Ucore Rare Metals finances pilot plant through royalty financing
Ucore Rare Metals Inc. (TSXV:UCU | OTCQX:UURAF) (“Ucore” or the “Company”) announced that it has closed $6.9 M royalty financing based on expectations of revenues from its Molecular Recognition Technology (“MRT”) for the separation of rare earth elements (“REE’s”).
Under the terms of the financing agreement, the undisclosed investor will make a USD $5 Million payment to Ucore, with USD$2.5 Million due in December 2015 upon execution of the agreement and the balance payable by April 30, 2016. The proceeds are to be used partly for the completion of the Company’s pilot plant, which it announced in November 2015.
Royalty financing is a relatively new means to raise finances as a creative alternative to regular debt financing (loans and trade credit) or equity financing (venture capital and stock sales). For a royalty financing arrangement, the borrower receives a specific amount of money from investors to launch a new product or expanding the company’s marketing efforts. In exchange, the investor receives a percentage of the company’s future revenues over a certain period of time, up to a specific amount. The investment can be considered an advance to the company against future royalty payments owed to the investor.
Ucore’s Investor will receive a royalty from the production of Ucore’s early stage MRT installations (the “Royalty”). The Royalty will be comprised of two components: (i) a Gross Royalty equal to 5% of gross sales from the Company’s first MRT installation or installations, payable until the recapture of the Investment; and (ii) a Net Profits Royalty (“NSR”) equal to 5% of Ucore’s net profits from the installation. Net profit figures are to be calculated by Ucore on an annual basis during the production term, in accordance with IFRS accounting procedures.
The initial purpose of the pilot plant is to confirm the effectiveness of MRT in the separation of rare earth elements (“REE’s”) at bulk scale and at the high purities previously achieved at bench scale utilizing feedstock derived from the Company’s Bokan-Dotson Ridge (“Bokan”) deposit in Southeast Alaska as reported by the Company in May 2015. But the pilot plant will also be used to confirm the effectiveness of SuperLig® technology in separating REE’s from a variety of feedstock sources in North America and beyond. Completion of construction, and the commencement of initial testing, is anticipated to take place in early 2016.
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In July 2015 Ucore has contracted with IBC Advanced Technologies, Inc. of American Fork, Utah (“IBC”) for the design, construction, and operation of the Plant. The pilot plant will be initially located in American Fork, Utah, in proximity to the IBC Research and Development Facility (“RDF”). The Plant will also be designed for breakdown and shipping to third party test locations, as and when required. The Company provides a conceptual 3D Schematic of the Plant at http://ucore.com/PilotPlant.
According to Jim McKenzie, President and CEO of Ucore, “The obtainment of repeated financings during this challenging time in the resource sector is an exceptional achievement. We believe this shows the potential for MRT as a revenue maker in both procyclical and countercyclical environments. Remarkably, this form of financing is prospectively non-dilutive, a substantial plus for new and existing Ucore shareholders. The Company is excited to be pushing forward with the development of this promising MRT platform. This funding will contribute toward the completion of our MRT pilot plant, which we anticipate during Q1 of 2016.”
Further, the Investor has the option to increase the amount of the Investment by up to USD$ 1 Million (approximately CAD$1.37 Million) in exchange for a larger Royalty. If, prior to April 30, 2016, the Investor provides written notice to Ucore that it would like to increase the Investment, it can do so in tranches of USD$500,000 in exchange for a pro-rata increase in its royalty. Each USD$500,000 additional investment will result in an increase in the NSR by a factor of 0.50%. If so exercised, the option to increase will bring the total financing deal to USD $6 Million.
Dr. Luc C. Duchesne is a Speaker and Author with a PhD in Biochemistry. With three decades of scientific and business experience, he has published ... <Read more about Dr. Luc Duchesne>