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RAPAPORT... True North Gems Inc. signed option and related agreements with LNS Greenland A/S, allowing its new partner to earn 20 percent of the issued and outstanding Class A shares of True North Gems Greenland (TNGG) in exchange for approximately $23 million. The amount covers the majority of True North Gems' Aappaluttoq ruby mine capital costs. The news sent True North Gems' shares up 28 percent to 7 cents on the Toronto Stock Exchange.
LNS is predominantly owned by arctic contractor Leonhard Nilsen & Sonner A/S of Norway. The Leonhard Nilsen Group operates 15 companies and is a major mining and construction company with more than 70 years of experience in logistics and mining in arctic environments.
At total of five individual agreements defined the strategic partnership structure for the future construction and operation of the Aappaluttoq ruby project in southwest Greenland.
"We are delighted to formalize our strategic partnership with LNS-Greenland," said Nicholas Houghton, the president and CEO of True North Gems. "These agreements show our commitment to source jobs locally and use existing Greenlandic expertise wherever possible; this will be especially important as we move forward through the public hearing process."
Finn Mortensen, the chairman of LNS Greenland, said, "We feel that our extensive logistical and operating experience in Greenland, together with True North's gemstone expertise, will be beneficial for all parties."
Under the terms of the option agreement, and subject to the government's granting an exploitation permit, the parties will be required to contribute to TNGG and fund all civil engineering and design; construction and capital budgets; mobilization of all construction equipment and logistical support and construction of all infrastructure and mine-related buildings at the Aappaluttoq site and the Nuuk administration offices and sorting facility.
LNS will be reimbursed for the capital cost of the ore circuit building and the Nuuk sorting facilities, but it will assume any capital cost variation risk associated with their portion.
True North Gems will contribute its Aappaluttoq ruby project permits and related gemstone exploration licenses and inventory; marketing and sales expertise; costs for engineering design, purchase, site delivery and installation of the ore processing circuit and proprietary software and a tracking system for rough and polished production. True North Gems will reimburse LNS the construction costs for the process circuit building and the administration and sorting offices in Nuuk. Based upon prior economic studies, True North Gems estimated that costs for those components will total about $14 million, with this capital cost variation risk to be assumed by TNGG.
Four additional agreements will govern the relationship between LNS and True North Gems. A TNGG shareholders agreement includes the procedural protocols for management activities. Under this agreement, TNGG will have both a board of directors as well as a management committee to administer all programs and budgets. As majority shareholder, True North Gems will appoint the board's chairman, the board of directors and the chairman of the management committee and it will retain the majority control over these groups.
Once commercial production has been achieved, LNS will retain ownership of the ore storage facility, the two port facilities, mine operations camp, workshop, site roads, power plant and the fuel and explosive storage facility. TNGG will lease these LNS assets for a nine-year period with a fully credited right to buyout the lease and purchase the assets at any time, less prior payments. The total lease payments over the period are fixed at DKK 68 million or approximately $12 million.
LNS will retain responsibility for mine and infrastructure operations at the Aappaluttoq site, while True North will oversee the responsibility for international gemstone marketing, site security, quality control, operations in Nuuk and exploration. Both LNS and True North will charge TNGG on a cost-plus basis for their contracted activities.
True North Gems and LNS will next finalize a feasibility level construction and capital budget, a plan and timeline, and initiate discussions on the final construction schedules, its site and building layouts, equipment procurement and definitive capital cost allocations.
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