10:24:46 EST Sun 28 Nov 2021
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Kaizen Discovery Inc
Symbol KZD
Shares Issued 343,554,821
Close 2021-08-09 C$ 0.055
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Kaizen Discovery arranges reorganization transactions

2021-08-09 10:43 ET - News Release

Mr. Eric Finlayson reports


Kaizen Discovery Inc. is undertaking a series of transactions to recapitalize and reorganize the company to be implemented over the next 60 days:

  • A $7.5-million rights offering, extended to all shareholders of Kaizen, backed by a standby guarantee of Ivanhoe Electric (BVI) Inc., the company's majority shareholder, with the proceeds used to finance the company's coming exploration programs and business operations;
  • Conversion to common shares of all loans advanced to the company by majority shareholder Ivanhoe Electric;
  • Following the settlement of the rights offering and conversion of the loans, the company intends to implement a 10-for-one share consolidation;
  • The addition of three independent directors, each of whom has extensive industry experience and a successful record of advancing mineral exploration projects and companies.

"Upon completion, this reorganization will result in the company being well capitalized, debt-free and efficiently structured to advance its mineral projects and to drive value for its shareholders," said Eric Finlayson, interim president and chief executive officer of Kaizen.

Rights offering

The company will conduct an offering of rights to acquire common shares of the company to raise gross proceeds of $7.5-million.

Pursuant to the rights offering circular and the notice of rights offering, each eligible registered shareholder of the company, as disclosed in the rights offering circular, and holding common shares as at the close of business on Aug. 23, 2021, will receive 0.4851239331 transferable right for every one common share held. Each right will entitle the holder to subscribe for one common share at a subscription price of 4.5 cents per common share. Shareholders who fully exercise their rights under the basic subscription privilege will also be entitled to subscribe for additional common shares, on a pro rata basis, if available as a result of unexercised rights prior to the expiry time, subject to certain limitations as set out in the company's rights offering circular.

The rights will be listed and posted for trading on the TSX Venture Exchange under the symbol KZD.RT on a when-issued basis commencing on Aug. 20, 2021, and will expire at 5 p.m. (Vancouver time) on Sept. 16, 2021, after which time unexercised rights will be void and of no value.

The company currently has 343,554,821 common shares issued and outstanding. If all rights issued under the rights offering are validly exercised, an additional 166,666,666 common shares would be issued.

The company intends to use the net proceeds of the rights offering to deploy Ivanhoe Electric's proprietary Typhoon transmitter system at its 100-per-cent-owned Pinaya copper-gold project in Peru to undertake a 129-square-kilometre 3-D induced polarization and resistivity survey -- the largest Typhoon survey completed to date. In addition, the company will conduct exploration diamond drilling of laterally extensive shallow gold targets (refer to Kaizen's news release dated Aug. 9, 2021).

A notice of rights offering and a direct registration system (DRS) advice statement will be mailed to each registered shareholder of the company resident in Canada as at the record date. Registered shareholders who wish to exercise their rights must forward the completed rights certificate, together with the applicable funds, to the rights agent, Computershare Investor Services Inc., at 100 University Ave., 8th Floor, Toronto, Ont., M5J 2Y1, attention: corporate actions, on or before the expiry time. Shareholders who own their common shares through an intermediary, such as a bank, trust company, securities dealer or broker, will receive materials and instructions from their intermediary.

The rights offering will be conducted in all provinces and territories of Canada. However, certain holders of common shares in jurisdictions outside of Canada may be able to participate in the rights offering where they can establish that the transaction is exempt under applicable legislation. If you are a holder of common shares and reside outside of Canada, you will receive a notice of rights offering, for information purposes only, and a letter advising you as to how to determine your eligibility and the process and timing requirements to receive and, or, exercise your rights. The company requests any ineligible shareholder interested in exercising their rights to contact the company at their earliest convenience. A copy of the notice of rights offering, the rights offering circular and the notice to ineligible shareholders are available under the company's profile on SEDAR.

In connection with the rights offering, the company has entered into a standby commitment agreement with Ivanhoe Electric, the company's majority shareholder. The standby purchaser has agreed, subject to certain terms and conditions, to exercise its basic subscription privilege in respect of any rights it holds, and, in addition thereto, to acquire any additional common shares available as a result of any unexercised rights under the rights offering, such that the company will, subject to the terms of the standby commitment agreement, be guaranteed to issue 166,666,666 common shares in connection with the rights offering for aggregate gross proceeds of $7.5-million.

In consideration for the standby commitment, Ivanhoe Electric BVI will receive five-year warrants to purchase 25 per cent of the common shares that Ivanhoe Electric BVI has agreed to acquire under the standby commitment (not including any common shares acquired pursuant to its basic subscription privilege or additional subscription privilege), at an exercise price equal to 6.5 cents per common share.

The standby purchaser is a related party of the company under Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions because it exercises control and direction over more than 10 per cent of the issued and outstanding common shares. The rights offering is not subject to the related party rules under MI 61-101 based on a prescribed exception related to rights offerings.

Further details of the rights offering are contained in the rights offering circular, which will be filed on SEDAR under the company's profile at SEDAR and will be available at the company's website, from your dealer representative or by contacting the company.

The rights offering is subject to certain conditions including, but not limited to, the receipt of all necessary regulatory approvals, including the final acceptance of the TSX-V.

Debt conversion

The company has entered into a debt settlement agreement with Ivanhoe Electric BVI whereby the company will issue common shares at five cents per common share in settlement of all principal and accrued and unpaid interest owing by the company to Ivanhoe Electric BVI. As of the date of this news release, the principal amount of $5,242,000 (U.S.) plus approximately $514,000 (U.S.) in accrued interest remains owing to Ivanhoe Electric BVI.

The debt settlement constitutes a related party transaction under MI 61-101 and will require minority approval of shareholders in accordance with MI 61-101. At the meeting, shareholders, excluding Ivanhoe Electric BVI and certain affiliated persons, will be asked to approve the debt settlement. Pursuant to Section 5.5(b) of MI 61-101, the company is exempt from obtaining a formal valuation in respect of the debt settlement.

The debt settlement is subject to the approval of the TSX-V. The common shares issued will be subject to a statutory hold period in Canada expiring four months and a day from the closing date. Upon completion of the debt settlement and assuming the full subscription of rights under the rights offering, Ivanhoe Electric BVI is expected to own approximately 517,866,644 common shares, representing an approximate 79.10-per-cent interest in the company.

A full description of the review and approval process adopted by the board of directors of the company and the special committee will be included in the management information circular provided to shareholders in connection with the company seeking shareholder approval of the debt settlement at the meeting.

Assuming shareholder and TSX-V approval is obtained, the debt settlement is expected to close after the meeting. The company will file a material change report in respect of the announcement of the debt settlement.

Share consolidation

Shareholders will be asked to consider a resolution to approve a consolidation of the company's common shares on a ratio of one postconsolidation common share for every 10 preconsolidation common share.

The consolidation is subject to shareholder and TSX-V approval. As of the date of this news release, there are 343,554,821 common shares issued and outstanding. Upon completion of the debt settlement and assuming the full subscription of rights under the rights offering, it is anticipated that there will be approximately 65,469,708 common shares issued and outstanding following the consolidation. The company is pursuing the consolidation to reduce its number of issued and outstanding common shares and to provide for an increased common share price, which will allow it to attract additional investors who have minimum share price thresholds for equity investments.

Board nominees

The company proposes to expand the board to six directors, and to add the following three new independent directors: Jay Chmelauskas, Ricardo Labo and Blake Steele.

Mr. Chmelauskas has 25 years of international experience in project financing, mergers and acquisitions, and mining project development. As a seasoned senior executive, Mr. Chmelauskas is serving as the president and chief executive officer of Camino Corp. Prior to that, Mr. Chmelauskas was the chief executive officer of Western Lithium (now Lithium Americas Corp.). He has a geological engineering degree from the University of British Columbia, and an MBA from Queen's University.

Mr. Labo is a mineral economist with over 20 years of industry experience in Peru, Latin America and Africa. Mr. Labo has extensive experience and knowledge about the Peruvian mining industry from both the public and private sectors. Mr. Labo has held several high-level positions in the Ministry of Energy and Mines of Peru, including vice-minister of mines, adviser to the Minister of Energy and Mines, as well as director of mining promotion and development.

Mr. Steele is an experienced metals and mining industry executive with extensive knowledge across public companies and capital markets. Mr. Steele is currently president and chief executive officer of Azarga Uranium Corp., and also serves as a non-executive director of Gold Mountain Mining Corp. and Azarga Metals Corp. Mr. Steele is a chartered professional accountant and chartered business valuator in Canada.

The nominees will be included along with nominations to reappoint the three current directors, being Eric Finlayson, David Boehm and Terry Krepiakevich.

2021 annual general meeting

Each of the debt settlement, consolidation and board appointments will be presented for consideration and approval by the shareholders at Kaizen's annual general meeting, to be held on Sept. 27, 2021. The company anticipates mailing meeting materials to shareholders on or about Aug. 20, 2021.

At the meeting, shareholders will also be asked to vote on the usual annual general meeting matters, including the reappointment of the company's auditor and approval of the company's equity incentive plans.

About Kaizen Discovery Inc.

Kaizen is a Canadian mineral exploration and development company with exploration projects in Peru and Canada.

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