TORONTO, ONTARIO June 9, 2016, Sparton Resources Inc. (TSXV:SRI) ("Sparton" or the "Company") is pleased to announce that the full payment of RMB 15.265 million (approximately $C3.2 million) was received by the Company’s client for the commissioning of the Zhangbei Project's 8 Megawatt Hour Vanadium Flow Battery on June 7, 2016, from the battery's owner, State Grid North China Company Limited ("State Grid"). (Please see Sparton news release dated April 4, 2016 for background).
Commissioning Acceptance and Payment Confirmation
The Company's China operating subsidiary, Jiujiang Sparton Vanadium Trade and Tech Co. Ltd. ("JJSP"), had successfully completed commissioning of the battery and it was accepted by State Grid in late February 2016, at which time, State Grid was invoiced by JJSP’s client, the battery builder.
Proceeds of the payments will be disbursed by the client under a court-supervised payment process. After certain payments are deducted by the court, expected to be in the range of RMB13 million (approximately C$2.6 million), the balance (approximately C$600,000) will be paid to JJSP by its client. JJSP will then repay VanSpar, the Company’s funding vehicle for this project (see below for further details).
A three-year monitoring and maintenance program for the Zhangbei Project battery has been prepared and accepted by State Grid. This program will result in annual payments of approximately C$1.14 million, which will fully accrue to JJSP from its client. After deduction of annual expenses and estimated warranty costs (estimated at C$250,000) it is expected that payments of up to C$900,000 will accrue to JJSP and VanSpar annually under this program.
Funding
Funding for the commissioning work and ongoing maintenance has been arranged by VanSpar Mining Inc. ("VanSpar"), a 90.4% owned Sparton subsidiary. The funds were raised through an offering of convertible debentures which would, if the conversion feature is exercised by all of the current debt holders, reduce Sparton's ownership in VanSpar to approximately 84%, fully diluted. Funds raised by VanSpar were advanced to JJSP, which is 90% owned by VanSpar. JJSP, as a Chinese incorporated entity, has the commissioning and maintenance contract with the builder of the battery. Additional financing efforts by VanSpar are continuing to support the ongoing monitoring and maintenance of the battery. |
Company President, Lee Barker, commented:
"Payment by State Grid, after a rigorous commissioning program, is another positive step forward for the Company. The funds received will ensure coverage of repayment for the debt financing we arranged to support this work. The ongoing maintenance program revenue over the next 3 years will also provide cash flow. As an extension to our subsidiary's success in assisting with the commissioning and maintenance program, we are continuing to pursue the opportunity to become directly involved in this industry. Advanced negotiations are underway, related to funding and potential acquisition of an international vanadium battery manufacturing group in association with strategic partners. The payment deductions would be applied as a reduction to the purchase price of the battery manufacturer should the Company proceed with this acquisition. Both of these opportunities arose out of our activities in pursuing vanadium exploration and mining opportunities in China. Those vanadium exploration and mining objectives continue to be part of Sparton’s long-term plans."
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