DRAFT — SUBJECT TO REVISION — CONFIDENTIAL — February 4, 2022
PRELIMINARY OFFERING MEMORANDUM — SUBJECT TO COMPLETION
$300,000,000
TORCHLIGHT MINING CORP.
8.750% Senior Secured Notes due 2029
Torchlight Mining Corp., a corporation incorporated under the Canada Business Corporations Act (the "Issuer"), is offering $300,000,000 aggregate principal amount of its 8.750% Senior Secured Notes due 2029 (the "Notes"). The Notes will bear interest at a rate of 8.750% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, commencing October 15, 2022. The Notes will mature on April 15, 2029.
Issue Price: [__]% of par (to be determined at pricing).
The Notes will be the senior secured obligations of the Issuer and will be jointly and severally guaranteed on a senior secured basis (the "Guarantees") by Wolverine Lake Mining Ltd., Torchlight Milling & Processing Inc., and Torchlight U.S. Holdings, Inc. (collectively, the "Guarantors" and, together with the Issuer, the "Obligors"). The Notes and the Guarantees will be secured by a first-priority lien on substantially all tangible and intangible assets of the Issuer and the Guarantors, as more fully described herein.
The Notes will rank pari passu in right of payment with all existing and future senior indebtedness of the Issuer; effectively senior to any unsecured indebtedness of the Issuer to the extent of the value of the collateral securing the Notes; and senior to any subordinated indebtedness of the Issuer.
Optional Redemption. Prior to April 15, 2025, the Issuer may redeem all or any portion of the Notes at a make-whole redemption price equal to the greater of (a) 100% of the principal amount of the Notes being redeemed and (b) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at the Applicable Treasury Rate plus 50 basis points, plus, in each case, accrued and unpaid interest to the redemption date. In addition, prior to April 15, 2025, the Issuer may redeem up to 40% of the original aggregate principal amount of the Notes at 108.750% of par with the net cash proceeds of one or more equity offerings. On or after April 15, 2025, the Issuer may redeem the Notes at the prices set forth herein.
Change of Control. Upon the occurrence of a Change of Control Triggering Event, the Issuer will be required to offer to repurchase all outstanding Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase.
The Notes will be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof. The Notes will be issued in book-entry form through The Depository Trust Company ("DTC") (with respect to Rule 144A Notes) and Stonefield Industries and Westmark & Co. (with respect to Regulation S Notes).
The Notes have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws, and may not be offered or sold within the United States except to qualified institutional buyers ("QIBs") in reliance on Rule 144A under the Securities Act, or outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act. The Notes are subject to restrictions on transfer as described herein under "Transfer Restrictions." Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.
Application has been made to Northmark Ratings Group, Inc. and Creston Analytics, Inc. to rate the Notes. The expected ratings are expected to be assigned prior to the distribution of the Notes. A securities rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time.
The Notes will be governed by and construed in accordance with the laws of the State of New York.
See "Risk Factors" beginning on page [____] for a discussion of certain factors that should be considered in connection with an investment in the Notes.
This Preliminary Offering Memorandum is not an offer to sell or a solicitation of an offer to buy the Notes in any jurisdiction in which such offer or solicitation would be unlawful. This Preliminary Offering Memorandum is being furnished on a confidential basis to a limited number of qualified institutional buyers for informational use solely in connection with the consideration of the purchase of the Notes. Its use for any other purpose is not authorized. This Preliminary Offering Memorandum may not be copied, reproduced, or distributed to any person other than the offeree to whom it is provided, and may not be used by any person other than such offeree in connection with any purpose other than evaluating the Notes.
LEAD INITIAL PURCHASER / BOOK-RUNNING MANAGER
Kelvantis Capital Markets LLC
CO-MANAGERS
Prestige Barrington & Co., Inc. Halcyon Securities Inc.
Preliminary Offering Memorandum dated February 4, 2022
IMPORTANT NOTICES AND DISCLAIMERS
This is a preliminary offering memorandum that is subject to completion and revision. The terms of the Notes and other information set forth herein are subject to modification and should not be relied upon as being accurate or complete. This Preliminary Offering Memorandum does not constitute an offer to sell, or a solicitation of an offer to buy, the Notes in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.
The Notes have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any state of the United States or any other jurisdiction. The Notes are being offered and sold only (i) in the United States to qualified institutional buyers ("QIBs") as defined in Rule 144A under the Securities Act in reliance on the exemption from registration provided by Rule 144A, and (ii) outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act. Prospective purchasers that are QIBs are hereby notified that the sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. For a description of certain restrictions on offers, sales, and transfers of the Notes, see "Transfer Restrictions."
No action has been taken by the Issuer, the Guarantors, or the Initial Purchasers to permit a public offering of the Notes in any jurisdiction. No action has been or will be taken in any jurisdiction by the Issuer, the Guarantors, or the Initial Purchasers that would permit a public offering of the Notes or possession or distribution of this Preliminary Offering Memorandum in any jurisdiction where action for that purpose is required, other than in the United States or any other jurisdiction where action for that purpose has been or will be taken. Accordingly, the Notes may not be offered or sold, directly or indirectly, and neither this Preliminary Offering Memorandum nor any other offering material or advertisement in connection with the Notes may be distributed or published, in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable laws, regulations, or directives of any such country or jurisdiction.
Forward-Looking Statements. This Preliminary Offering Memorandum contains forward-looking statements within the meaning of applicable securities legislation. Forward-looking statements include, but are not limited to, statements regarding: the anticipated use of proceeds of the offering; the Phase II expansion at the Wolverine Lake mine, including projected capital costs, construction timelines, and expected production increases; mineral resource and reserve estimates; projected operating performance, production volumes, and costs; and the Issuer's plans, objectives, expectations, and intentions. Forward-looking statements are generally identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should," "will," and similar expressions, although not all forward-looking statements contain such words. By their nature, forward-looking statements are subject to numerous assumptions, risks, and uncertainties, many of which are beyond the control of the Issuer, including the risks described under "Risk Factors." Actual results could differ materially from those anticipated in any forward-looking statement. The Issuer undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by applicable law. Prospective purchasers of the Notes are cautioned not to place undue reliance on these forward-looking statements.
Mineral Resource Estimates. The mineral resource estimates set forth in this Preliminary Offering Memorandum have been prepared in accordance with the standards set out in National Instrument 43-101 — Standards of Disclosure for Mineral Projects ("NI 43-101") and the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") — CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by CIM Council on May 10, 2014. These standards differ materially from the requirements of the United States Securities and Exchange Commission ("SEC") set forth in subpart 1300 of Regulation S-K. U.S. investors are cautioned that the terms "Measured," "Indicated," and "Inferred" mineral resources used in this Preliminary Offering Memorandum may not be directly comparable to categories used under SEC guidelines. In particular, "Inferred" mineral resources have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in certain limited circumstances. Investors are cautioned not to assume that all or any part of the mineral resources reported herein will ever be converted into mineral reserves.
Responsibility Statement. Torchlight Mining Corp. accepts responsibility for the information contained in this Preliminary Offering Memorandum. To the best of the knowledge and belief of the Issuer (which has taken all reasonable care to ensure that such is the case), the information contained in this Preliminary Offering Memorandum is in accordance with the facts and does not omit anything likely to affect the import of such information.
Currency. Unless otherwise indicated, all dollar amounts set forth in this Preliminary Offering Memorandum are expressed in United States dollars ("USD" or "$"). Canadian dollar amounts are denoted by the symbol "CAD" or "CAD $." For convenience, certain Canadian dollar amounts have been translated into United States dollars at an exchange rate of USD/CAD 0.7875 (i.e., CAD $1.00 = USD $0.7875), which was the approximate noon exchange rate published by the Bank of Canada on January 14, 2022. Such translations are provided for convenience only and should not be construed as representations that the Canadian dollar amounts actually represent such United States dollar amounts or that such Canadian dollar amounts could be converted into United States dollars at the rate indicated or at any other rate.
Enforcement of Judgments. The Issuer, Torchlight Mining Corp., is a corporation incorporated under the laws of Canada. Certain of the Guarantors, namely Wolverine Lake Mining Ltd. and Torchlight Milling & Processing Inc., are corporations incorporated under the laws of the Province of Ontario, Canada. Certain of the directors and officers of the Issuer and the Guarantors are residents of Canada, and a substantial portion of the assets of the Issuer and the Canadian Guarantors, including the Wolverine Lake mine and associated properties, are located in Canada. As a result, it may not be possible for investors to effect service of process within the United States upon the Issuer or such directors and officers, or to enforce judgments of courts of the United States predicated upon the civil liability provisions of the United States federal securities laws against the Issuer or such persons. There is doubt as to the enforceability in Canada, in original actions or in actions for enforcement of judgments of United States courts, of liabilities predicated upon the United States federal securities laws.
Available Information. So long as the Notes are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, the Issuer will, during any period in which it is neither subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, furnish, upon request, to any holder or beneficial owner of the Notes, or to any prospective purchaser of Notes designated by such holder or beneficial owner, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Stabilization. In connection with the offering and sale of the Notes, Kelvantis Capital Markets LLC, as stabilization agent, may effect transactions that stabilize, maintain, or otherwise affect the market price of the Notes at levels that might not otherwise prevail in the open market. Such transactions may include purchases of Notes following the closing of the offering. These transactions, if commenced, may be discontinued at any time. The stabilization agent is not required to engage in any of these activities and may end any of these activities at any time.
No person has been authorized by the Issuer, the Guarantors, or the Initial Purchasers to give any information or to make any representation not contained in this Preliminary Offering Memorandum. If given or made, such information or representation must not be relied upon as having been authorized by the Issuer, the Guarantors, or the Initial Purchasers. The delivery of this Preliminary Offering Memorandum at any time does not imply that the information contained herein is correct as of any time subsequent to its date. This Preliminary Offering Memorandum does not constitute an offer of, or an invitation to purchase, the Notes in any jurisdiction in which such offer or invitation would be unlawful.
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OFFERING SUMMARY
The following summary highlights information contained elsewhere in this Preliminary Offering Memorandum. It is not complete and may not contain all of the information that you should consider before investing in the Notes. You should read the entire Preliminary Offering Memorandum carefully, including the sections entitled "Risk Factors," "Business," "Description of the Wolverine Lake Property," and "Description of the Notes," as well as the consolidated financial statements and related notes included elsewhere herein, before making an investment decision. Unless otherwise specified or the context otherwise requires, references in this Preliminary Offering Memorandum to the "Issuer," "Torchlight," "TMC," the "Company," "we," "us," and "our" refer to Torchlight Mining Corp. and its consolidated subsidiaries.
The Issuer
Torchlight Mining Corp. is a Canadian publicly traded mining company focused on the production of base metals, principally nickel and copper. The Company was incorporated under the Canada Business Corporations Act ("CBCA"). The Company's headquarters are located at 2200 – 400 Burrard Street, Vancouver, British Columbia V6C 3A6, Canada, and its registered office is located at 1600 – 925 West Georgia Street, Vancouver, British Columbia V6C 3L2, Canada.
The common shares of Torchlight Mining Corp. are listed and posted for trading on the Toronto Stock Exchange (the "TSX") under the ticker symbol "TMC." As of January 14, 2022, the Company had an approximate market capitalization of CAD $1.87 billion.
The Company's principal asset is its 100% ownership interest in the Wolverine Lake Nickel-Copper Mine (the "Wolverine Lake Mine" or the "Mine"), an underground mine located in Northern Ontario, Canada. The Wolverine Lake Mine is operated through the Company's wholly owned subsidiary, Wolverine Lake Mining Ltd. ("WLML"). Concentrator and processing operations adjacent to the Mine are conducted by the Company's wholly owned subsidiary, Torchlight Milling & Processing Inc. ("TMPI"). The Company's U.S. marketing and offtake activities are managed through its wholly owned subsidiary, Torchlight U.S. Holdings, Inc. ("TUSHI").
For the fiscal year ended December 31, 2021, Torchlight reported consolidated revenue of CAD $612.4 million and Adjusted EBITDA of CAD $189.7 million. The Mine produced approximately 18,000 tonnes of nickel-in-concentrate and approximately 6,100 tonnes of copper-in-concentrate during fiscal year 2021.
The Company is currently planning a significant expansion of the Wolverine Lake Mine (the "Phase II Expansion"), which will involve the construction of a new decline ramp and ventilation raise to access the Wolverine Deep zone. The Phase II Expansion is expected to increase annual production to approximately 28,500 tonnes of nickel-in-concentrate and approximately 9,600 tonnes of copper-in-concentrate, representing increases of approximately 58% and 57%, respectively, over current production levels. The estimated total capital cost of the Phase II Expansion is CAD $215 million (approximately USD $169 million at an exchange rate of USD/CAD 0.7875), and construction is planned to commence in the second quarter of 2022, with completion expected in the fourth quarter of 2024. A significant portion of the net proceeds of this offering will be applied to fund the Phase II Expansion.
The Guarantors
The Notes will be jointly and severally guaranteed on a senior secured basis by the following wholly owned subsidiaries of the Issuer:
Wolverine Lake Mining Ltd. — A corporation incorporated under the laws of the Province of Ontario, Canada. WLML is the operating entity for the Wolverine Lake Mine and holds the mining rights and mineral claims associated with the Mine. WLML's registered office is located at 44 Lakeshore Boulevard, Wolverine Lake, Ontario P0L 1R0, Canada.
Torchlight Milling & Processing Inc. — A corporation incorporated under the laws of the Province of Ontario, Canada. TMPI operates the concentrator and processing facilities adjacent to the Wolverine Lake Mine. TMPI's registered office is located at 44 Lakeshore Boulevard, Wolverine Lake, Ontario P0L 1R0, Canada.
Torchlight U.S. Holdings, Inc. — A corporation incorporated under the laws of the State of Delaware, United States. TUSHI holds the Company's U.S. offtake contracts and marketing arrangements. TUSHI's registered office is located at 1209 Orange Street, Wilmington, Delaware 19801, United States. TUSHI's Employer Identification Number is 84-3921057.
In addition, under the terms of the Indenture, any future subsidiary of the Issuer that meets a total asset threshold of $5,000,000 will be required to become a Guarantor of the Notes.
Summary of the Notes
The following is a summary of certain terms of the Notes. For a more complete description of the terms of the Notes, see "Description of the Notes."
Ranking. The Notes will be the senior secured obligations of the Issuer. The Notes will rank pari passu in right of payment with all existing and future senior indebtedness of the Issuer; effectively senior to any unsecured indebtedness of the Issuer to the extent of the value of the collateral securing the Notes; and senior to any subordinated indebtedness of the Issuer. The Guarantees will have the same ranking with respect to the indebtedness of the respective Guarantors.
Guarantees. The Notes will be jointly and severally guaranteed on a senior secured basis by Wolverine Lake Mining Ltd., Torchlight Milling & Processing Inc., and Torchlight U.S. Holdings, Inc.
Security. The Notes and the Guarantees will be secured by a first-priority lien on substantially all tangible and intangible assets of the Issuer and the Guarantors, including, without limitation:
(a) mining rights and mineral claims, including Ontario Mining Claim Nos. WL-4492-01 through WL-4492-47;
(b) surface rights at the Wolverine Lake property (approximately 12,400 hectares);
(c) all equipment, machinery, vehicles, and other tangible personal property;
(d) inventory, including concentrates, supplies, and spare parts;
(e) accounts receivable;
(f) intellectual property and proprietary information;
(g) intercompany notes and receivables; and
(h) equity interests in each Guarantor subsidiary.
No intercreditor agreement will be required, as the existing Ridgeline Bank of Canada revolving credit facility will be repaid in full and terminated at the closing of this offering.
Optional Redemption
Make-Whole Redemption (Prior to April 15, 2025). At any time prior to April 15, 2025, the Issuer may redeem all or any portion of the Notes at a redemption price equal to the greater of (a) 100% of the principal amount of the Notes to be redeemed and (b) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption), discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Applicable Treasury Rate plus 50 basis points, plus, in each case, accrued and unpaid interest to, but not including, the redemption date.
Equity Clawback (Prior to April 15, 2025). At any time prior to April 15, 2025, the Issuer may, on one or more occasions, redeem up to 40% of the original aggregate principal amount of the Notes at a redemption price equal to 108.750% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings; provided that at least 60% of the original aggregate principal amount of the Notes must remain outstanding immediately after any such redemption.
Fixed-Price Redemption (On or After April 15, 2025). On or after April 15, 2025, the Issuer may redeem all or any portion of the Notes at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest to, but not including, the redemption date, if redeemed during the twelve-month period beginning on the dates indicated:
Change of Control
Upon the occurrence of a Change of Control Triggering Event, the Issuer will be required to make an offer to repurchase all outstanding Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the date of repurchase. See "Description of the Notes — Change of Control."
Summary of Key Covenants
The Indenture governing the Notes will contain covenants that, among other things, will limit the ability of the Issuer and the Restricted Subsidiaries to:
• incur additional indebtedness, subject to an incurrence-based Consolidated Leverage Ratio test not to exceed 3.75:1.00 (excluding Permitted Indebtedness);
• make Restricted Payments, subject to a cumulative builder basket commencing at $25,000,000, increased by 50% of Consolidated Net Income for each fiscal quarter ending after the Issue Date in which Consolidated Net Income is positive, and available only if the Consolidated Leverage Ratio does not exceed 3.00:1.00 on a pro forma basis;
• sell assets, unless the consideration received is at least equal to fair market value, at least 75% of the consideration is in cash or Cash Equivalents, and the Net Proceeds are applied within 365 days to repay Notes, invest in Replacement Assets, or fund an Asset Sale Offer at 100% of principal amount;
• create or incur liens on their assets, subject to certain Permitted Liens;
• consolidate, merge, or sell all or substantially all of their assets; and
• enter into certain transactions with affiliates.
The Indenture will also require the Issuer to provide:
• annual audited financial statements within 90 days of the end of each fiscal year;
• quarterly unaudited financial statements within 45 days of the end of each fiscal quarter; and
• current reports for certain material events.
For a more detailed description of these and other covenants, see "Description of the Notes — Certain Covenants."
Use of Proceeds (Summary)
The Issuer estimates that the net proceeds of this offering will be approximately $[__] million (after deducting the initial purchaser discount and estimated offering expenses). The Issuer intends to apply the net proceeds of this offering as follows:
• approximately $167,000,000 to fund Phase II Wolverine Lake mine expansion capital expenditures;
• approximately $110,250,000 to repay in full and terminate the existing revolving credit facility with Ridgeline Bank of Canada (representing CAD $140,000,000 drawn at an exchange rate of USD/CAD 0.7875);
• approximately $14,250,000 to pay transaction fees and expenses (including the initial purchaser discount, legal fees, trustee fees, rating agency fees, and printing expenses); and
• approximately $8,500,000 for general corporate purposes and working capital.
See "Use of Proceeds."
Registration Rights
The Issuer and the Guarantors will enter into a Registration Rights Agreement with the Initial Purchasers. Under the Registration Rights Agreement, the Issuer will agree to either (a) file with the SEC and use commercially reasonable efforts to cause to become effective a registration statement relating to an offer to exchange the Notes for a new series of notes with substantially identical terms that have been registered under the Securities Act, or (b) file with the SEC and use commercially reasonable efforts to cause to become effective a shelf registration statement relating to resales of the Notes, in each case within 365 days after the closing date of this offering. If the Issuer fails to satisfy these registration obligations within the specified timeframe, additional interest will accrue on the Notes at a rate of 0.25% per annum for the first 90-day period, increasing by an additional 0.25% per annum for each subsequent 90-day period, up to a maximum additional interest rate of 1.00% per annum, until the registration obligations are satisfied.
Risk Factors Summary
An investment in the Notes involves significant risks. Before investing in the Notes, you should carefully consider the risks described under "Risk Factors" beginning on page [__] of this Preliminary Offering Memorandum, as well as the other information contained herein. These risks include, but are not limited to, the Company's dependence on a single mine, commodity price volatility, Phase II expansion execution risk, currency risk, mineral resource estimation uncertainty, environmental and regulatory risks, substantial post-offering leverage, limited liquidity for the Notes, and cross-border enforcement considerations. Any of these risks could have a material adverse effect on the Issuer's business, financial condition, results of operations, and prospects, and could cause the value of the Notes to decline.
Corporate Structure
The following chart depicts the corporate structure of Torchlight Mining Corp. and its subsidiaries after giving effect to this offering and the application of the net proceeds therefrom. All ownership interests are 100%.
[ORGANIZATIONAL CHART — TO BE INSERTED]
Torchlight Mining Corp. (incorporated under the CBCA — Issuer)
RISK FACTORS
An investment in the Notes involves significant risks. You should carefully consider the following risk factors, together with the other information set forth in this Preliminary Offering Memorandum, before deciding whether to invest in the Notes. The risks described below are not the only risks facing the Issuer. Additional risks and uncertainties not currently known to the Issuer, or that the Issuer currently deems to be immaterial, may also materially and adversely affect the Issuer's business, financial condition, results of operations, or prospects. If any of the following risks actually occur, the Issuer's business, financial condition, results of operations, and prospects could be materially and adversely affected, and you may lose all or part of your investment in the Notes.
Risks Related to the Issuer's Business and Operations
Dependence on a Single Mine
The Issuer's operations are entirely dependent on the Wolverine Lake Nickel-Copper Mine located in Northern Ontario, Canada. The Company does not operate, and does not currently have any plans to develop, any other mining properties. As a result, the Company is subject to significant concentration risk. Any material adverse development affecting the Wolverine Lake Mine — including, without limitation, adverse geological conditions, equipment failures, flooding, fires, labor disputes, environmental incidents, regulatory actions, adverse weather conditions, or any other events that could interrupt or curtail mining operations — could have a material adverse effect on the Issuer's revenues, cash flows, financial condition, and its ability to meet its obligations under the Notes.
There can be no assurance that the Wolverine Lake Mine will continue to operate as planned, that production levels will be maintained, or that mine life will be consistent with current estimates. A prolonged interruption of operations at the Mine could materially impair the Issuer's ability to service its debt, including the Notes.
Risks Associated with Underground Mining Operations
The Wolverine Lake Mine is an underground mining operation and, as such, is subject to a number of geological, geotechnical, and hydrological risks inherent in underground mining. These risks include, but are not limited to:
• ground control problems, including rock falls, cave-ins, and pillar failures;
• unanticipated geological formations, fault zones, or changes in rock conditions;
• water inflows, flooding, and dewatering challenges;
• inadequate ventilation or the presence of harmful gases;
• equipment failure or malfunction;
• fire, explosions, and other industrial accidents; and
• seismic activity.
Any of these events could result in injuries to employees or contractors, damage to property or equipment, environmental contamination, regulatory fines or sanctions, temporary or permanent shutdown of operations, or the need for unanticipated remediation expenditures. The occurrence of any such event could have a material adverse effect on the Issuer's business, financial condition, results of operations, and its ability to service its obligations under the Notes.
Commodity Price Volatility
The Issuer's revenues and profitability are substantially dependent on the prevailing market prices of nickel and copper. These commodity prices are subject to significant volatility and are affected by numerous factors beyond the Company's control, including:
• global supply and demand dynamics for nickel, copper, and other base metals;
• general economic conditions, including recessionary pressures, inflation, and interest rate movements;
• the activities of producers in other countries, including state-owned enterprises;
• speculative trading activity;
• new or expanded mine production globally;
• technological changes in the end-use markets for nickel and copper (including the adoption of electric vehicles, which may affect nickel demand, and shifts in renewable energy infrastructure investment, which may affect copper demand);
• currency exchange rates;
• government regulations, tariffs, sanctions, and trade policies; and
• geopolitical events and armed conflicts.
Nickel and copper prices have experienced significant fluctuations historically and are expected to continue to fluctuate in the future. A sustained decline in nickel or copper prices could materially reduce the Issuer's revenues and cash flows, impair the value of the collateral securing the Notes, reduce the economic viability of the Wolverine Lake Mine (including the Phase II Expansion), and adversely affect the Issuer's ability to meet its obligations under the Notes.
Currency Risk. The Issuer's functional currency is the Canadian dollar, and a substantial portion of its revenues, operating costs, and capital expenditures are denominated in Canadian dollars. The Notes, however, are denominated in United States dollars. As a result, the Issuer is exposed to significant currency risk arising from fluctuations in the USD/CAD exchange rate. The reference exchange rate used for certain conversions in this Preliminary Offering Memorandum is USD/CAD 0.7875 (i.e., CAD $1.00 = USD $0.7875), based on the approximate noon exchange rate published by the Bank of Canada on January 14, 2022. However, there can be no assurance that this exchange rate will prevail in the future.
A weakening of the Canadian dollar relative to the United States dollar could increase the cost to the Issuer, in Canadian dollar terms, of servicing its United States dollar-denominated obligations under the Notes. Conversely, a strengthening of the Canadian dollar relative to the United States dollar could reduce the United States dollar equivalent of the Issuer's Canadian dollar-denominated revenues and cash flows. The Issuer does not currently have any foreign exchange hedging arrangements in place, and there can be no assurance that the Issuer will be able to enter into or maintain such arrangements on favorable terms, or at all. Currency fluctuations could have a material adverse effect on the Issuer's financial condition and its ability to service its obligations under the Notes.
Phase II Expansion Execution Risk
A significant portion of the net proceeds of this offering will be applied to fund the Phase II Expansion of the Wolverine Lake Mine. The Phase II Expansion involves the construction of a new decline ramp and ventilation raise to access the Wolverine Deep zone, with an estimated total capital cost of CAD $215 million (approximately USD $169 million at an exchange rate of USD/CAD 0.7875) and a construction timeline from the second quarter of 2022 through the fourth quarter of 2024.
The successful completion of the Phase II Expansion is subject to a number of risks and uncertainties, including:
• cost overruns arising from unforeseen geological conditions, supply chain disruptions, inflationary pressures on construction materials and labor, equipment procurement delays, or other factors;
• construction delays arising from adverse weather conditions, permitting delays, labor shortages, contractor performance issues, equipment failures, or regulatory requirements;
• the risk that the Wolverine Deep zone may not contain the mineral grades or tonnages currently estimated, or that actual mining conditions may differ materially from those anticipated in the feasibility study;
• the need for additional capital expenditures beyond current estimates to complete the expansion;
• the risk that the Phase II Expansion, once completed, may not achieve the expected production volumes or operating efficiencies; and
• the risk that changes in commodity prices, exchange rates, or market conditions during the construction period may adversely affect the projected economics of the Phase II Expansion.
There can be no assurance that the Phase II Expansion will be completed on schedule, on budget, or at all, or that it will achieve the expected production increases. Failure to complete the Phase II Expansion on time and within budget, or failure to achieve the expected production and economic benefits, could have a material adverse effect on the Issuer's business, financial condition, results of operations, and its ability to service its obligations under the Notes.
Mineral Resource and Reserve Estimation Uncertainty
The mineral resource estimates set forth in this Preliminary Offering Memorandum have been prepared in accordance with NI 43-101 standards by Dr. Elaine Whitaker, P.Eng., of Cascade Technical Advisors Inc. The Wolverine Lake Mine has Measured & Indicated mineral resources of 48.2 million tonnes at a grade of 1.12% nickel and 0.38% copper, and Inferred mineral resources of 11.7 million tonnes at a grade of 0.94% nickel and 0.31% copper.
Mineral resource estimates are expressions of judgment based on knowledge, experience, and industry practice. They involve assumptions regarding geological continuity, grade distribution, and other parameters that may not be fully verifiable. Estimates are inherently imprecise and depend on geological interpretations, statistical inferences, and assumptions regarding future conditions that may prove to be materially different from actual conditions encountered during mining. Mineral resource estimates are not guarantees of the tonnage or grade of material that will be mined, and actual quantities of nickel and copper recovered may differ materially from the estimates set forth herein.
In particular, Inferred mineral resources (11.7 million tonnes in the case of the Wolverine Lake Mine) have a lower level of confidence than Measured or Indicated mineral resources. It is reasonably expected that the majority of Inferred mineral resources could be upgraded to Indicated mineral resources with continued exploration; however, there can be no assurance that this will occur. There is no guarantee that any or all of the Inferred mineral resources will be converted to higher-confidence categories or that they will prove to be economically extractable. Changes in the estimates of mineral resources could affect the estimated mine life, the economics of the Phase II Expansion, and the Issuer's financial condition and prospects.
Remaining Mine Life
The estimated remaining mine life for Phase I operations at the Wolverine Lake Mine is approximately 14 years. This estimate is based on the current mineral resource base, production rates, and mining plans, all of which are subject to change. There can be no assurance that the Mine will continue to operate for the estimated mine life, or that additional mineral resources will be identified to extend the life of the Mine beyond current estimates. A reduction in the estimated mine life, whether due to changes in resource estimates, lower-than-expected recovery rates, or other factors, could adversely affect the Issuer's financial condition and its ability to repay the Notes at maturity.
Dependence on Key Personnel
The Issuer's success depends, in significant part, on the continued services and expertise of its senior management team, including Magnus Thornberg (Chief Executive Officer, 22 years of experience in base metals mining), Lianne Prokopchuk (Chief Financial Officer), and Stavros Katsaros (General Manager, Mine Operations, Wolverine Lake Mining Ltd.). The loss of any of these individuals, or the inability to attract and retain qualified replacements, could have a material adverse effect on the Issuer's business, operations, and prospects. The Issuer's mining operations require specialized skills and technical expertise, and there is significant competition for experienced professionals in the mining industry. There can be no assurance that the Issuer will be able to retain its key personnel or recruit suitable replacements if necessary.
Operational Risks. The Issuer's mining and processing operations are subject to a number of operational risks typical of the mining industry, including:
• equipment failures, breakdowns, and wear and tear, which could result in unplanned maintenance downtime and reduced production;
• accidents, injuries, and fatalities involving employees or contractors, which could expose the Issuer to legal liability, regulatory sanctions, and reputational harm;
• labor relations issues, including potential work stoppages, strikes, or slowdowns;
• supply chain disruptions affecting the availability and cost of critical supplies, reagents, explosives, fuel, spare parts, and other materials required for mining and processing operations;
• power supply interruptions or shortages;
• difficulties in recruiting and retaining skilled labor in the remote area surrounding the Wolverine Lake Mine; and
• adverse weather conditions, including severe winter weather typical of Northern Ontario, which could disrupt access to the Mine and affect operations.
The occurrence of any of these events could result in production stoppages or reductions, increased operating costs, environmental contamination, regulatory sanctions, or other material adverse effects on the Issuer's business, financial condition, and results of operations.
Title to Mining Properties
The Issuer's interest in the Wolverine Lake Mine and associated properties is held through Ontario Mining Claim Nos. WL-4492-01 through WL-4492-47, together with associated surface rights. While the Issuer believes that it holds valid and defensible title to its mining claims and surface rights, there can be no assurance that the Issuer's title will not be challenged or disputed. Title to mining properties in Ontario is subject to unregistered prior agreements, transfers, or claims, and title may be affected by, among other things, undetected defects. A successful challenge to the Issuer's title to any of its mining claims or surface rights could have a material adverse effect on the Issuer's business, financial condition, and its ability to service its obligations under the Notes.
Insurance Coverage May Not Be Adequate
The Issuer maintains insurance coverage for its operations consistent with industry practice for mining companies of comparable size and operations. However, mining operations are subject to risks and hazards that may not be fully insurable, or that may only be insurable at prohibitively high premiums. These risks include, without limitation, damage from environmental contamination, flooding, subsidence, and certain other geological events. The Issuer's insurance coverage may not be sufficient to cover all claims or losses that may arise, and uninsured or underinsured losses could have a material adverse effect on the Issuer's business, financial condition, and results of operations.
Risks Related to Environmental and Regulatory Matters
Environmental Compliance Risks
The Issuer's mining and processing operations are subject to extensive environmental regulation under the laws and regulations of the Province of Ontario, the federal government of Canada, and applicable municipal authorities. Key legislation includes, without limitation, the Ontario Mining Act, the Ontario Environmental Protection Act, the Ontario Water Resources Act, the Ontario Endangered Species Act, the Canadian Environmental Protection Act, 1999, the Fisheries Act, the Impact Assessment Act, and related regulations and guidelines. Compliance with these laws and regulations requires the Issuer to incur significant costs, including costs associated with monitoring, reporting, waste management, tailings management, water treatment, air quality management, and reclamation.
There can be no assurance that the Issuer has been or will be at all times in full compliance with applicable environmental laws and regulations. Violations could result in significant fines, penalties, remediation obligations, or the suspension or revocation of permits. In addition, environmental laws and regulations are subject to change, and such changes could impose more stringent requirements on the Issuer's operations, require material additional capital expenditures, or adversely affect the economic viability of the Mine.
Permitting Risk for Phase II Expansion
The Phase II Expansion will require the Issuer to obtain various regulatory approvals, permits, and licenses from provincial and federal authorities. There can be no assurance that all required permits and approvals will be obtained on a timely basis, on favorable terms, or at all. Delays in obtaining required permits could delay the commencement or completion of the Phase II Expansion, increase capital costs, and adversely affect the Issuer's business and financial condition. In addition, permits may be issued subject to conditions that could materially affect the scope, timing, or cost of the Phase II Expansion.
Indigenous and First Nations Consultation Requirements
The Wolverine Lake Mine is located in Northern Ontario, an area in which Indigenous peoples, including various First Nations, have asserted or may assert Aboriginal rights, treaty rights, or claims. Under Canadian law, the Crown has a duty to consult with, and, where appropriate, accommodate, Indigenous groups whose Aboriginal or treaty rights may be affected by governmental decisions, including the issuance of mining permits and approvals. While the primary obligation to consult rests with the Crown, the Issuer may be required to participate in or facilitate the consultation process.
There can be no assurance that the consultation process will be completed satisfactorily or in a timely manner, or that the outcome of the consultation process will not result in conditions, limitations, or restrictions that materially affect the Issuer's operations or the Phase II Expansion. Failure to adequately address Indigenous and First Nations interests could result in regulatory delays, legal proceedings, road blockades, or other disruptions to the Issuer's operations.
Reclamation and Mine Closure Obligations
The Issuer is required, under Ontario law, to prepare and maintain an approved closure plan for the Wolverine Lake Mine, including financial assurance to fund reclamation and closure activities. The estimated costs of mine closure and reclamation may change over time as environmental standards evolve and as actual conditions at the Mine site are assessed. There can be no assurance that the current financial assurance is or will be sufficient to cover the actual costs of reclamation and closure. Increases in estimated reclamation costs could require the Issuer to post additional financial assurance or incur additional expenditures, which could adversely affect the Issuer's financial condition and results of operations.
Changes in Mining Laws and Regulations
The Issuer's operations are subject to extensive regulation under mining laws at both the provincial and federal levels in Canada. These laws govern, among other things, the acquisition and maintenance of mining rights, mine development, mine safety, environmental protection, and the payment of royalties and taxes. Changes in mining laws and regulations, or in the interpretation or enforcement thereof, could impose additional costs or obligations on the Issuer, require material changes to the Issuer's operations or plans, or adversely affect the economic viability of the Mine. There can be no assurance that future legislative or regulatory developments will not have a material adverse effect on the Issuer's business, financial condition, or results of operations.
Risks Related to Financial Condition and Indebtedness
Substantial Leverage Post-Offering
Following the completion of this offering and the application of the net proceeds therefrom, the Issuer's only material funded indebtedness will consist of the $300,000,000 aggregate principal amount of the Notes. While the Issuer's existing revolving credit facility with Ridgeline Bank of Canada will be repaid in full and terminated at closing, the issuance of the Notes will result in a substantial increase in the Issuer's total funded indebtedness compared to historical levels. The Issuer's ability to service its debt, including the Notes, will depend on its future financial performance and its ability to generate cash flows from operations sufficient to cover interest payments and, ultimately, repay or refinance the principal amount of the Notes at maturity.
The Issuer's cash flow generation is dependent on, among other things, prevailing nickel and copper prices, production volumes, operating costs, capital expenditure requirements, exchange rates, and other factors, many of which are beyond the Issuer's control. If the Issuer is unable to generate sufficient cash flows to service its indebtedness, it may be required to take actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing its indebtedness, or seeking additional equity capital. There can be no assurance that any of these actions could be accomplished on favorable terms, or at all. Failure to service the Notes in accordance with their terms could result in an event of default under the Indenture and could lead to an acceleration of the Notes and enforcement actions against the collateral.
Restrictive Covenants May Limit Operational Flexibility
The Indenture governing the Notes will contain various covenants that limit the Issuer's ability to, among other things, incur additional indebtedness, make restricted payments (including dividends), sell assets, create liens, merge or consolidate, and enter into transactions with affiliates. While these covenants are intended to protect the interests of the holders of the Notes, they may also limit the Issuer's operational and strategic flexibility, and could prevent the Issuer from pursuing business opportunities that it believes are in the best interests of the Company and its stakeholders. See "Description of the Notes — Certain Covenants."
Incurrence of Additional Indebtedness
The Indenture will permit the Issuer to incur additional indebtedness subject to satisfaction of a Consolidated Leverage Ratio test of 3.75:1.00, as well as various baskets for Permitted Indebtedness. The incurrence of additional indebtedness could increase the Issuer's leverage, reduce its ability to generate free cash flow for debt service, and increase the risk of default on the Notes.
Floating-Rate Risk on Future Indebtedness
While the Notes bear interest at a fixed rate, any future indebtedness that the Issuer may incur, including under a replacement revolving credit facility, may bear interest at floating rates. Increases in prevailing interest rates could increase the Issuer's interest expense and reduce its ability to service the Notes.
Cash Flow Generation Dependency
The Issuer's ability to generate cash flows from operations is highly dependent on prevailing nickel and copper prices, production volumes at the Wolverine Lake Mine, operating costs, and the CAD/USD exchange rate. A sustained decline in commodity prices, a material reduction in production volumes, an increase in operating costs, or an unfavorable movement in exchange rates could materially reduce the Issuer's cash flows and adversely affect its ability to service the Notes.
Risks Related to the Notes and the Offering
Notes Have Not Been and Will Not Be Registered Under the Securities Act
The Notes have not been and will not be registered under the Securities Act or the securities laws of any state of the United States or any other jurisdiction. The Notes are being offered and sold in reliance on exemptions from registration under the Securities Act, namely Rule 144A and Regulation S. As a result, the Notes are subject to significant restrictions on transfer and resale and may not be offered, sold, or otherwise transferred except in compliance with the registration requirements of the Securities Act or pursuant to an exemption therefrom. The Issuer cannot predict the extent to which investor interest in the Notes will lead to the development of an active trading market or how liquid that market may be. See "Transfer Restrictions."
Limited Trading Market; No Assurance of Liquidity
The Notes are a new issue of securities for which there is no established public trading market. The Notes will not be listed on any securities exchange. The Initial Purchasers have informed the Issuer that they intend to make a market in the Notes after the offering; however, the Initial Purchasers are under no obligation to do so and may discontinue any market-making activities at any time and without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Notes. If a trading market does develop, the Notes could trade at prices that may be lower than the initial offering price, depending on many factors, including prevailing interest rates, the Issuer's financial performance and condition, the market for similar securities, and general economic conditions.
Collateral Value May Be Insufficient
The Notes and the Guarantees are secured by a first-priority lien on substantially all tangible and intangible assets of the Issuer and the Guarantors. However, the value of the collateral at any time will depend on market and economic conditions, the condition and operational status of the Mine, prevailing commodity prices, the availability of buyers in the event of a foreclosure, and other factors. Mining assets are highly specialized and illiquid, and there can be no assurance that the proceeds of any sale or disposition of the collateral would be sufficient to satisfy the Issuer's obligations under the Notes in full.
The collateral securing the Notes is subject to certain permitted liens and encumbrances. In addition, the practical realization of value from the collateral may be time-consuming and expensive, particularly in the case of mining properties that are subject to extensive environmental and regulatory requirements. The Collateral Agent may be unable to sell the collateral on commercially reasonable terms, or at all. As a result, the value of the collateral securing the Notes may not be sufficient to repay all amounts due on the Notes.
Enforcement of Security Interests Across Multiple Jurisdictions
The collateral securing the Notes is located in both Canada (primarily the Province of Ontario and the Province of British Columbia) and the United States (principally the assets of Torchlight U.S. Holdings, Inc. in Delaware). The security interests in the collateral are governed by different bodies of law, including the Personal Property Security Act (Ontario), the Personal Property Security Act (British Columbia), and the Uniform Commercial Code (as adopted in Delaware). Enforcement of security interests across multiple jurisdictions can be complex, time-consuming, and expensive, and may be subject to different procedural requirements, priority rules, and substantive limitations. There can be no assurance that enforcement proceedings, if required, would be conducted efficiently or would result in the recovery of amounts sufficient to satisfy the obligations under the Notes.
Guarantor Limitations. The Guarantees are subject to certain limitations under applicable Canadian and United States law, including laws relating to fraudulent conveyance, fraudulent transfer, and preferential transfer. If a court were to find that, at the time a Guarantor entered into its Guarantee, the Guarantor (a) incurred the obligation with the intent to hinder, delay, or defraud existing or future creditors, or (b) received less than reasonably equivalent value or fair consideration in exchange for the Guarantee and the Guarantor was insolvent or rendered insolvent by reason of the Guarantee, or was engaged or about to engage in a transaction for which its remaining assets constituted unreasonably small capital, or intended to incur, or believed that it would incur, debts beyond its ability to pay as they mature, then the court could void the Guarantee or subordinate the Guarantee to the Guarantor's other obligations. The measure of insolvency for purposes of the foregoing considerations may vary depending on the applicable law and the court's analysis.
Subordination to Claims of Non-Guarantor Subsidiaries
As of the date of this Preliminary Offering Memorandum, the Issuer does not have any subsidiaries that are not Guarantors. However, under the terms of the Indenture, subsidiaries that do not meet the $5,000,000 total asset threshold are not required to become Guarantors. If the Issuer were to form or acquire non-guarantor subsidiaries in the future, the Notes would be structurally subordinated to the liabilities (including trade payables) of such non-guarantor subsidiaries, because the holders of the Notes would not have any direct claim against the assets of such non-guarantor subsidiaries.
Change of Control Provisions May Not Protect Holders in All Circumstances
The Indenture will provide that, upon the occurrence of a Change of Control Triggering Event, the Issuer will be required to offer to repurchase all outstanding Notes at 101% of the principal amount thereof, plus accrued and unpaid interest. However, the definition of "Change of Control" in the Indenture may not cover all transactions that could constitute a change in control of the Issuer as a practical matter. In addition, the Issuer may not have sufficient funds available at the time of a Change of Control Triggering Event to repurchase all of the Notes that are tendered. Furthermore, the requirement to repurchase the Notes upon a Change of Control may deter certain transactions that holders of the Notes might otherwise consider favorable.
Exchange Rate Risk on Collateral and Cash Flows
The collateral securing the Notes, including the Wolverine Lake Mine and all associated mining rights, surface rights, equipment, and other assets, is located principally in Canada. The Notes are denominated in United States dollars. As a result, the United States dollar equivalent of the value of the collateral and the Issuer's Canadian dollar-denominated cash flows will fluctuate with changes in the USD/CAD exchange rate. A decline in the value of the Canadian dollar relative to the United States dollar could reduce the United States dollar equivalent of the value of the collateral and the Issuer's ability to meet its United States dollar-denominated obligations.