Falco executes operating license, indemnity agreement with Glencore Canada

Falco Resources (FPRGF) has entered into an operating license and indemnity agreement with Glencore Canada Corporation (GLNCY) pursuant to which Glencore granted to Falco, subject to the terms and conditions contained in the OLIA, a license to utilize a portion of its lands, which Falco will use to develop and operate Falco’s wholly-owned Horne 5 project located in Rouyn-Noranda. The OLIA was entered into further to the preliminary agreement in principle with Glencore announced on June 28, 2021. The OLIA establishes the framework to govern Falco’s development and operation of its world-class Horne 5 Project, taking into account its overlap with and close proximity to Glencore’s copper smelting operations at the Horne smelter in Rouyn-Noranda. The key features of the OLIA include: The creation of a Technical Committee comprised of two representatives of each of Falco and Glencore, to determine ongoing operating parameters within which Falco can conduct operations of the Horne 5 Project so as not to interfere with the Horne Smelter, minimize and control risks to the Horne Smelter and where necessary adopt mitigation measures. The creation of a Strategic Committee comprised of two representatives of each of Falco and Glencore, to collaborate and exchange information in connection with the development and operation of the Horne 5 Project, its interaction with the Horne Smelter and community and regulatory matters, and to capitalize on the many synergies between the parties. The right of Glencore to appoint one nominee to Falco’s board of directors. The adoption of principles pursuant to which Glencore and its Horne Smelter retain priority over the operations of the Horne 5 Project as contemplated in the OLIA and must be afforded protection from incremental risks and losses occasioned by Falco’s Horne 5 Project. Financial assurances, guarantees and indemnification to be provided by Falco to Glencore to cover incremental risks and losses to Glencore and its Horne Smelter arising from Falco’s operations and certain other matters specified in the OLIA. The right of Glencore to require remediation, suspension or other risk-mitigation during the operations of Falco’s Horne 5 Project to protect Glencore’s Horne Smelter and related operations, subject to expert intervention and dispute resolution mechanisms set out in the OLIA. As previously disclosed, starting in November 2020, Glencore and Falco have conducted an intensive Work Program to address concerns and mitigate potential risks to Glencore’s Horne Smelter. Key components of the Work Program were established by Glencore after a due diligence review of the Horne 5 Project by the parties’ technical teams, and included geotechnical advancement, water management and synergies between the Horne 5 Project and the Horne Smelter. Falco and Glencore have made material progress on the key components of the Work Program and will continue to collaborate to finalize outstanding matters for the Horne 5 Project and proceed with dewatering, construction and operation of the Horne 5 Project, subject to the conditions set out in the OLIA. The ability of Falco to commence certain conditioned activities under the OLIA, including dewatering and mining activities of the Horne 5 Project, is subject to Falco providing Glencore at the relevant time, financial assurances in the form of letters of credit, performance guarantee or similar guarantees. The OLIA provides that financial assurances must be posted by Falco in the amount of C$40 million for the dewatering phase, increasing to C$80 million during the mining phase and decreasing to between C$10 million and C$20 million during the closure and remediation phases, subject to certain conditions and inflation-related adjustments after a specified number of years. Glencore will have the right to draw upon such financial assurances in the event that it incurs losses subject to indemnification by Falco under the OLIA. The OLIA also requires Falco to provide Glencore specified coverage under insurance policies to address certain risks to Glencore and its Horne Smelter arising from Falco’s Horne 5 Project, before the commencement of dewatering and mining activities. Falco is confident based on its discussions with insurance brokers and underwriters that such coverage can be obtained on reasonable terms when required.