On September 14, 2012, NEMI extended a US$1,500,000 loan (the "Gold Loan") to American Bonanza Gold Corporation ("BZA"), a publicly traded resource company developing the Copperstone Mine in Arizona. The significant terms of the underlying loan agreement provided for interest rate of 12% and a maturity date of November 14, 2013 with repayment due in eight equal monthly installments commencing March 14, 2013. In addition, the terms provided that NEMI could elect to receive any payments on principle othewise due in the form of 1,250 London good delivery gold ounces at a stated price of US$1,200 per ounce (the "Gold Call Option"). BZA issued one common share purchase warrant for each $1.00 principal amount of the Gold Loan which remains outstanding (a total 6 million warrants were issued, 1.5 million to NEMI). Each warrant will entitle the holder to purchase one common share of BZA at a price of $0.50 per share, exercisable for a period of two years from closing.
During the six months ended March 31, 2013, NEMI advanced an additional US$200,000 to BZA and on April 1, 2013, advanced an additional US$400,000 in consideration for an Amended and Restated Secured Promissory Note and Guaranty bringing the total advanced to BZA up to US$2,100,000 million (the "Amended BZA Gold Loan"). Among the amended and revised terms and conditions was a reduction in the strike price of the Gold Call Option from the original US$1,200 to US$1,100 per ounce meaning the potential number of Gold Ounces to be delivered increased from 1,250 ounces to 1,909 ounces. In addition, NEMI secured another 600,000 BZA common share purchase warrants exercisable at a price of $0.20 each for a period of two years from the date of issuance. Under the terms of the Amended BZA Gold Loan, the maturity date has been extended to August 1, 2014 and the loan is repayable in 12 equal monthly installments commencing on September 1, 2013. All other terms and security granted under the terms of the Amended BZA Gold Loan remain substantially unchanged from the provisions of the original agreement.
In November 2013, BZA, NEMI and the other Gold Loan lenders subsequently amended and restated the secured US$8,601,000 promissory note (NEMI has lent US$2,100,000). The amended promissory note has been restructured to be repaid commencing January 1, 2014 in twelve equal principal monthly installments completing on December 1, 2014. The strike price of the Gold Call Option has been reduced to US$900 per ounce which if exercised would result in the delivery of 9,557 gold ounces (2,333 gold ounces to NEMI) or equivalent cash, at the option of the lender. Interest payments due on November 1, 2013 and December 1, 2013 have been deferred to January 1, 2014. On January 3, 2014 NEMI sent BZA a notice of default after not receiving the agreed upon payments.
On April 14, 2014 BZA announced it had entered into a definitive agreement with Kerr Mines Inc. ("KER"), an arms length company, for a merger of the two companies' operations pursuant to which BZA shareholders will receive 0.53 common shaes of KER in exchange for each BZA share held. The agreement was approved by BZA shareholders at BZA’s annual general meeting held on June 20, 2014 and by the Supreme Court of British Columbia on June 25, 2014.
On May 1, 2014, NEMI, BZA and KER entered into an agreement pursuant to which NEMI agreed to settle the full amount of the NEMI's gold loan to BZA, plus all accrued interest thereon in consideration of BZA issuing 48,762,489 common shares of BZA to NEMI and KER issuing a secured promissory note from KER in the principal amount of US$2,100,000 to NEMI. The KER promissory note will bear interest at a rate of 6% per annum, with six semi-annual payments of principal and interest commencing on June 20, 2015.
The note is secured under a General Security Agreement by a pledge of the assets and share capital of Bonanza Explorations Inc., an operating subsidiary of BZA, which became an operating subsidiary of KER upon completion of the arrangement transaction between BZA and KER announced on April 14, 2014. The Company has the right, at its option, at any time commencing on June 20, 2015, to convert the whole or any part of the loan into common shares of Kerr at a conversion price of $0.90 per share on a post consolidated basis.
On June 27, 2014 the 48,762,489 common shares of BZA were converted into 25,844,120 shares of KER per the arrangement transaction between BZA and KER. On July 25, 2014 KER filed articles of amendment giving effect to the consolidation of its issued and outstanding common shares on a one (1) for fifteen (15) basis. As a result of this consolidation, the Company received 1,722,939 shares of KER.
The first of six semi annual payments of principal and interest equal to US$410,914 was payable to NEMI on June 20, 2015. This payment was received on July 15, 2015. As a result of the default under the terms of the Note, the entire outstanding principal amount, including interest due thereon totaling US$2,465,484, was accelerated and became immediately due and payable. In connection with collection of the outstanding amounts owing, NEMI and KER negotiated an amendment to the Note, pursuant to which the remaining outstanding principal amount and interest currently due thereon, totalling US$2,054,570 will accrue interest at a rate of 8% per annum and would become due December 15, 2015.
On March 3, 2016 NEMI announced that it had sold all of its interest in obligations owing to NEMI under the Note, to an arm’s length party for aggregate proceeds of US$1,875,000. The total obligations owing to NEMI under the Note, inclusive of all accrued interest and fees, were US$2,138,329 as at February 29, 2016.