TORONTO, ONTARIO--(Marketwire - Feb. 20, 2013) - Ethiopian Potash Corp. (the "Company" or "EPC") (TSX VENTURE:FED) is pleased to announce that Danakil Potash Corporation ("Danakil Corp.") has agreed to terms for the advance of US$1.5 million to G and B Central African Resources Ltd. ("G&B"), the owner of the Danakil Property, to be used towards immediate exploration and the continued development of the Danakil Property. Funds will initially be applied to re-establishing operations at site and completion of work related to the upgrading of the existing resource estimate in the South West corner of the property.
Danakil Corp. has agreed to advance US$1.5 million to G&B by way of a loan (the "Loan"), which will be guaranteed by G&B's sole shareholder, ZRH Nominees (0105) Ltd. ("ZRH"), and secured by a pledge of all of the shares of G&B owned by ZRH. Advance of the Loan is expected to occur in tranches over a 30-day period, with the initial advance of US$200,000 to be made immediately following signing.
The Loan will bear interest at a rate of 10% per annum, and will become repayable in full (together with accrued interest) on August 18, 2013. Events of default under the Loan include the Danakil Property ceasing to be held in good standing, non-payment on maturity and other customary events of default. Danakil Corp.'s ability to enforce its security over the G&B shares will be restricted until June 30, 2013, unless EPC fails to obtain the approval of its shareholders for the Danakil Joint Venture contemplated by the memorandum of understanding (the "MOU") described in EPC's press release dated January 30, 2013 (in which case Danakil Corp. will be entitled to enforce its security immediately following the date of such meeting). In the event that any draw-down request by G&B is not satisfied, Danakil Corp.'s security over the G&B shares will terminate immediately and the funds advanced under the Loan as at the termination date will become repayable at maturity of the Loan.
The MOU contemplates (among other transactions) G&B and ZRH waiving the requirement for a feasibility study (the "Waiver") under the option agreement (the "Option Agreement") among EPC, G&B and ZRH in order to enable early exercise of EPC's option (the "Option") over the G&B shares and Danakil Corp. acquiring a 70% (with EPC retaining a 30% interest) in the Danakil Property pursuant to the Danakil Joint Venture. Repayment of the Loan will be set-off against Danakil Corp.'s US$1.5 million subscription into the JVCo (as described in EPC's press release dated January 30, 2013).
The Waiver and establishment of the Danakil Joint Venture will be subject to satisfaction of all applicable conditions precedent, which will include (but not be limited to) the restructuring of all outstanding debt of G&B (other than the Loan) incurred on behalf of EPC in connection with the Option, due diligence, the execution of mutually satisfactory definitive agreements among the parties and obtaining all required approvals, including but not limited to TSXV and shareholder approvals.
The parties to the MOU have agreed to extend the deadline for the execution of the agreements contemplated therein to April 1, 2013. All third-party and regulatory approvals, as may be required, must be obtained by no later than June 30, 2013. There can be no assurance that the definitive agreements will be entered into within the time required and/or that the transactions contemplated in the MOU will be consummated. Details regarding the transactions contemplated by the MOU are described in EPC's press release dated January 30, 2013.
The Company will be calling an annual and special meeting of its shareholders to consider and approve the transactions described in the MOU following the execution of all relevant definitive agreements, or if definitive agreements are not entered into on or before April 1, 2013 to consider and approve the wind-up of the Company.
The Company also announces the grant of 250,000 options to one of its directors pursuant to the Company's stock option plan. Each option entitles the holder to acquire a common share of EPC at a price of $0.10 per share for a period of five years.
About Ethiopian Potash Corp.
Ethiopian Potash Corp. (TSX VENTURE:FED) is a Canadian company based in Toronto, Ontario and Addis Ababa, Ethiopia.
On behalf of the Board of Directors
George Roach, CEO & Director
This press release may contain forward-looking statements based on assumptions, uncertainties and management's best estimates of future events. All statements that address future activities, events or developments that the Company believes, expects or anticipates will or may occur (including, but not limited to, the timing and extent of advances of the proceeds of the Loan to G&B, the expected use of proceeds and planned work program, the potential for and timing of the early exercise of the Option, the Danakil Joint Venture and the restructuring of outstanding debt, as well as the expected terms and conditions of each such transaction) are forward-looking information. Forward-looking information is based upon assumptions by management that are subject to known and unknown risks and uncertainties and other factors that may cause actual results to differ materially from those expressed or implied by the forward-looking information. Factors that may cause actual results to vary materially include, but are not limited to, Danakil Corp. being unable to satisfy G&B's draw-down requests under the Loan, the failure to satisfy all conditions precedent within the requisite time, including (without limitation) the entering into of all necessary definitive agreements, obtaining the requisite third-party consents and regulatory and shareholder approvals, and changes in general economic conditions or conditions in the financial markets. Such forward-looking information is based on a number of assumptions, including but not limited to, the ability of the parties to fulfill their respective obligations under the Loan, the ability of the parties to negotiate and enter into definitive agreements, the parties being satisfied with their respective due diligence investigations, there are no material changes to the terms of any proposed transaction, completion of the planned work will result in an upgrade of the resource estimate on the property and no significant decline in existing general business and economic conditions. There can be no assurance that the Company will be successful in negotiating and entering into all definitive agreements or that the Option will be exercised or that the Danakil Joint Venture will be formed. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligations to update publicly or otherwise revise any forward-looking information, except as may be required by law. For a more detailed discussion of such risks and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, refer to the Company's filings with the Canadian securities regulators available on www.sedar.com.