Filo/ BHP/ Lundin

Overview

It is proposed that Filo, a TSX-listed CBCA corporation indirectly holding a large deposit in Argentina and Chile, will be acquired by a Canadian joint venture company (JVCo) to be held on a 50-50 basis indirectly by (TSX-listed) Lundin Mining and by a Canadian subsidiary (BHP) in the BHP Group (the parent’s primary listing is in Australia). Lundin Mining holds an adjacent property in Argentina (held indirectly by a Canadian subsidiary termed “Josemaria”).

A Contribution Agreement between Lundin Mining and BHP contemplates that Lundin Mining will contribute Josemaria to JVCo for its 50% interest and BHP will contribute US$690 million in cash for its 50% interest. Furthermore, however, they will jointly purchase all the Filo shares for consideration consisting of BHP and Lundin Mining cash of around $1.908 billion and $0.859 billion, respectively, and the issuance by Lundin Mining of around 92.1 million shares. The Filo shareholders can elect to receive cash or Lundin Mining shares, subject to proration to maintain the agreed mix. All the Filo shares (including the 5% stake already held by BHP and the 0.5% stake of Lundin Mining) will also be contributed to JVCo.

The plumbing to accomplish the final structure of JVCo holding all of Filo and Josemaria in general involves:

• BHP lending both the Filo acquisition cash and JV cash to Lundin Mining and receiving the "BHP notes";
• Lundin Mining then acquiring all the Filo shares (not already held by BHP and it) for the agreed cash and share consideration;
• Lundin Mining then contributing Filo (through intermediate Canadian holding companies) to JVCo in consideration for shares and the assumption of the BHP notes; and
• BHP converting the BHP notes into JVCo shares (as well as transferring its existing 5% interest in Filo to JVCo for JVCo shares);

so that, after the dust settles, JVCo is held on the agreed 50-50 basis.

Those Filo shareholders who elect to receive Lundin Mining shares are also required to receive a nominal amount of cash ($0.0001 per Filo share), so that they can only potentially receive rollover treatment if they qualify as taxable investors and request, within 60 days of the effective date of the CBCA plan of arrangement, that Lundin Mining jointly elect with them under s. 85.

Filo

Filo Corp., a CBCA corporation, is a Canadian exploration company focused on advancing its key project, Filo del Sol located in the San Juan province of Argentina and Region III, Chile. Its shares trade on the TSX and on First North in Sweden and are quoted on the OTCQX in the U.S.

BHP

BHP Investments Canada Inc., an Ontario corporation, is a wholly-owned subsidiary of BHP Group Limited. BHP Group Limited is the ultimate parent company of the BHP Group and has a primary listing on the Australian Securities Exchange. The BHP Group is a global diversified mining company that is one of the world’s leading producers of major commodities including iron ore, metallurgical coal and copper. BHP acquired an approximate 5% interest in Filo in 2022.

Lundin Mining

Lundin Mining Corporation, a CBCA corporation, is a diversified Canadian base metals mining company with operations and projects in Argentina, Brazil, Chile, Portugal, Sweden and the United States, primarily producing copper, zinc, gold and nickel. Its shares trade on the TSX and Nasdaq Stockholm. Lundin Mining has a 0.5% interest in Filo.

Josemaria

Josemaria Resources Inc., the CBCA corporation through which Lundin Mining holds the Josemaria project in Argentina, which adjoins the Filo del Sol project of Filo.

JVCo

6565522 Canada Inc., which will own Josemaria and Filo and will be directly or indirectly owned on a 50/50 basis by BHP and Lundin Mining.

Nemesia S.à.r.l.

Per a Google search, reputedly a private company controlled by trusts settled by the late Adolf H. Lundin. Nemesia S.à.r.l. is disclosed as holding 31.46% of the 134.7 million outstanding shares of Filo.

Maximum BHP Cash

$1.908 billion, subject to adjustments including increases where Filo options are exercised.

Maximum Lundin Mining Cash

$0.859 billion, subject to adjustments including increases where Filo options are exercised.

Maximum Share Consideration

92.1 million Lundin Mining shares, subject to adjustments including increases where Filo options are exercised.

Consideration for Filo shares

Filo shareholders (other than those dissenting and the BHP/Lundin purchaser parties or their affiliates) will receive, as consideration for their shares, at their election:

(i) $33.00 in cash for each Filo Share (the “Cash Consideration”), or

(ii) 2.3578 Lundin Mining Shares for each Filo Share held (the Share Consideration), plus for each whole Lundin Mining Share issued to such shareholder, $0.0001 in cash (the “Share Consideration Cash”), or

(iii) a combination of (i) and (ii) in exchange for the aggregate number of Filo Shares in respect of which such election is made.

The Cash Consideration and Share Consideration are subject, in each case, to pro-ration based on a maximum cash consideration of approximately $2,767 million (the sum of the Maximum BHP Cash and the Maximum Lundin Mining Cash) and a maximum of approximately 92.1 million Lundin Mining Shares (the Maximum Share Consideration).

Contribution Agreement

Under the Contribution Agreement, Lundin Mining agreed to contribute Josemaria to JVCo, in consideration for Lundin Mining’s 50% interest in JVCo; and BHP agreed to subscribe US$690 million in cash (subject to certain adjustments), in consideration for its 50% interest. The Contribution Agreement further provides for Lundin Mining to continue the funding of Josemaria on a 100% basis until December 31, 2024.

CBCA Plan of Arrangement

1. The BHP shareholder investor rights will be deemed terminated;
2. BHP will advance to Lundin Mining an amount in cash equal to the amount of the BHP Josemaria Note (generally, US$690 million, based on the Contribution Agreement) and an amount in cash equal to the BHP Filo Note (generally equal to the Maximum BHP Cash amount) in consideration for Lundin Mining issuing such notes (the “BHP Notes) to BHP.
3. Each Filo Share held by a dissenting shareholder will be deemed to be transferred to Filo for its fair value.
4. Out-of-money Filo options will be cancelled and in-the-money options will be deemed to be transferred to Filo in consideration for Filo shares having a value equal to the in-the-money value.
5. Each Filo Share (other than those held by those dissenting and the BHP/Lundin purchaser parties or their affiliates) will be transferred to Lundin Mining for the cash and share consideration described above.
6. All Filo Shares of Lundin Mining will be transferred to Lundin Mining Holdco (a CBCA corporation) on a s. 85(1) rollover basis in consideration for Lundin Mining Holdco shares and the assumption of the BHP Notes.
7. All Filo Shares of Lundin Mining Holdco will be transferred on a s. 85(1) rollover basis to JVCo Holdco (a CBCA corporation) in consideration for JVCo Holdco shares and the assumption of the BHP Notes and the issuance of the “JVCo Holdco Note” in a mutually-agreed amount.
8. All Filo Shares of JVCo Holdco will be transferred to JVCo on a s. 85(1) rollover basis in consideration for a specified number of JVCo shares and the assumption of the BHP Notes.
9. All Filo shares held by BHP will be transferred to JVCo in consideration for a specified number of JVCo shares.
10. JVCo shares having a value equal to the BHP Notes will be issued to BHP in satisfaction thereof.

Canadian tax considerations

The disposition of the Filo shares will not occur on a rollover basis except that Filo shareholders who are Eligible Holders (residents other than tax exempts), non-residents whose shares are not TCP and are not “treaty-protected property” and partnerships any member of which is such a person may request within 60 days of the effective date of the arrangement that Lundin Mining execute a joint election under s. 85.

Swedish tax considerations

The Swedish rules on tax-free rollovers for a share for share exchange will not apply.

Overview

It is proposed that Filo, a TSX-listed CBCA corporation indirectly holding a large deposit in Argentina and Chile, will be acquired by a Canadian joint venture company (JVCo) to be held on a 50-50 basis indirectly by (TSX-listed) Lundin Mining and by a Canadian subsidiary (BHP) in the BHP Group (the parent’s primary listing is in Australia). Lundin Mining holds an adjacent property in Argentina (held indirectly by a Canadian subsidiary termed “Josemaria”).

A Contribution Agreement between Lundin Mining and BHP contemplates that Lundin Mining will contribute Josemaria to JVCo for its 50% interest and BHP will contribute US$690 million in cash for its 50% interest. Furthermore, however, they will jointly purchase all the Filo shares for consideration consisting of BHP and Lundin Mining cash of around $1.908 billion and $0.859 billion, respectively, and the issuance by Lundin Mining of around 92.1 million shares. The Filo shareholders can elect to receive cash or Lundin Mining shares, subject to proration to maintain the agreed mix. All the Filo shares (including the 5% stake already held by BHP and the 0.5% stake of Lundin Mining) will also be contributed to JVCo.

The plumbing to accomplish the final structure of JVCo holding all of Filo and Josemaria in general involves:

• BHP lending both the Filo acquisition cash and JV cash to Lundin Mining and receiving the "BHP notes";
• Lundin Mining then acquiring all the Filo shares (not already held by BHP and it) for the agreed cash and share consideration;
• Lundin Mining then contributing Filo (through intermediate Canadian holding companies) to JVCo in consideration for shares and the assumption of the BHP notes; and
• BHP converting the BHP notes into JVCo shares (as well as transferring its existing 5% interest in Filo to JVCo for JVCo shares);

so that, after the dust settles, JVCo is held on the agreed 50-50 basis.

Those Filo shareholders who elect to receive Lundin Mining shares are also required to receive a nominal amount of cash ($0.0001 per Filo share), so that they can only potentially receive rollover treatment if they qualify as taxable investors and request, within 60 days of the effective date of the CBCA plan of arrangement, that Lundin Mining jointly elect with them under s. 85.

See full summary under Shares for Shares and Cash.