Exhibit 10.5
FORM 53-901F
Section 85 (1) -- Securities Act (British Columbia)
(or the equivalent thereof under
Canadian Provincial Securities Legislation)
1. REPORTING ISSUER
Ivanhoe Mines Ltd. ("Ivanhoe")
World Trade Centre
Suite 654 - 999 Canada Place
Vancouver, British Columbia
V6C 3E1
2. DATE OF MATERIAL CHANGE
September 10, 2002
3. PRESS RELEASE
Date of Issuance: September 10, 2002
Place of Issuance: Vancouver, British Columbia
4. SUMMARY OF MATERIAL CHANGE
ABM Mining Ltd. ("ABM"), a wholly-owned subsidiary of Ivanhoe,
indirectly acquired approximately Aus$74.9 million (U.S.$41 million) of
project debt obligations owed to a third party institutional lender by
ABM's wholly-owned subsidiary Goldamere Pty. Ltd. ("Goldamere"), the
owner and operator of the Savage River iron ore mine and the Port Latta
pellet plant (the "Savage River Project"), in consideration for a cash
payment of Aus$15 million (U.S.$8.2 million).
5. FULL DESCRIPTION OF MATERIAL CHANGE
BACKGROUND
Pursuant to a Project Facility Agreement dated January 12, 1998, as
amended (the "Project Facility Agreement") UBS Australia Limited (the
"Lender") agreed to provide credit facilities to Goldamere in the
aggregate amount of approximately Aus$43 million (U.S.$23.6 million)
(collectively the "Project Debt"). Pursuant to a Security Trust Deed
dated November 13, 1998, as amended (the "Security Trust Deed"), the
Project Debt is secured by a first lien over the assets of the Savage
River Project. Under the terms of the Project Facility Agreement,
Goldamere was required to implement a risk management program which
involved, among other things, hedging currency risk in respect of the
proceeds of the sale of iron ore from the Savage River Project (the
"Hedging Arrangements"). Under the Hedging Arrangements, Goldamere was
required to deliver to
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the hedge counterparty U.S.$5 million of currency per month at an
exchange rate of U.S.$0.6817:Aus$1.
Pursuant to an asset purchase agreement dated December 10, 1996, as
amended (the "Asset Purchase Agreement"), Goldamere agreed to purchase
from the Crown in Right of the State of Tasmania (the "State"), the
assets of the Savage River Project in consideration for a deferred
payment of Aus$13 million (U.S.$7.1 million) (the Asset Purchase
Price"). Under the terms of the Asset Purchase Agreement, the Asset
Purchase Price was to be satisfied by way of environmental remediation
expenditures to be made by Goldamere in respect of the past operation
of the Savage River Project by the previous owner. Under the terms of
the Security Trust Deed, the Asset Purchase Price was secured by a
second lien over the assets of the Savage River Project.
As a result of a significant weakening of the Australian dollar in
relation to the U.S. dollar, the Hedging Arrangements required
Goldamere to incur substantial ongoing currency exchange losses. As an
interim relief measure, the Lender agreed to allow Goldamere to make
the monthly U.S. dollar payments required pursuant to the Hedging
Arrangements at the then prevailing Aus$:U.S.$ exchange rate rather
than at the specified contract rate. An amount equal to the difference
between the amount otherwise payable at the specified contract rate and
the amount actually paid at the then prevailing exchange rate was then
added to the principal amount of the Project Debt.
Faced with a deteriorating international market for iron ore and
continuing weakness in the Australian dollar, the management of
Goldamere concluded that the economic viability of the Savage River
Project could not be sustained under the burden of the Project Debt and
Hedging Arrangement obligations and, in August 2001, approached the
principal Savage River Project stakeholders to discuss alternatives for
restructuring the mine plan and financial arrangements of the Savage
River Project.
PURCHASE AND SALE OF PROJECT DEBT
Pursuant to a Project Facility Agreement Substitution Deed dated
September 10, 2002, Arbutus Holding Ltd. ("Arbutus"), a wholly-owned
subsidiary of ABM, acquired all of the Lender's rights in respect of
the Project Debt and assumed all of the Lender's liabilities and
obligations under the Project Facility Agreement. Pursuant to a
Security Trust Deed Substitution Deed dated September 10, 2002, Arbutus
succeeded to all of the Lender's rights, liabilities and obligations
under the Security Trust Deed. In connection with, and as part of,
these transactions, all remaining currency exchange transactions and
obligations under the Hedging Arrangements were closed out and the
residual liabilities resulting from the closing out of these
transactions and obligations (the "Close Out Amounts") were added to
the Project Debt acquired by Arbutus. As consideration for the Project
Debt (including the Close Out Amounts), Arbutus paid to the Lender cash
in the amount of Aus$15 million (U.S.$8.2 million).
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Prior to the close out of the Hedging Arrangements, the aggregate
principal amount and all accrued interest in respect of the Project
Debt was approximately Aus$61.5 million (U.S.$33.7 million). After the
addition of the Close Out Amounts, the total Project Debt acquired by
Arbutus from the Lender was approximately Aus$74.9 million (U.S.$41
million).
REORGANIZATION OF STATE SECURITY
In connection with Arbutus' acquisition from the Lender of the Project
Debt and related security, the State agreed to relinquish its security
under the Security Trust Deed in respect of the unpaid Asset Purchase
Price. As consideration for the relinquishment, Goldamere agreed to
lodge with the State a bank guarantee in the amount of Aus$2.8 million
(U.S.$1.5 million) as substitute security for Goldamere's obligations
under the Asset Purchase Agreement to either pay the deferred Asset
Purchase Price in cash or to incur environmental remediation
expenditures in respect of the Savage River Project in an aggregate
amount equal to the deferred Purchase Price plus accrued interest.
Goldamere and the State also agreed upon a variation of the time for,
and manner of payment of, interest in respect of the Asset Purchase
Price.
FINANCIAL IMPACT
The acquisition of the Project Debt and the related elimination of the
Hedging Arrangements is expected to save Goldamere approximately
Aus$21.5 million (U.S.$11.8 million) in annual currency exchange
losses, Aus$4.3 million (U.S.$2.4 million) per year in related interest
charges and Aus$74.9 million (U.S.$41 million) in principal repayment
obligations to the Lender. The transaction will have the effect of
reducing current and long term liabilities on Ivanhoe's consolidated
balance sheet by approximately Aus$74.9 million (U.S.$41 million). As a
result of the substantial write-down in the carrying value of the
Savage River Project recorded as of the end of fiscal 2001, Ivanhoe
expects its financial statements for the fiscal quarter ending
September 30, 2002 to reflect an extraordinary gain, based on the
acquisition of the Project Debt, of approximately Aus$53 million
(U.S.$29 million).
6. RELIANCE ON SECTION 85 (2) OF THE ACT
Not applicable
7. OMITTED INFORMATION
Not applicable
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8. SENIOR OFFICER
For further information contact:
Beverly Bartlett
Ivanhoe Mines Ltd.
World Trade Centre
Suite 654 - 999 Canada Place
Vancouver, British Columbia
V6C 3E1
Telephone: (604) 688-5755
9. STATEMENT OF SENIOR OFFICER
The foregoing accurately discloses the material change referred to
herein.
DATED at Vancouver, British Columbia this 16th day of September, 2002.
IVANHOE MINES LTD.
Per: "Beverly Bartlett"
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Beverly Bartlett
Corporate Secretary