SRHI Inc. (Three Valley Copper) Confirms Commitment to MTV, Provides Update on Arbitration, and Insight into Proposed Chilean Mining Royalty Legislation (amounts expressed in US dollars)
TORONTO, June 18, 2021 (TSXV: SRHI) – SRHI Inc. ("SRHI") wishes to provide additional information regarding the arbitration proceeding commenced by the minority shareholder (the “Minority Shareholder”) of Minera Tres Valles Spa (“MTV”) which was previously announced on June 4, 2021 and on the proposed reforms to Chile’s royalty regime that are currently before the Chilean Senate. The Company also confirms its right and intent, to purchase the remaining minority interest of MTV in October 2021.
Arbitration
As previously announced, the Minority Shareholder of MTV commenced an arbitration proceeding against SRHI, SRH Chile SpA (“SRH Chile”) and MTV (collectively, the “Company”) alleging that SRH Chile’s recent contribution of $7 million to MTV to fund on-going operations, which had the effect of diluting the Minority Shareholder’s interest in MTV from 30% to 9.7%, was not completed in accordance with the terms of the MTV shareholders’ agreement (the “SHA”). SRH Chile is 100% owned by SRHI.
Following approval of the capital requirements for MTV, SRH Chile contributed its pro rata portion, or $7 million, however the Minority Shareholder chose not to contribute its pro rata portion, or $3 million, and as such its interest in MTV was diluted in accordance with the terms of the SHA. Notwithstanding the Minority Shareholder’s pro rata portion of required capital was only $3 million, the notice of arbitration indicates that the Minority Shareholder is seeking damages of $16 million.
The allegations made by the Minority Shareholder are baseless and unsubstantiated and reflect the Minority Shareholder’s attempt to receive preferential treatment contrary to the terms of the SHA. The Company and its legal counsel are of the strong and steadfast position that the claim is without merit and the Company has acted appropriately and in accordance with Chilean law, the Judicial Reorganization Agreement, the by-laws of MTV and the SHA in all respects. At this time, and based on the timelines agreed to in the SHA, the Company estimates the arbitration process could take up to one year to complete.
It should be noted that since SRH Chile acquired its ownership interest in MTV in 2017, the Minority Shareholder has provided no financial support to MTV. Conversely, in addition to the recent $7 million equity contribution by SRH Chile, SRHI has financially supported MTV since 2018 with intercompany debt and its balance with MTV stands at approximately $35 million.
SRH Chile’s ownership interest in MTV is 90.3% as a result of its $7 million equity contribution and is reflected in the records of MTV and the Chilean public records. Under the terms of the SHA, SRH Chile has the option to purchase the Minority Shareholder’s ownership interest in October 2021. The Company has confirmed with its legal counsel that the arbitration should have no impact on the ability of SRH Chile to exercise the purchase option and fully intends to do so.
The Company will provide updates regarding the arbitration as it progresses subject to compliance with the strict confidentiality requirements contained in the SHA.
Operations at MTV remain ongoing and will not be affected by the arbitration process.
Proposed Mining Royalty Legislation in Chile
The Senate Mining Committee of Chile is scheduled to review a controversial mining royalty proposal (the “Proposal”) in the next few months. There is no certainty that the Proposal will become law in its current form and the Company believes that the Proposal is primarily directed at the large mining companies operating in Chile.
Under the Proposal, the royalty would be on all production of MTV should it produce over 12,000 tonnes annually. While producing under 12,000 tonnes annually, MTV would not be subject to any royalty under either the current legislation or the Proposal.
MTV’s maximum stated annual production is 18,500 tonnes and production is not expected to exceed 12,000 tonnes in either 2021 or 2022.
The Proposal is significant but because of MTV’s relatively small annual production limit of 18,500 tonnes, the Company believes that if the Proposal becomes law, it has the operational flexibility, unlike larger operations, to limit the Proposal’s impact and maximize shareholder value. In addition, and although not applicable to both the current and proposed royalty regimes, MTV also has sufficient carryforward tax losses to shelter future taxable income for several years at today’s copper prices.
About SRHI Inc.
SRHI, (soon to be renamed Three Valley Copper Corp.) headquartered in Toronto, Ontario, Canada is focused on growing copper production from, and further exploration of, its primary asset, MTV. Located in Salamanca, Chile, MTV is 90.3% owned by the Company and MTV's main assets are the Minera Tres Valles mining complex and its 46,000 hectares of exploratory lands. For more information about SRHI, please visit www.srhi.ca.
