Appian Announces Financing Support for Harte Gold Corp.

JERSEY, CI, July 2, 2020 /CNW/ - Appian Capital Advisory LLP, the investment advisor to long-term value focused private equity funds that invest solely in mining and mining related companies, announces that ANR Investments 2 B.V. ("Appian"), a subsidiary of Appian Natural Resources Fund II, has entered into a binding term sheet with Harte Gold Corp. ("Harte") in respect of a US$30 million financing comprised of (i) a private placement subscription  (the "Private Placement") for US$9.5 million of Series B special shares of Harte ("Special Shares"), (ii) a US$18.5 million non-revolving credit facility (the "Credit Facility") and (iii) a US$2.0 million purchase of a 0.5% net smelter return royalty (together, the "Transaction").  A summary of the terms of the Transaction is included in Harte's press release dated July 1, 2020.

The Private Placement is intended to provide Harte with immediate funding to accelerate the restart of its operations and, subject to approval of the Toronto Stock Exchange, satisfactory definitive documentation and other customary closing conditions, is expected to close on or about July 9, 2020.

The Credit Facility and the Royalty are intended to provide Harte with additional funding for the restart of its operations working capital needs and general corporate purposes and, subject to approval of the Toronto Stock Exchange ("TSX"), satisfactory consent, security and intercreditor arrangements with Harte's secured lender BNP Paribas (the "BNP Consent"), satisfactory definitive documentation and other customary closing conditions, is expected to close on or before August 29, 2020. 

Private Placement and Special Shares

Special Shares to be issued to Appian under the Private Placement will automatically convert ("Automatic Conversion") into an incremental US$9.5 million under the Credit Facility (for an aggregate total of US$28.0 million) on the closing of the Credit Facility.

The Special Shares will be convertible at Appian's election into common shares of Harte ("Common Shares"):

1. if Harte does not obtain the BNP Consent on or before August 29, 2020 or an event of default occurs, based on a ratio equal to 115% of the conversion amount of US$1.00 per Special Share (the "Conversion Amount") (plus any unpaid dividends) divided by the five-day volume-weighted average price ("VWAP") of the Common Shares on the TSX at the time of the election to convert; or
2. upon the announcement of an offer or transaction for a change of control of Harte, based on a ratio equal to 110% of the Conversion Amount (plus any unpaid dividends) per Special Share divided by the lower of the five-day or thirty-day VWAP on the trading day prior to such announcement.

Each Special Share will also be entitled to dividends equal to 14% per annum, calculated and paid monthly, provided that (i) if Harte does not obtain the BNP Consent on or before August 29, 2020, such dividend will be increased by 5% per annum and (ii) if an event of default occurs, such dividend will be increased by an additional 5% per annum ("Dividends"). Dividends on Special Shares will be payable in Common Shares issued at the five-day VWAP on the monthly dividend payment date or C$0.1173 (being the five-day VWAP as of July 1), whichever is lower. 

Upon closing of the Private Placement, Harte will pay Appian an upfront arrangement fee of US$600,000 in Common Shares priced at C$0.1173 (being the five-day VWAP as of July 1) and issue to Appian 7,500,000 purchase warrants to acquire Common Shares, exercisable at C$0.1349 (representing a 15% premium to the five-day VWAP as of July 1) and expiring five-years from the date of their issuance.

Upon closing of the Private Placement, Appian and Harte have agreed to enter into an offtake agreement pursuant to which Appian would be granted 18.5% of the total refined gold produced from Harte's Sugar Zone properties until 500,000 ounces of refined gold are delivered.

More detailed terms regarding the Private Placement and the Special Shares are set forth in Harte's press release dated July 1, 2020.

Credit Facility

The Credit Facility will have a maturity date of June 30, 2023 (the "Maturity Date") and bear interest at 14% per annum, calculated and paid monthly, provided that (i) upon an event of default, such interest will be increased by 5% and (ii) upon a breach of certain agreed operational requirements, such interest will be increased by 4% or 8% ("Interest").  The maximum total increase to Interest will be 8%. Until the Maturity Date or an event of default, Interest will be payable in Common Shares issued at the five-day VWAP on the monthly interest payment date or C$0.1173 (being the five-day VWAP as of July 1), whichever is lower. 

The Credit Facility will be secured by way of a fully perfected 2nd lien on all of Harte's assets and will be subordinated to the existing US$72.5 million senior debt facility provided by BNP Paribas (the "BNP Facility").

Provided an event of default has not occurred and no offer or transaction for change of control of Harte has been announced, the Credit Facility may be prepaid in whole or in part by Harte at: (a) 110% of principal (plus accrued interest) until June 30, 2021; (b) 115% of principal (plus accrued interest) if prepaid between July 1, 2021 and June 30, 2022; or (c) 120% of principal (plus accrued interest) if prepaid between July 1, 2022 and the Maturity Date.

The Credit Facility will be convertible at Appian's election into Common Shares:

1. if an event of default occurs, based on a ratio equal to 115% of the principal outstanding (plus accrued interest) divided by the five-day VWAP at the time of the election to convert; or
2. upon the announcement of an offer or transaction for a change of control of Harte, based on a ratio equal to 110% of the principal outstanding (plus accrued interest) divided by the lower of the five-day or thirty-day VWAP on the trading day prior to such announcement.

More detailed terms regarding the Credit Facility are set forth in Harte's press release dated July 1, 2020.

Governance Changes

In connection with the Transaction, Harte has agreed to certain changes to its board and management. In particular, Appian will have the right to appoint one nominee to the Harte board (increasing the number of Appian-related nominees from two to three directors, which is comprised of seven directors in total, including the Appian-related nominees). Such nomination right would terminate on the earlier of (a) the Maturity Date of the Credit Facility (if the Credit Facility is repaid in full on that date); and (b) the date on which the Credit Facility is repaid in full if prior to the Maturity Date. At the closing of the Private Placement, Mr. Stephen Roman will resign from the Harte board and Mr. Igor Gonzales will be appointed to the Harte board as one of Appian's nominees. The other two Appian-related nominees on the Harte board are Michael W. Scherb and Geoffrey Cohen.

Mr. Gonzales is the Chief Operating Officer of the Appian Group. Mr. Gonzales has 35 years of mining industry experience and has led operations globally with several preeminent companies, with a particular focus on Latin America and narrow vein precious metals. Prior to joining the Appian Group, Mr. Gonzales was President and CEO of Sierra Metals, a Latin America focused precious and base metals producer, and before that was Chief Operating Officer at Compañía de Minas Buenaventura. He spent 15 years with Barrick Gold, most recently as Executive Vice President and COO where he oversaw 28 operations globally and served in various roles with Southern Peru Copper Corporation. He is a Peruvian citizen, holds Bachelor of Science in Chemical Engineering from the University of San Antonio Abad and was a Fulbright Scholar at New Mexico Institute of Mining and Technology where he earned a Master of Science in Extractive Metallurgy.

Further, the Nominating, Compensation and Governance Committee of Harte would also recommend to the Harte board a suitable replacement for Richard Sutcliffe, who would resign from the Harte bard once a suitable replacement was been identified (which replacement would be independent of Appian).

Share Disclosure

ANR Investments B.V. ("ANR"), a subsidiary of Appian Natural Resources Fund and a joint actor of Appian, beneficially owns and exercises control and direction over (i) 206,716,334 Common Shares representing approximately 24.4% of the outstanding Common Shares, (ii) common share purchase warrants of Harte ("Existing Warrants") expiring on May 11, 2023 to acquire 4,000,000 Common Shares at a price of C$0.51 per Common Share, (iii) Existing Warrants expiring on May 11, 2023 to acquire 2,000,000 Common Shares at a price of C$0.50 per Common Share, (iv) Existing Warrants expiring on June 12, 2024 to acquire 5,000,000 Common Shares of Harte at a price of C$0.27 per Common Share (v) Existing Warrants expiring on August 28, 2022 to purchase 3,950,000 Common Shares of Harte at a price of C$0.35 per Common Share and (vi) Existing Warrants expiring on April 2, 2021 to purchase 383,054 Common Shares of Harte at a price of C$0.35 per Common Share.  Assuming the exercise of all of the Existing Warrants, would beneficially own, and exercise control or direction over, an additional approximately 1.8% of the issued and outstanding Common Shares.

Appian is acquiring the Special Shares and Credit Facility for investment purposes. Appian has a long-term view of the investment. Depending on the development of Harte's business, financial condition, the market for Harte's securities, general economic conditions and other factors, and subject to certain agreed standstill and other restrictions on sale, Appian may acquire additional securities of Harte, or sell all or some of the securities it holds, in the open market, by private agreement or otherwise.

Special Shares

Assuming completion of the Private Placement and the Automatic Conversion occurs, Appian and ANR would collectively beneficially own, and exercise control or direction over, an additional approximately 17,046,184 Common Shares, representing approximately 2.0% of the issued and outstanding Common Shares (assuming a VWAP of C$0.1173 and CAD/USD of 0.7338). As a result, Appian and ANR would collectively beneficially own, and exercise control or direction over, approximately 223,762,518 Common Shares, representing 25.9% of the issued and outstanding Common Shares pro forma.

If the Automatic Conversion does not occur, an event of default occurs or an offer or transaction for a change of control of Harte is announced, then additional Common Shares may be issued to Appian upon the conversion of the Special Shares.  For illustrative purposes, assuming a VWAP of C$0.1173 and CAD/USD of 0.7338, approximately 143,973,635 Common Shares could be issuable to Appian (including fees and Dividends) as a result of an event of default, representing approximately 17.0% of the currently issued and outstanding Common Shares pro forma. However, the actual number of Common Shares issuable to Appian is indeterminable as of today's date given the conversion price is based on a future VWAP and CAD/USD foreign exchange rate.

Credit Facility

Assuming completion of the Private Placement, the Automatic Conversion occurs and repayment in full of the Credit Facility on June 30, 2023, Appian and ANR would collectively beneficially own, and exercise control or direction over, an additional approximately 146,084,251 Common Shares, representing approximately 17.3% of the issued and outstanding Common Shares (assuming a VWAP of C$0.1173 and CAD/USD of 0.7338). As a result, Appian and ANR would collectively beneficially own, and exercise control or direction over, approximately 352,800,585 Common Shares, representing 35.6% of the issued and outstanding Common Shares pro forma.

If an event of default occurs or an offer or transaction for a change of control of Harte is announced, then additional Common Shares may be issued to Appian upon the conversion of the Credit Facility.  For illustrative purposes, assuming a VWAP of C$0.1173 and CAD/USD of 0.7338, approximately 374,101,961 Common Shares could be issuable to Appian (including fees and Interest) as a result of an event of default, representing approximately 44.2% of the currently issued and outstanding Common Shares pro forma. However, the actual number of Common Shares issuable to Appian is indeterminable as of today's date given the conversion price is based on a future VWAP and CAD/USD foreign exchange rate.

About Appian Capital Advisory LLP

Appian Capital Advisory LLP is the investment advisor to long-term value focused private equity funds that invest solely in mining and mining related companies.

Appian is a leading investment advisor in the metals and mining industry, with global experience across South America, North America, Australia and Africa and a successful track record of supporting companies to achieve their development targets.

CONTACT

The head office of Harte is located at 161 Bay Street, Suite 2400, Toronto, Ontario, Canada M5J 2S1. The Common Shares of Harte are listed on the Toronto Stock Exchange.

An early warning report will be filed by Appian in accordance with applicable securities laws and will be available under Harte's profile on the SEDAR website at www.sedar.com.

The head office of Appian is located at 47 Esplanade, St Helier, Jersey, Channel Islands JE1 0BD.

SOURCE Appian Natural Resources Fund II

including to obtain a copy of the early warning report to which this press release relates, please contact Michael W. Scherb at: Appian Capital Advisory LLP, 45 Pall Mall, 5th Floor, London, SW1Y 5JG, United Kingdom, [phone]