Mr. Robert Eadie reports

RED HUT METALS SIGNS LOI FOR RIGHTS TO GOLD-BEARING CLAIMS IN CALIFORNIA

Red Hut Metals Inc. has signed a letter of intent (LOI) with each of Ray Merry and Ron Coombes of Maple Ridge, B.C., and 0999940 B.C. Ltd. (a private B.C. company owned by Mr. Merry), whereby Red Hut will acquire by way of assignment all of the contractual interests held by the assignors in various patented and located mineral claims with a history of gold mineralization in western California, United States.

About the property

The property includes six parcels which have been fully patented and are owned in fee simple, and 13 20-acre mining claims on Bureau of Land Management and U.S. Forest Service property (260 acres), which include several historical mines and a mill site. As additional ground is being added to the property, details of the property will be deferred until the land package is fully assembled.

The proposed transaction

The assignors have negotiated the general terms and provisions whereby they can earn a 50-per-cent joint venture interest in the property, or alternatively buy a 100-per-cent interest in the property. To earn a 50-per-cent interest in the property requires the payment of $175,000 (U.S.) and incurring $2-million of expenditures on the property over the course of three years, as follows:

• Payment of $25,000 (U.S.) on or before March 28, 2017;
• Payment of $25,000 (U.S.) and incurring $250,000 of expenditures by March 28, 2018;
• Payment of $100,000 (U.S.) and incurring an additional $750,000 of expenditures by March 28, 2019;
• Incurring an additional $1-million of expenditures by March 28, 2020.

Having earned a 50-per-cent interest, a joint venture would be formed with the property owner. Alternatively, a 100-per-cent interest in the property can be acquired for $5-million (U.S.), at any time, of which one-half can be paid in shares.

As consideration for the assignment, Red Hut will assume all obligations of the assignors to the property owner and has agreed to pay the following to the assignors:

1. Following regulatory approval, Red Hut will make a cash payment $25,000 (U.S.) and issue 1.5 million Red Hut shares to 0999940 B.C.;
2. After completing the recommended first year work program of at least $250,000, Red Hut will issue an additional 1.5 million Red Hut shares to 0999940 B.C.;
3. After completing the recommended second year work program of at least $750,000, Red Hut will issue an additional 1.5 million Red Hut shares to 0999940 B.C.;
4. In the event that Red Hut elects to acquire the property for $5-million (U.S.), Red Hut will issue an additional 1.5 million Red Hut shares to 0999940 B.C.

In either event, the property owner will retain a 2.5-per-cent net smelter return royalty, of which 1.5 per cent can be acquired for $1-million (U.S.) if the option to acquire a 100-per-cent interest in the property is exercised.

The transaction was negotiated at arm's length. The transaction will constitute a reviewable transaction under the policies of the TSX Venture Exchange, and, as such, it will require approval of the exchange. As no change of control will result, Red Hut will not be required to seek the approval of its shareholders.

Private placement

In conjunction with the transaction, Red Hut will undertake, subject to the acceptance of the exchange, a private placement of at least $1.2-million in gross proceeds through the issuance of at least 12 million units at a price of 10 cents per unit. Each unit will comprise one common share and one-quarter of one common share purchase warrant, with each whole warrant entitling the holder to purchase one common share of Red Hut at a price of 25 cents per share for a period of one year. Red Hut expects to pay finders' fees of not more than 7 per cent (payable in Red Hut shares) and 7 per cent finders' warrants (with terms similar to the warrants).

The proceeds will be used to meet the cash requirements of the transaction and to undertake the recommended work program for the property.

Certain conditions to transaction

The completion of the transaction will be subject to the satisfaction of certain conditions, including:

• Red Hut completing the financing;
• Receipt of exchange approval of the transaction and the financing.

Other matters

Subject to regulatory approval, a finder's fee of 5 per cent of the value of the transaction is payable to Mackie Research Capital Corp. of Vancouver, B.C., in the form of Red Hut shares.

We seek Safe Harbor.