Ms. Mari Doren reports

MONTAUK METALS SECURES LITIGATION FUNDING AGAINST THE REPUBLIC OF COLOMBIA

Montauk Metals Inc. has secured litigation financing for its arbitration proceedings brought by the company against the Republic of Colombia to enforce the company's rights to compensation under the Canada-Colombia Free Trade Agreement (FTA), as previously described in its news releases of March 27, 2018, Feb. 25, 2019, Feb. 10, 2020, Nov. 23, 2021, Sept. 1, 2023, and Oct. 5, 2023, and subject to certain conditions and approvals as noted below.

Background of the claim

Montauk contends that Colombia breached its obligations owed to the company, including specific obligations under the FTA. The claims include Colombia's refusal or failure to compensate the company for the losses incurred as a consequence of Colombia's prohibition of mining in the paramos (high-altitude ecosystems). On March 21, 2018, Montauk filed a request for arbitration against the Republic of Colombia before the International Centre for Settlement of Investment Disputes (ICSID).

The arbitration is being conducted in two phases. Phase 1 will determine whether the ICSID tribunal adjudicating Montauk's claims under the FTA has jurisdiction over this case, and whether Colombia has breached its obligations under the FTA and is liable for compensation to the company. Assuming that ICSID decides in favour of Montauk in phase 1 (the phase 1 decision), phase 2 will involve determining the quantum of damages awarded to Montauk to compensate it for losses incurred. The company estimates it has suffered more than $16-million (U.S.) in sunk costs and total loss of the value of up to $180-million (U.S.) in the Reina de Oro project, as well as legal and arbitration fees. Typically, an arbitral award will include an award of costs payable by the unsuccessful party to the successful party to reimburse it for its legal and arbitration fees.

Certain costs of the proceedings, including arbitration fees and disbursements, have exceeded the company's original estimates as the company was also required to pay Colombia's 50-per-cent share of the arbitration fees. The company must make an additional payment of $200,000 (U.S.) to ICSID before a ruling on phase 1 is rendered. If the company fails to pay the required amount of $200,000 (U.S.) to obtain a ruling on or before Nov. 9, 2023, the ICSID acting secretary-general may exercise its discretion to discontinue the arbitration. The ICSID payment is expected to result in the issuance of a decision on jurisdiction and liability.

Extension of the payment deadline

The company expects to apply today to ICSID to request an extension to the payment deadline. The company refrained from submitting an extension application until it had received a litigation financing commitment, with such commitment being received today following the approval of Omni's (as defined below) investment committee. The company strongly believes in the merits of its case and has obtained litigation financing to finance the ICSID payment, subject to certain conditions, as noted below. The company is optimistic that ICSID will consider the extension request.

Litigation financing

Montauk has entered into a loan and option agreement with Omni Bridgeway (Fund 5) Canada Investments Ltd., pursuant to which Omni has agreed to lend the company $200,000 (U.S.) to finance the ICSID payment in order for the tribunal to render a ruling on phase 1.

The loan amount will accrue interest at a rate of 20 per cent, compounded annually. In the event the tribunal in the arbitration finds that it does not have jurisdiction over the dispute and/or that Colombia did not breach its duties to the company, and/or any outcome which otherwise renders a phase 2 election (as defined below) non-viable in the sole view of Omni, the loan amount and any and all accrued interest must be repaid by the company within 60 days after Omni notifies the company that Omni will not make the phase 2 election. The repayment of the loan amount and any such accrued interest shall be payable regardless of whether the arbitration is successful and is a recourse obligation of the company, payable from any and all assets of the company. In connection with the loan agreement, the company will deliver a promissory note to Omni evidencing its obligation to repay Omni the loan amount and any accrued interest.

In addition, the company has granted Omni an option, exercisable in the sole discretion of Omni, to provide litigation financing to the company pursuant to a litigation financing agreement (LFA). The LFA is expected to provide an initial amount of up to $2,325,000 (U.S.) (the non-recourse financing amount), subject to certain conditions. The Non-recourse financing amount may be increased in certain circumstances as may be agreed upon between the corporation and Omni.

If Omni elects to provide the non-recourse financing amount for phase 2 and the enforcement of any award obtained by the company in the arbitration, the loan amount and interest shall be repaid through proceeds recovered in the litigation (and in the event there are no proceeds recovered in the litigation, such amount, inclusive of such interest, shall be payable by the company at the conclusion of the litigation).

Omni's return on the non-recourse financing amount will be limited solely to recovery from the amount of money for which the arbitration is settled, or for which a final, non-appealable award is given in favour of the corporation. The Omni return shall be an amount calculated as the sum of: (i) a multiple of the amounts actually incurred of the non-recourse litigation financing amount; and (ii) a percentage of the gross recovery proceeds, both calculated when the recovery proceeds are received, as set out in the associated table.

The litigation proceeds, if received, will be disbursed in the following order of priority: (a) Omni shall be reimbursed the recourse loan and the amounts actually incurred of the non-recourse financing amount; (b) Omni shall be paid the Omni return and legal counsel shall be paid their legal fees; and (c) the balance shall be paid to the corporation.

In connection with the loan agreement, note and LFA, the company has agreed to grant Omni a continuing first-priority security interest over any and all assets of the company (whether presently held or acquired after the date hereof), including the company's interest in any litigation proceeds.

The loan agreement is subject to certain conditions, and the receipt of all necessary approvals and regulatory approvals, including the approval of the TSX Venture Exchange and the approval of the shareholders of the company. The LFA is subject to the foregoing conditions and approvals, and is subject to the settlement of the definitive LFA. The principal terms and conditions and the LFA have been agreed upon in the loan agreement. The company has scheduled a special meeting of shareholders to be held on Dec. 14, 2023, at which shareholders of the company will vote to ratify the loan agreement and approve the LFA. Additional information pertaining to the loan agreement and LFA may be found in the management information circular pertaining to the meeting that is expected to be available on the company's profile on SEDAR+ on or around Nov. 22, 2023.

The company cannot guarantee that it will be successful at the arbitration, or that the estimated amounts disclosed herein will not be revised as the arbitration proceeds. The company also cannot guarantee that it will be able to recover all or part of its legal and arbitration costs from Colombia even if it is successful at the arbitration. Assuming the extension is granted and the arbitration proceeds, the ruling from the tribunal would be expected to be on or about the first quarter of 2024. Management of the company will continue to provide updates on material developments of the status of the arbitration.

Risk disclosure statement: At the present time, the company's payment obligations are substantially in excess of its cash balances and it has no other assets. The company is not solvent and cannot continue as a going concern. Trading in shares of the company and any investment in the company is highly speculative. No trading in securities of the company or investment should be made without being able to lose the entire amount of such funds.

We seek Safe Harbor.