator's fee to Green Swan as part of the transaction.
Green Swan may earn an initial 51-per-cent interest in the claims by paying $25,000 in cash, issuing 1.5 million common shares and 750,000 warrants to Melkior, and incurring a gross amount of $1 million in eligible exploration expenditures on the claims before Dec. 31, 2014. The cost of any exploration activity by Melkior before the transaction closes will be deducted from the $1-million amount, Green Swan noted.
After that initial arrangement is completed, Green Swan will have the right to choose to proceed with a second option, which will allow it to earn an additional 19-per-cent interest in the claims. Green Swan will have to incur another $1 million in exploration expenditures over the following 24-month time frame.
The company said it may terminate either option at any time by giving 120 days' advance notice.
Upon completion of the second option, Green Swan will own 70 per cent of the claims and it will immediately create a joint venture with Melkior, with both firms contributing a proportionate share of all exploration costs. Melkior also has the right to form the joint venture right after Green Swan has completed the first option.
The agreement marks another milestone in a deal that was originally announced in September 2010, with the two firms signing a revised letter of intent in July. Green Swan – which launched in September 2008 and has since been searching for an acquisition – had previously said it wished to buy a full interest in the RiverBank and Broke Back claims.
Green Swan added it intends to carry out a non-brokered private placement financing to coincide with the closing of its qualifying transaction.