| Disposal of Hydro Resources, Inc. |
3. DISPOSAL OF HYDRO RESOURCES, INC.
On January 5, 2017,
Laramide and the Company closed the sale of the Company’s wholly-owned subsidiary HRI, which holds the Churchrock and Crownpoint
projects, pursuant to a Share Purchase Agreement (the “Laramide SPA”). Under the terms of the Laramide SPA, as amended
on December 5, 2016, the Company received the following consideration:
| • | $2.5 million in cash, of which $0.25 million was paid in advance
on October 21, 2016; |
| • | 2,218,333 shares of Laramide common stock and 2,218,333 Laramide
common stock purchase warrants. Each common stock purchase warrant entitles the Company to purchase one share of common stock of
Laramide at a price of CDN$0.45 for a period of 60 months from the date of closing; |
| • | a $5.0 million promissory note, secured by a mortgage over the projects.
The note has a three-year term and carries an initial interest rate of 5% which then increases to 10% upon Laramide’s decision
regarding commercial production at the Churchrock project. Principal payments of approximately $1.5 million are due and payable
on January 5 in each of 2018 and 2019, with the balance of $2.0 million due and payable on January 5, 2020. Interest is payable
on a quarterly basis, provided however that no interest will be payable until March 31, 2018. Laramide will have the right to satisfy
up to half of each of these principal payments by delivering shares of its common stock to the Company, which shares will be valued
by reference to the volume weighted average price (“VWAP”) for Laramide’s common stock for the 20 trading days
before the respective anniversary of January 5, on which each payment is due; |
| • | a retained 4.0% Net Smelter Return Royalty (“NSR Royalty”)
on the Churchrock project, which royalty may be repurchased by Laramide by January 5, 2018 for $4.95 million; and |
| • | an option to purchase Laramide’s La Sal project for $3.0 million
and an option to purchase its La Jara Mesa project for $5.0 million, both of which expire on January 5, 2018. Any such exercise
by the Company will first result in a reduction of the principal amount due under the promissory note with any remaining portions
of the purchase price to be paid in cash by the Company. |
The divestiture of
HRI was accounted for as an asset disposal and the non-cash consideration received from Laramide was recorded at fair value. The
fair value of the shares of Laramide common stock received was determined using the closing share price of Laramide’s stock
on January 5, 2017. The fair value of the common stock purchase warrants was determined using the Black-Scholes method on April
27, 2017, which was the date that Laramide’s stockholders approved the issuance of the warrants. The fair value of the notes
receivable was determined using the present value of the future cash receipts discounted at a market rate of 9.5%. The Company
did not record a separate fair value for the options as the exercise of the options would reduce the amount outstanding under the
notes receivable. Due to the high degree of uncertainties surrounding future mine development and minerals prices, as well as limited
marketability, the Company determined the fair value of the NSR Royalty to be nil. The following fair value amounts were recorded
as the purchase consideration:
| (thousands of dollars) |
|
Fair Value |
| Cash, less transaction costs |
|
$ 1,950 |
| Laramide common stock |
|
568 |
| Laramide common stock purchase warrants |
|
506 |
| Notes receivable |
|
3,501 |
| Total consideration received |
|
$ 6,525 |
The fair value of
the shares of Laramide’s common stock and common stock purchase warrants received were valued using Level 1 inputs of the
fair value hierarchy and the fair value of the notes receivable was valued using Level 2 inputs, as defined in Note 4 below.
The Company recorded
the following gain on disposal of uranium properties within its Condensed Consolidated Statement of Operations:
| (thousands of dollars) |
|
|
| Total consideration received |
|
$ 6,525 |
| Carrying value of Churchrock project |
|
(2,123) |
| Carrying value of other plant and equipment |
|
(31) |
| Accounts payable |
|
1 |
| Asset retirement obligation |
|
105 |
| Royalty payable on Churchrock project |
|
450 |
| Gain on disposal of HRI |
|
$ 4,927 |
|