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Sparton Resources Inc. (SRI:TSX-V) ( the "Company") is pleased to announce that its wholly-owned subsidiary, Sparton Energy Inc. (" SEI ") has entered into an engagement letter with Quam Securities Company Limited of Hong Kong (" Quam Securities ") whereby Quam Securities has agreed to raise up to US$10 million in convertible debentures of SEI (the " Convertible Debenture s") on a "best efforts", private placement basis (the " Financing ").
A portion of the proceeds of the Financing will be used to complete SEI's previously announced acquisition of 85% of the shares of Linxing 306 Huajun Coal Co. Ltd. Lincang City (" Huajun "), which owns the Huajun coal and germanium producing operations in Yunnan, China, and completion of a pilot plant and uranium extraction testing facility in the area. As well, proceeds will be used for upgrading the Huajun operations, and construction of a commercial uranium extraction plant for Lincang coal ash. Funds will also support the Company's international secondary uranium recovery programs. Completion of the Financing is subject to satisfaction of a number of conditions precedent, including receipt of all required regulatory and corporate approvals, and completion of independent due diligence reviews
FINANCING TERMS
Convertible Debentures
The full US$10 million in Convertible Debentures will be convertible into a 35% interest in SEI, calculated as at the closing date of the Financing, subject to adjustment based upon certain milestone requirements of SEI. The Convertible Debentures will mature on September 30, 2011 and pay simple interest at 10% per annum. If SEI does not complete an initial public offering by maturity, the conversion of the Convertible Debentures will be into shares of the Company at an ascribed value of Cdn$0.22 per share.
Security
SEI and the Company are providing security for the Convertible Debentures to both Quam and the debenture holders in the form of a guarantee backed by the Huajun shares, SEI's interest in the agreements and operating vehicles related to the secondary uranium recovery programs in Yunnan, and the Company's estimated 6% working interest in the Chebucto gas field offshore of Nova Scotia, Canada.
Commissions and Warrants
In consideration for marketing the Convertible Debentures Quam Securities will receive a 5% commission on the gross proceeds of the Financing, and warrants to purchase shares of SEI equal to 2.5% of the gross proceeds of the Financing.
QUAM LIMITED
Quam Limited is a listed Hong Kong (952 SEHK) based financial services group comprised of several renowned Hong Kong businesses, including Quam Securities, Quam Capital, Quam Asset Management, Quam Wealth Management, Quamnet.com and Quam Investor Relations. Utilizing both its online and offline resources, Quam offers one-stop financial services in Hong Kong and China for corporations and individual investors alike. It also provides capital markets assistance in Tokyo , Bangkok , Dubai , Hong Kong and through its representative offices or wholly-owned foreign enterprises in Shenzhen, Shanghai , Shenyang of China. The Company has been associated with Quam as its financial advisor in Hong Kong for more than two years.
DISCUSSION
The proceeds of the Financing will further the Company's goal of becoming a profitable operating company through its subsidiaries. The medium term objectives are to upgrade the Huajun operations and enhance their profitability by increasing output and upgrading the current production of concentrate to germanium metal. Additionally, utilizing its proprietary technology, the Company has strong government support for uranium extraction from Lincang ash and through its joint venture with China National Nuclear Corporation plans to complete a bulk test plant, a feasibility study, and ongoing construction of a commercial production facility in the Lincang area. Initial design and permitting for this work is currently underway.
Experienced operating staff has been engaged to oversee the Lincang operations and organize the design and implementation of the new germanium metal production plant. Lyntek Inc., the Company's process engineering consultants, has completed an initial design for the uranium extraction bulk test plant and this has been submitted to the PRC environmental permitting authorities for review.
Sparton's international exploration and evaluation programs are being carried out under the direct supervision of A. Lee Barker, P. Eng., P Geol., the Company's President and CEO who is a Qualified Person under National Instrument 43-101. |