Ms. Mari Doren reports

MONTAUK METALS OBTAINS LITIGATION FUNDING AGAINST THE REPUBLIC OF COLOMBIA AND WITHDRAWAL OF PRIVATE PLACEMENT

Montauk Metals Inc. has been advanced $200,000 (U.S.) pursuant to the loan and option agreement with Omni Bridgeway (Fund 5) Canada Investments Ltd., as previously announced in its news release on Nov. 9, 2023. The loan amount was advanced to the company in connection with the execution of promissory note by Montauk in favour of Omni.

Background

Montauk brought arbitration proceedings against the Republic of Colombia to enforce the company's rights to compensation under the Canada-Colombia Free Trade Agreement (the FTA), as previously described in its news releases of March 27, 2018, Feb. 25, 2019, Feb. 10, 2020, Nov. 23, 2021, Sept. 1, 2023, Oct. 5, 2023, and Nov. 9, 2023, and subject to certain conditions and approvals as noted below.

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 with respect to the company's Reina de Oro project 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, phase 2 of the arbitration will involve determining the quantum of damages awarded to Montauk to compensate it for losses incurred.

The company must make a payment of $200,000 (U.S.) to ICSID before a ruling on phase 1 is rendered. The company has advanced the loan amount to ICSID to satisfy the ICSID payment and expects for this to result in the issuance of a decision on jurisdiction and liability. The ICSID payment was originally required to be paid on or before Nov. 9, 2023; however, the company advised ICSID that the agreements (as defined below) were subject to the approval of shareholders at a meeting of shareholders to be held on Dec. 14, 2023, and accordingly ICSID indicated that it would extend the payment deadline until after the shareholders vote to approve the agreements at the meeting. Shareholders of the company approved the agreements at the meeting.

Litigation financing

The loan agreement grants Omni the option, exercisable in the sole discretion of Omni, to provide litigation financing to the company pursuant to an arbitration financing agreement (the AFA, and together with the loan agreement, the agreements). The company, Omni and Lenczner Slaght LLP entered into the AFA, which, should Omni exercise the phase 2 election, provides Montauk an initial financing amount of up to $2,325,000 (U.S.) subject to certain conditions. The non-recourse funding amount will be used to finance phase 2 and 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 arbitration (and in the event there are no proceeds recovered in the arbitration, such amount inclusive of such interest shall be payable by the company at the conclusion of the arbitration). Please see the company's press release issued on Nov. 9, 2023, and management information circular dated Nov. 9, 2023, for further information on the agreements.

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 attached table.

For any resolution that occurs on or after 36 months from the date Omni makes a positive phase 2 election, Omni's return shall bear interest at the rate of 12 per cent per annum, accruing and compounding on a monthly basis.

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 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. Management of the company will continue to provide updates on material developments of the status of the arbitration.

Private placement withdrawal

Due to securing the foregoing financing, the company will not be proceeding with the proposed private placement that was previously announced by the company on Oct. 5, 2023.

We seek Safe Harbor.