LONG-TERM DEBT

12 Months Ended

Jul. 31, 2014

LONG-TERM DEBT [Text Block]

NOTE 8: LONG-TERM DEBT

Pursuant to an Amended and Restated Credit Agreement dated and effective March 13, 2014 (the “Amended Credit Facility”), which supersedes in its entirety the Credit Agreement dated and effective July 30, 2013 (the “Credit Facility”), the Company entered into a $20,000,000 senior secured credit facility (the “Facility Amount”) with certain lenders including Sprott Resource Lending Partnership and CEF (Capital Markets) Limited (collectively, the “Lenders”), under which:

• initial funding of $10,000,000 was received by the Company upon closing of the Credit Facility on July 30, 2013; and
• additional funding of $10,000,000 was received by the Company upon closing of the Amended Credit Facility on March 13, 2014.

The Amended Credit Facility is non-revolving with a four-year term maturing on July 31, 2017 with security over the lease and related rights comprising the Hobson Processing Plant and the mineral and related rights comprising the Goliad Project, and subject to the following terms:

• an interest rate of 8% per annum on the principal balance outstanding, compounded and payable on a monthly basis;
• a structuring fee of $175,000 payable upon closing of the Credit Facility;
• a one-time fee $150,000 payable in cash or shares of the Company, at the Lenders’ option, on the first anniversary of the closing of the Credit Facility, and in the case of shares, based on a 10% discount to the five trading-day, volume-weighted average closing price of the Company’s shares at that time;
• a one-time extension fee payable by the issuance of 100,000 shares of common stock of the Company upon closing of the Amended Credit Facility;
• an annual extension fee of $50,000 payable in cash on July 31, 2015 and 2016 under the Amended Credit Facility, provided a principal balance remains outstanding on such dates, if any;
• issuance of bonus shares for a total 594,318 shares of common stock of the Company with a total value of 4.5% of the Facility Amount or $900,000 based on a 10% discount to the five trading-day, volume-weighted average closing price of the Company’s shares, with 407,239 shares issued at closing of the Credit Facility and held in escrow until the determination of the final number of bonus shares on July 30, 2014, the first anniversary of the closing of the Credit Facility, on which date a further 187,079 shares of common stock of the Company were issued. Thereafter, annual bonus shares are payable in shares of common stock of the Company on August 1, 2015 and 2016, with a total value of 4.5% of the principal balance outstanding on such dates, if any, based on a 10% discount to the five trading-day, volume-weighted average closing price of the Company’s shares;
• issuance of bonus warrants comprised of 2,600,000 share purchase warrants, each warrant exercisable for one share of common stock of the Company at an exercise price of $2.50 per share until an original expiry on July 30, 2016, extended by two years to July 30, 2018 under the Amended Credit Facility, subject to accelerated expiry whereby, upon notification by the Company, the warrant holders will have 30 days to exercise should the 30 trading-day, volume-weighted average closing price of the Company’s shares equals or exceeds $5.00 ;
• reimbursement by the Company of legal fees and certain due diligence expenses incurred by the Lenders;
• monthly principal repayments equal to one twelfth of the principal balance then outstanding commencing on July 31, 2016, with mandatory repayment obligations triggered under certain post-closing events; and
• voluntary prepayments of the principal balance outstanding may occur on the last day of any month (on ten days prior notice) provided that not less than six months interest has been paid to the Lenders.

Under the Credit Facility, a standby fee of 4% per annum on the undrawn balance of the Facility Amount was payable on a monthly basis.

The Company is required to use the proceeds of the Amended Credit Facility for the development, operation and maintenance of the Hobson Processing Facility, the Goliad Project and the Palangana Mine and for working capital purposes.

In connection with the closing of the Credit Facility, the Company incurred various fees and expenses totaling $418,477 which were recorded as deferred financing costs on the consolidated balance sheet. The current portion of deferred financing costs represents costs that will be expensed over the next twelve months.

The bonus warrants issued on July 30, 2013 were valued using the Black-Scholes option pricing model with the following assumptions:

Expected Life in Years	3.00
Expected Annual Volatility	67.15%
Expected Risk Free Interest Rate	0.62%
Expected Dividend Yield	0.00%

The incremental value associated with the two-year extension of the bonus warrants was valued using the Black-Scholes option pricing model with the following assumptions:

Expected Life in Years	4.38
Expected Annual Volatility	63.98%
Expected Risk Free Interest Rate	1.285%
Expected Dividend Yield	0.00%

At July 31, 2014, long-term debt consisted of the following:

		July 31, 2014			July 31, 2013
Principal amount	$	20,000,000		$	10,000,000
Discount on long-term debt - cash
Payments to lenders for fees and expenses		(621,110	)		(594,054	)
Net proceeds received		19,378,890			9,405,946
Discount on long-term debt - non-cash
Allocated fair value of bonus shares		(749,473	)		(1,065,400	)
Allocated fair value of bonus warrants		(936,327	)		(1,237,910	)
Allocated fair value of extension fee shares		(174,347	)		-
Annual fees		(150,000	)		(150,000	)
		(2,010,147	)		(2,453,310	)
Discount on long-term debt		(2,631,257	)		(3,047,364	)
Long-term debt, net of discount		17,368,743			6,952,636
Accumulated amortization of debt discount		1,336,394			4,583
	$	18,705,137		$	6,957,219

On July 30, 2014, the first anniversary of the closing of the Credit Facility, the Company paid the one-time fee of $150,000 through the issuance of 99,755 shares of the Company with a fair value of $170,581, resulting in the recognition of a loss on settlement of current liabilities of $20,581.

The aggregate yearly maturities of long-term debt based on principal amounts outstanding at July 31, 2014 are as follows:

Fiscal 2015	$	-
Fiscal 2016		1,666,667
Fiscal 2017		18,333,333
Total	$	20,000,000

Variable Share Forward Contract

On July 30, 2013, the Company issued 407,239 shares of the Company at a price of $2.21 per share as bonus shares with a total value of $900,000. These bonus shares were held in escrow until the determination of the final number of bonus shares on July 30, 2014, on which date the initial 407,239 shares of the Company were released from escrow and a further 187,079 shares of the Company were issued. The final number of bonus shares totaled 594,318 shares of the Company valued at a price of $1.51 per share based on a 10% discount to the five trading-day, volume-weighted average closing price of the Company’s shares for a total value of $900,000.

This feature of adjusting the number of shares for issuance at a future date to settle a fixed amount of monetary obligation is considered to be a variable share forward contract with a nominal initial value at July 31, 2013.

At July 31, 2014, the fair value of the variable share forward contract immediately before settlement resulting from the issuance of additional shares is presented below:

July 31, 2013
Number of shares issued		407,239
Variable share forward contract	$	-
July 31, 2014
Number of shares issued		594,318
Adjustment in number of shares issued		187,079
Share price at July 31, 2014	$	1.77
Variable share forward contract before settlement		331,130
Loss on valuation of variable share forward contract	$	331,130

As a result, the Company recognized a loss on fair value of variable share forward contract of $331,130 on the consolidated statement of operations.