China Development Bank contributes $25 million USD to a $50 million USD syndicated bridge loan for the Mt Cattlin Spodumene Mine Project (Linked to Record ID#94969)

Project narrative

In December 2009, China Development Bank Corporation (CDB) joined Galaxy Resources Limited's project finance syndicate for its Mt Cattlin Spodumene Project. Alongside Raiffeisen Zentralbank Österreich AG (RZB), CDB and RZB approved the provision of a $105 million USD ($130 million AUD) loan agreement for the project. RZB issued a $20 million USD loan, characterized as a drawdown, under this facility. However, Galaxy Resources was prevented from further drawdowns based of conditions precedent set by the lenders, including the acquisition of a construction permit from Zhangjiagang authorities for Galaxy Resources' Jiangsu Lithium Carbonate Project, which was not acquired until June 4, 2010. With the permit, the loan facility was allowed to move forward. Then, on September 10, 2010, CDB and RB International Finance (Hong Kong) Limited signed the $105,000,000 USD ($113.37 million AUD) loan facility agreement with Galaxy Resources Limited for the Mt Cattlin Spodumene Mine Project. RB International and CDB each contributed $52.5 million USD ($56.69 million AUD) to the loan syndicate. Record ID#94969 captures CDB's $52.5 million USD contribution to the $105 million USD loan facility. Additionally, the same day CDB and RB International entered into a $50 million USD ($53.99 million AUD) bridge facility agreement with Galaxy Resources for the for the Mt Cattlin Spodumene Mine Project. Each lender contributing $25.00 million USD ($26.99 million AUD). Record ID#94970 captures CDB's $25 million USD contribution to the $50 million USD bridge facility. This facility carried a maturity period of approximately 6 years, a final maturity date in December 2016, with principal repayments to begin, in ten equal installments every six months commencing on June 10, 2012. This facility carried an interest rate based on Singapore Interbank Offered Rate (SIBOR) plus a margin of 4.50% per annum payable every six months. $12,729,737 USD of transaction costs were directly attributable to the acquisition of the facility and were capitalized into its cost. The terms of the facility included a provision that no break fees would be payable if a prepayment was made on an interest payment date. The facility included a mandatory prepayment on dilution clause that stated if the amount of the shareholding held by Creat Resources Holdings Ltd (CRHL), a subsidiary of Creat Group, in the issued share capital of Galaxy Resources fell below 19.99%, then, unless CRHL was issued additional shares such that CRHL maintained its 19.99% within two months of the dilution, a prepayment would be required such that the outstanding loan amount would be reduced in proportion to the dilution of CRHL from 19.99% within 20 days or on the next interest payment date, whichever is earlier. The facility also obligated the borrower to maintain a debt service reserve account to an amount at least equal to the principal and interest payment due on the next interest payment date. Galaxy Resources set aside $50 million USD in an equity account to fund interest prior to completion; on the first interest payment date post completion, 100% of the remaining funds in the equity account would then be used towards prepayment and the scheduled repayment amounts reduced proportionately. While there were no financial covenants in the facility, there were a number of undertakings, namely preventing Galaxy Resources from creating additional charges on all but select assets, incurring additional non-exempt debt, providing additional guarantees or disposing certain assets over all but select assets, and pay dividends of repay shareholder loans, except when allowed by the facility. This facility was secured by (i.e. collateralized against) security documents granted in favor of Bank of China (BOC) and its subsidiaries acting as Security Trustee pursuant to the security trust deed dated September 10, 2010; the security granted to BOC included a guarantee and indemnity granted by Galaxy Resources; a fixed and floating charge over all assets of Galaxy Resources Limited, Galaxy Lithium International Limited (Galaxy Resources' Hong Kong subsidiary), and Galaxy Lithium Australia Limited (Galaxy Resources' Australia subsidiary); an equitable mortgage or like encumbrance over Galaxy Resources' interests in subsidiaries; a charge over various project accounts held by Galaxy Resources, its Australian and Hong Kong subsidiaries, including the facility proceeds account, the mine disbursement account, the mine proceeds account, the equity account, and the debt service reserve account; a mortgage over the Mt Cattlin Project tenements; a real property mortgage over certain areas of Mt Cattlin; an assignment of security by Galaxy Resources' Hong Kong subsidiary over its interest in the security granted by Galaxy Lithium (Jiangsu) Co., Limited (Galaxy Resources' PRC subsidiary) to the Hong Kong subsidiary for the $10 million USD shareholder loan from Galaxy Resources Limited’s Hong Kong subsidiary to Galaxy Resources Limited’s PRC subsidiary, which included a mortgage over all assets of Galaxy Resources' PRC subsidiary, including the Jiangsu Lithium Carbonate Plant in Zhangjiagang, China, the plant area, project authorizations, and all other project documents to which Galaxy Resources Limited’s PRC subsidiary is a party; a charge over receivables in connection to any sale contract entered into by Galaxy Resources' PRC subsidiary and a third party; and an equitable mortgage over CRHL’s interest in 19.99% of the Galaxy Resources Limited’s shares. The accounts of Galaxy Resources pledged as security were worth $48,054,753 USD. The security to the lenders, separate from those pledged to BOC, included a grant of Galaxy Resources' interest in its process plant engineering, procurement and construction (EPC) contract with DMB Joint Venture and the mining services contract with Orionstone Pty Ltd in relation with Mt Cattlin and a put option requiring CRHL to purchase the outstanding debt from the lenders, exercisable during a four year period after September 22, 2010. The facility was fully drawn down on September 22, 2010. The loan was repaid in June 2011. The Mt Cattlin Spodumene Mine Project is located approximately 2 km north of the town of Ravensthorpe in Western Australia. It is wholly owned by Galaxy Resources Limited, which holds a series of tenements surrounding and including the mining lease M74/12. The project sought to construct a mine and minerals plant of pegmatite ore, which would then be processed to produce 137,000 tons per annum of 6% Li2O spodumene concentrate and a by-product of 56,000 lbs per annum of contained tantalum (Ta2O5) in concentrate. The spodumene concentrate would then transported by train to the Port of Esperance to be shipped to Zhangjiagang Port in China to be converted to lithium carbonate at Galaxy Resources' Jiangsu Lithium Carbonate Plant. The mine has an expected 15 year-life. Orionstone Pty Ltd was the EPC contractor responsible for project implementation. PM&J Contractors Pty Ltd served as the earthmoving contractor. TDS Pty Ltd served as drill and blast contractor. R&L Constructions Pty Ltd was responsible for the construction of the administration office and the workshop office complex. The Contract Power Group was responsible for the construction of the 5 MW diesel-fired power station for the plant. SGS Laboratories was contracted to construct the site laboratory. Southern Cross Electrical Engineers was responsible for site electrical and instrumentation construction. All approvals for mining, works, and clearing were received by June 2009. Construct was scheduled to begin in November 2009, and the mine was scheduled to begin operations in the third quarter of 2010. Construction began in November 2009. Early mining activities and production began in June 2010. The crushing circuit was commissioned in September 2010. Mine operations commenced on November 9, 2010. The first shipment of spodumene from Mt Cattlin was shipped in March 2011.