NQ Exploration Inc. announces reverse take-over, ‘Spin-Out’ of Quebec mining assets in new company

The letters of intent provide that NQ will acquire AM and become a Colombian coals focused natural resources company. At the same time, NQ will transfer all of its Québec resource properties, including the Carheil Option, to New NQ, and distribute the shares of New NQ to NQ's shareholders. As a result, at the closing of the proposed transactions, NQ's shareholders will become shareholders of a new Colombian based coal focused natural resources company and shareholders of New NQ which will carry on NQ's current natural resource business with the Carheil project under option by the Optionor and the addition of the PMC Property to its portfolio.

AM RTO

The AM Agreement provides that upon completion of the RTO, NQ's business will be that of a junior coal mining exploration company in Colombia. In order to effect the RTO, NQ and AM will enter into a definitive share exchange agreement (the ‘AM SEA’). The AM SEA will provide that at the closing of the RTO, (i) NQ will acquire all of the AM shares in exchange for 29 411 765 NQ PostShares (as defined hereinafter) at a deemed price of US$0.17 per share, as a result of which AM will be a wholly-owned subsidiary of NQ.

The SEA will also provide that prior to the closing of the RTO, NQ will: (i) consolidate (the ‘Consolidation’) its issued and outstanding common shares, on the basis of fifty (50) old NQ common shares (each an ‘NQ Share’) for one (1) NQ common share post Consolidation (a ‘NQ PostShare’), (ii) enter into shares for debt agreements with its current debenture holders, pursuant to which the current debenture holders will convert the aggregate US$1700000 principal amount outstanding, and forego any accrued unpaid interest, in NQ PostShare, (iii) arrange for the transfer to AM of the US$1200 000 loan to A&M USA Resources 2015 LLC (loan transfer), and (iv) complete the Spin-Out. All outstanding options and warrants of NQ shall be appropriately adjusted to reflect the Consolidation. Concurrent with the closing of the RTO, NQ and/or AM will effect a private placement of a minimum of 8 823 529 and a maximum of 14 705 882 NQ PostShares at a price of US$0.17 per share, for gross proceeds to NQ of a minimum of US$1000 000 and a maximum of US$2500000 (the ‘RTO Private Placement’).

Assuming completion of the RTO, there will be a minimum of 49 161 849 and a maximum of 57 985 378 NQ PostShare issued and outstanding after the closing of the RTO, of which: (i) the current shareholders and debenture holders of NQ will hold 11,906,947 shares (24.2% or 20.5% assuming the maximum offering), (ii) AM shareholders will hold 29 411 765 NQ Post Shares (59.8% or 50.7% assuming the maximum offering), (iii) RTO Bridge Financing (as hereinafter defined) investors will hold 1 960 784 NQ Post Shares (4.0% or 3.4% assuming the maximum offering), and (iv) RTO Private Placement investors will hold 5 882 353 (12.0%) and maximum of 14 705 882 (25.4%) NQ Post.

On that basis, NQ will have estimated cash of a minimum of US$1000 000 and a maximum of US$2 350 000. NQ will use the net proceeds from the RTO Private Placement for working capital and to carry out its business plan of developing its Colombian coal project. If the RTO is successfully completed, it is expected that the Board of Directors will include Jon Snelson, Adriana Rios Garcia, and David Grondin, and that the officers of NQ will include Jon Snelson (President and Chief Executive Officer), and Martin Nicoletti (Chief Financial Officer and Corporate Secretary).

In connection with the RTO, and subject to the completion of the RTO Bridge Financing, NQ shall advance US$25 000 immediately to AM and up to an additional US$75 000 upon TSX Venture Exchange (TSXV) approval in exchange for a secured promissory note (the ‘promissory note’). The Promissory Note will bear no interest and shall be repaid in full six months from the issuance date.

AM is a Colombian private junior mining company, incorporated pursuant to the Laws of Colombia, owning a 65% interest in mining concession DJU-071, a coal project encompassing a total of 100 Hectares located in Patia, Cuaca region, which is about 70 km from the city of Cali, Colombia. Based on AM's 31 December, 2016 annual audited financial statements and 31 March, 2016 unaudited interim financial statements, AM has respectively US$319 092 and US$237 085 in working capital, US$1 021 079 and US$1 024 839 in total assets, US$141 295 and US$159 420 in total liabilities, as well as US$51 091 and US$200 181 in revenues, and US$103 471 and US$296 550 in expenses for net losses of US$60 248 and US$96 370 for those periods.

Spin-out

Under the proposed Spin-Out, pursuant to an asset transfer agreement to be entered into between NQ and New NQ, NQ will transfer all of its Quebec mining assets, including the Carheil Option. In consideration for such transfer, New NQ will issue to NQ 18 750 000 New NQ common shares (each an ‘NNQ Share’) at a deemed price of US$0.16 and 9 375 000 NNQ Share purchase warrant (each whole being a ‘SO Warrant’), representing an aggregate consideration of US$3 000 000. Each whole SO Warrant will entitle the holder to purchase one (1) additional NNQ Share at an exercise price of US$0.25 per share between the 24th and the 60th month from the closing. In the event that the common shares of the Company trade at a price exceeding US$0.50 per common share for thirty (30) consecutive trading days (the ‘Acceleration Event’), the SO Warrants will expire on the earlier of the date of expiry of the SO Warrants and the date which is thirty (30) calendar days after New NQ provides notice to the holders of the SO Warrants that the Acceleration Event has occurred, provided that such notice cannot be provided during the initial 24 months from the closing of the Spin-Out.

NQ will distribute 100% of the foregoing NNQ Shares and SO Warrants to NQ shareholders pursuant to an arrangement agreement. Based on the number of NQ Shares currently issued and outstanding (95,347,340), NQ Shareholders would receive approximately one (1) NNQ Share and one-half of one SO Warrant for each 5.09 NQ Shares held on the record date for such distribution.

Concurrent with the closing of the Spin-Out, New NQ will: (i) acquire a 100% undivided interest in the PMC Property in consideration for the issuance of 10 312 500 NNQ Shares to PMC, and, (ii) effect a private placement of a minimum of US$500 000 at an intended price of US$0.16 per unit (each a ‘Unit’), which is equal to the deemed issuance price of the Consideration Shares, for a minimum of 3125 000 Units, and a minimum of US$1500 000 at an intended price of US$0.22 per NNQ Shares on a flow-through basis (each a ‘NNQ FT Share’), for a minimum of 6 818 182 NNQ FT Shares (the ‘Spin -Out Private Placement’). It is intended that each Unit will consist of one (1) NNQ Share and one-half of one (1/2) common share purchase warrant (each a ‘Placement Warrant’) of the New NQ. Each whole Placement Warrant will entitle the holder to purchase one (1) additional NNQ Share at an intended exercise price of US$0.25 per share for two years from the closing.

Assuming the completion of the Spin-Out, there will be 39 839 015 NNQ Shares issued and outstanding after the closing, of which: (i) NQ shareholders will hold 18 750 000 NNQ Shares (47.1%), (ii) PMC will hold 10 312 500 NNQ Shares (25.9%), (iii) investors in the Spin-Out Bridge Financing (as hereinafter defined) will hold 833 333 NNQ Shares (2.09%), and (iv) investors in the Spin-Out Private Placement will hold 9 943182 NNQ Shares (24.96%).

On that basis, New NQ will have estimated cash of US$1900 000. New NQ will use the net proceeds from the Spin-Out Private Placement for exploration on its properties, including the PMC Property, and for working capital purposes.

If the Spin-Out is successfully completed, it is expected that the Board of Directors will include Peter Cashin, Philippe Cloutier, Steven Brunelle and Martin Nicoletti, and that the officers of New NQ will include Peter Cashin (President and Chief Executive Officer), and Martin Nicoletti (Chief Financial Officer and Corporate Secretary), and Pierre Guay (VP Exploration).

Read the article online at: https://www.worldcoal.com/mining/13072017/nq-exploration-inc-announces-reverse-take-over-spin-out-of-quebec-mining-assets-in-new-company/