IN THE SUPREME COURT OF BRITISH COLUMBIA. IN THE MATTER OF THE COMPANIES CREDITORS ARRANGEMENT ACT R.S.C. 1985, c. C-36, AS AMENDED AND

Transcription

1 IN THE SUPREME COURT OF BRITISH COLUMBIA No. S Vancouver Registry IN THE MATTER OF THE COMPANIES CREDITORS ARRANGEMENT ACT R.S.C. 1985, c. C-36, AS AMENDED AND IN THE MATTER OF THE BUSINESS CORPORATIONS ACT S.B.C., 2002, c.57 AS AMENDED AND IN THE MATTER OF YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT [Report on the Plan of Compromise and Arrangement] Petitioner August 13, 2015

2 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 TABLE OF CONTENTS 1. INTRODUCTION UPDATE ON MINE OPERATIONS REQUEST FOR STAY EXTENSION AND UPDATED CASH FLOW STATEMENT PROPOSED PLAN OF COMPROMISE AND ARRANGEMENT (THE PLAN ) PROPOSED MEETING ORDER MONITOR S VIEW ON THE PROPOSED PLAN UPDATE ON THE SOLICITATION PROCESS DIRECTIONS AND RELIEF SOUGHT CONCLUSIONS OF THE MONITOR APPENDICES A. Cash Flow Statement updated to October 16, 2015 B. Proposed Plan of Compromise and Arrangement

3 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, INTRODUCTION On March 13, 2015, on the application of Yukon Zinc Corporation (the Company ), the Supreme Court of British Columbia (the Court ) made an order (the Initial Order ) granting the Company protection from its creditors pursuant to the Companies Creditors Arrangement Act (the CCAA ) and appointed PricewaterhouseCoopers Inc. as the Monitor of the Company (the Monitor ). On April 17, 2015, the Court: Approved an amendment to the Initial Order (the Amended and Restated Initial Order or ARIO ), which among other things, extended the stay of proceedings against the Company until June 12, 2015; Authorized the Company to borrow up to $5 million under an Interim Lending Facility and granted an Interim Lender s Charge of up to $5 million plus all interest, fees, costs and other amounts payable under the Interim Lending Agreement between the Company and Maynards Financial Limited Partnership, dated March 18, 2015; Authorized the Monitor, with the assistance of the Company and a Financial Advisor, to proceed with a process for the solicitation of all offers to invest in the Company or to purchase all or any part of the Company s assets, whether as a going concern or otherwise (the Solicitation Process ); and Established the Administration Charge, the Interim Lender s Charge, the Director s Charge, and the Financial Advisor s Charge (the CCAA Charges ). On June 12, 2015, the Court granted an Order that: Extended the stay of proceedings under the ARIO to June 26, 2015; and Authorized the Company to make further draws on the Interim Lending Facility (as defined in the ARIO) prior to June 26, 2015, provided the principal amount advanced does not exceed $3 million. 1

4 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 On June 26, 2015, the Court granted the Claims and Contract Process Order (the CCPO ) which among other things: Extended the stay of proceedings under the ARIO to August 14, 2015; Required the Company to advise the Monitor in writing, by no later than July 31, 2015, whether the Company would file a plan of compromise and arrangement and whether Jinduicheng Canada Resources Corporation Limited ( JDC Canada ) was supportive of the plan of arrangement; Required the Company to bring an application to Court, by no later than August 14, 2015, to seek authorization to distribute the proposed plan of compromise and arrangement to creditors and to convene a meeting of creditors to consider and vote on the proposed plan if the Company intended to carry out its own restructuring; Required the Company to not make any payment or expenditure in excess of $5,000 without first obtaining the consent of the Monitor; Authorized the creation of the Mine Employee Charge and the payment of $90,000 into the Monitor s trust account to secure the charge; Authorized the Claims and Executory Contract Identification Process, as defined within the CCPO; and Empowered the Monitor to review, consider and negotiate offers made for investment or for the purchase of all or part of the Company s assets ( Offers ), and to accept Offers on behalf of the Company which would have to be conditional on: The Company advising the Monitor by July 31, 2015 that it would be filing a plan of compromise and arrangement; and The Company making a Court application by August 14, 2015 to seek authorization to distribute the proposed plan to creditors and to convene a meeting of creditors to vote on the proposed plan. 2

5 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 On July 30, 2015, the Court approved an Order (the Disposal Order ) authorizing the Company to dispose of redundant or non-material leased equipment with the Monitor s consent. The Monitor has previously filed eight reports and one supplemental report with the Court. The purpose of this report, the Monitor s Ninth Report to Court, is to advise the Court with respect to the following matters which are anticipated to be addressed at the application scheduled for August 14, 2015: The proposed plan of compromise and arrangement (the Plan ); The proposed Meeting Order (as hereinafter defined); The continuation of the Solicitation Process; and The Monitor s views and recommendations with respect to the foregoing. Unless otherwise stated, all monetary amounts noted herein are expressed in Canadian dollars. Capitalized terms not otherwise defined herein are as defined in previous reports of the Monitor. The Monitor has created a website at All prescribed materials filed by the Company and the Monitor relating to this CCAA proceeding are available to creditors and other interested parties in electronic format on the Monitor s website. The Monitor continues to make regular updates to the website to ensure that creditors and interested parties are kept current and to add prescribed materials as required. 2. UPDATE ON MINE OPERATIONS The Company is continuing the care and maintenance of the Mine. The underground mine remains closed and there are no current plans to re-open or access the underground mine although the Company is continuing to monitor the underground water levels to ensure that any issues are identified in a timely manner. 3

6 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 The Company has spent considerable time and effort preparing the buildings and equipment for an extended period of inactivity as it is the Company s intention to preserve the surface areas of the Mine in a temporary closure state until, among other things, metal prices improve. The Company continues to work with the Yukon department of Energy, Mines and Resources and the Yukon Workers Compensation Health and Safety Board to ensure environmental and safety compliance of the Mine. Since the Monitor last reported on these activities in its 5 th Report dated June 10, 2015, the Company has: Moved the remaining ore and waste piles to a lined disposal site that discharges into the Mine s tailings pond; Completed all outstanding water sample testing; and Completed its annual tailings storage facility and earth barrier inspection. As required under its Quartz Mining License, the Company submitted an updated Temporary Closure Plan and an updated Permanent Closure Plan to the Yukon government prior to the July 17, 2015 deadline. We are advised that the Yukon government is currently assessing the Company s submissions. 3. REQUEST FOR STAY EXTENSION AND UPDATED CASH FLOW STATEMENT The Company s stay of proceedings expires on August 14, The Company has sought an extension of the stay of proceedings to October 15, 2015 and has updated its cash flow forecast as required. Attached as Appendix A is the Company s Cash Flow Statement updated as at August 7, The Cash Flow Statement provides actual results from March 13 to August 7, 2015, and forecasted weekly amounts from August 8 to October 16, The Company s actual net cash flow from June 20 to August 7, 2015 was $380,000 greater than forecast, primarily as a result of lower than forecasted Mine surface maintenance costs and higher than forecasted foreign exchange gains from USD cash on hand. 4

7 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 As at August 7, 2015, the Company had cash on hand available for use totaling $4.4 million. In addition, the Company had restricted cash totaling $553,000, comprised of the following: Post-filing inventory sales of $463,000; and A fund of $90,000 to secure the Mine Employees Charge. Updated forecast from August 8 to October 16, 2015 The significant items and the assumptions used to prepare the forecast to October 16, 2015 include the following: There are no forecasted additional borrowings from the Interim Lending Facility. The principal loan balance remains at $2.2 million and the loans matures on September 15, The Company is forecasting to repay the entire Interim Lending Facility, including accrued fees and interest estimated at $231,000, on the maturity date using existing cash on hand; The Company is forecasting to receive approximately $2.4 million from JDC Canada by September 25, 2015 to fund the Company s immediate operations. This amount does not include the cash required to fund the Plan and to exit CCAA, which are also being funded by JDC Canada; With respect to ongoing operations and the required working capital, the Company is in the process of negotiating a credit facility with JDC Canada that will allow it to draw funds on an as needed basis; The Company is forecasting to collect $304,000 with respect to the final settlement of all outstanding post-filing inventory sales. The proceeds from all post-filing inventory sales continue to be held by the Monitor, pending further order of the Court; The Company was contacted by the Red Chris mine to assist with the sourcing of a critical piece of equipment that had failed at the Red Chris mine. The Company had an identical spare unit that was not required for Mine operations and agreed 5

8 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 to sell it to the Red Chris mine for $10,000. The Monitor will hold the proceeds once received and may seek further direction of the Court on the matter; The Company is forecasting to receive $34,000 representing the balance of the Excess Funds that are being held by the Bank of Communications Co., Ltd. ( BOCC ) San Francisco branch subject to final settlement of legal fees which BOCC are entitled to be reimbursed under its loan agreement with the Company; The Company is forecasting to spend $1.1 million on care and maintenance activities. The forecast includes a number of one-time expenditures at the end of September / early October 2015, including the following: $340,000 for the bulk purchase of fuel to sustain the Mine until the spring of 2016; $116,000 for an engineer, a metallurgist and a chemist to assist with issues related to the startup of the Mine at a future date as well as a mechanic to repair and service equipment prior to the winter; and $90,000 for the Mine employee retention bonuses payable at the end of September. The Company s current insurance policies expire on September 30, The Company is in discussions with its insurance broker to extend the existing policies for an additional three months for $225,000, which is the same cost as the previous three month extension; Corporate facilities costs are forecasted to be $80,000 during the period. Corporate staff wage and benefit costs are forecasted to be $261,000 for 5 semimonthly pay periods. Other overhead costs and contingencies are forecasted to be $140,000; CCAA restructuring costs are estimated to be $949,000 for the period; and Cash on hand as at October 16, 2015 is forecasted to be $1.5 million, with $777,000 being restricted and held in trust by the Monitor as discussed previously. 6

9 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, PROPOSED PLAN OF COMPROMISE AND ARRANGEMENT (THE PLAN ) The Company has prepared the Plan and will be seeking the Court s approval to file its Plan and for authorization to present the Plan to its creditors for consideration. A copy of the Plan is attached as Appendix B. Capitalized terms used in Sections 4-6 of this Report, and not otherwise defined, have the same meanings as set forth in the Plan and the Meeting Order, a copy of which is attached as Schedule B to the Company s Notice of Application dated August 11, Creditor classes There is one voting class of creditors under the Plan, compromising of the Affected Creditors. Creditors of the Company not affected by the Plan are defined therein as the Unaffected Creditors. Unaffected Creditors The Plan does not affect or compromise the claims and rights of Unaffected Creditors and no creditor holding an Unaffected Claim shall be entitled to vote on the Plan or receive any distributions under the Plan. The Company has advised that JDC Canada will be providing additional funding to address the claims of Unaffected Creditors as set out below. Unaffected Creditors consist of the following: Creditors with claims that relate to post-filing obligations. The Company will continue to pay all post-filing creditors in the normal course in accordance with the ARIO; Claims secured by the CCAA Charges. As noted above, the Company anticipates paying the amounts secured by the Interim Lender s Charge on September 15, 2015 when such amounts become due. The Company has been making regular payments to the beneficiaries of Administration Charge, and the Company anticipates paying any amounts secured by this charge and the Financial 7

10 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 Advisor s Charge upon implementation of the Plan. To date there is nothing owing under the Directors Charge; Any claim secured by a lien ranking in priority to the JDC Canada Security Interest. As known to the Company and the Monitor, creditors with these claims consist of equipment lessors and possibly lien claimants. The Company has advised the Monitor that it is dealing with the equipment lessors on a case by case basis and, following the Disposal Order, has entered into discussions with certain equipment lessors for the return of their equipment. Lessors retain their rights to claim against the Company under their equipment leases. The determination of certain lien claims remains outstanding with respect to both the validity of the lien and the quantum of the liened amount. Lien claims will be determined on a case by case basis and, to the extent these claims are determined (by agreement or Court order) to be valid liens ranking in priority to the JDC Canada Security Interest, they will be paid in full upon implementation of the Plan or such later date as the validity and quantum of their lien is determined. To the extent an amount is determined to be owing to a lien claimant, but is not secured by a valid lien in priority to the JDC Canada Security Interest, the lien claimant will be entitled to distributions under the Plan in the same manner as the Affected Creditors. Lien claimants with disputed claims will be permitted to make the Cash Election or accept the Assignment Offer as those terms are defined and discussed in paragraphs 4.9 and 4.11, below; The claims of JDC Canada, which include: A claim for $596 million with respect to its secured loans to the Company; and A claim for $6.6 million with respect to a miner s lien that was assigned to JDC Canada by Procon Mining and Tunneling Ltd. The claim of Ross River Dena Council, which the Company intends to pay in full upon Plan implementation; 8

11 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 The claim of the Yukon Government, department of Energy, Mines and Resources in respect of the unfunded security obligations in connection with the Company s quartz mining license, which the Company intends to pay in full upon Plan implementation; The claim of Shaanxi Zinc Industry Co. Ltd., which will not be paid under the Plan; and Mine Employees to the extent their claim is secured by the Mine Employee Charge. These employee obligations are to be paid at the end of September 2015 from funds held in trust by the Monitor for that purpose. Affected Creditors As set forth in the Plan, Affected Creditors are those creditors with proven claims against the Company, or its Directors or Officers, which arose: Prior to the CCAA proceedings (defined in the Plan as Pre-Filing Claims ); and Out of the restructuring activities of the Company including the disclaimer, termination, or breach of any contract or agreement with the Company after the commencement of the CCAA proceedings (defined in the Plan as Restructuring Claims ). The Monitor understands that the Company is in discussions with certain parties regarding a withdrawal of the notices of disclaimer issued by the Company to those parties under s. 32 of the CCAA. The Monitor is generally supportive of the Company s efforts in this respect as it understands that withdrawing the notices of disclaimer will support the overall restructuring efforts of the Company. There are two Affected Claims from the Company s management: A claim from Jing You Lu, the Company s CEO, for loans of $121,396 advanced to the Company in January 2015 to cover payroll and bank interest; and Ai Hua Dang, the Company s COO, for loans of $74,124 advanced to the Company in December 2014 to cover payroll and bank interest. 9

12 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 These claims will be compromised under the Plan in the same manner as all other Affected Claims. There remains an issue as to whether these claims will be voted under the Plan and if so, whether these claims should be permitted to vote. The Monitor is discussing this issue with the Company. Proposed payments to Affected Creditors under the Plan Convenience Creditors: Convenience Creditors are all Affected Creditors with claims equal to or less than $5,000 and all Affected Creditors with Employee Claims. All Convenience Creditors will receive a distribution of 100% of their Affected Claim and will be deemed to have voted in favour of the Plan. Cash Election Creditors Affected Creditors holding claims in excess of $5,000 may elect to reduce their claim to $5,000 by making a Cash Election. Creditors who select this option are defined in the Plan as Cash Election Creditors. Cash Election Creditors will receive a distribution of $5,000 under the Plan and will be deemed to have voted in favour of the Plan for the entire amount of their Affected Claim. Affected Creditors seeking to make the Cash Election must do so by 5:00pm on August 31, 2015, in accordance with the procedure set forth in the Meeting Order. For greater clarity the Monitor provides the following example: If an Affected Creditor has a claim of $9,000, it can make the Cash Election to receive a distribution of $5,000 and in return will have been deemed to vote its entire $9,000 Affected Claim in favor of the Plan. If the same party chooses not to make the Cash Election, it is entitled to vote and will receive the percentage distribution as outlined in paragraphs 0 and 4.11 below. 10

13 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 Eligible Creditors: Affected Creditors with claims greater than $5,000 that do not make the Cash Election are Eligible Creditors. Eligible Creditors are entitled to a distribution of 7.5 per dollar of claim and will be entitled to vote for or against the Plan as they deem appropriate. Eligible Creditors will also be entitled to accept the Assignment Offer and become Assignment Creditors. Assignment Creditors: Eligible Creditors are eligible to accept the Assignment Offer provided by the Funder, JDC Canada. Eligible Creditors that accept the Assignment Offer are defined in the Plan as Assignment Creditors. Assignment Creditors are entitled to 4 per dollar of their claim in addition to the recoveries available to them under the Plan. Accordingly, Assignment Creditors will receive distributions totaling 11.5 per dollar of claim and will be deemed to have voted in favour of the Plan for the full amount of their Affected Claim. Eligible Creditors seeking to accept the Assignment Offer must do so by 5:00pm on August 31, 2015, in accordance with the procedure set forth in the Meeting Order. The Assignment of the Assigned Claims will complete upon implementation of the Plan and Assigned Claims will not be compromised by the Plan. While claims assigned to JDC Canada would generally not be entitled to vote in favour of the Plan pursuant to s. 22(3) of the CCAA, the Monitor notes that the Assignment Offer appears to be designed to preserve certain tax benefits and the effect on creditors is not different than if the Company had agreed to pay 11.5 per dollar of claim. Accordingly, the Monitor does not believe the Assignment Offer prejudices creditors and does not object to its inclusion in the Plan. 11

14 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 Other key terms of the Plan include: The implementation of the Plan is subject to the satisfaction or waiver of certain Conditions Precedent which must be satisfied or waived by the Company on or before October 2, 2015, unless a later date is consented to by the Monitor and the Funder, JDC Canada. The Conditions Precedent are set forth at section 6.1 of the Plan and include: Prior to the Effective Date there shall have been no Material Adverse Effect; The Plan shall have been approved by the Required Majorities of the Affected Creditor Class; The Sanction Order shall have become a Final Order; All agreements and other documents and instruments relating to this Plan shall be in form and content satisfactory to the Funder; All conditions precedent to the Loan Agreement between the Company and JDC Canada shall be satisfied or withdrawn by the Funder. The Monitor has been advised that the Loan Agreement is in the process of being finalized and is anticipated to have conditions precedent which mirror the Plan. The terms of the Loan Agreement as the associated funding from JDC Canada are among the most important factors for Plan implementation; The Petitioner shall have taken all necessary corporate actions and proceedings in connection with this Plan; All agreements and documents necessary to implement and give effect to this Plan shall have been executed and delivered by all relevant Persons; and 12

15 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 No action shall have been instituted and be continuing on the Effective Date for an injunction to restrain, a declaratory judgment in respect of, or damages on account of, or relating to, this Plan. Upon satisfaction or waiver of the Conditions Precedent, the Monitor shall file with the Court a certificate confirming this and confirming that the Plan is capable of being implemented forthwith. Payment to Affected Creditors will be made on the Effective Date which is expected to occur on before October 2, The Plan provides for the release of certain Released Parties from all claims relating to (among other things) the Plan. The Released Parties include the Company and its employees, directors, officers, legal and financial advisors, as well as the Monitor and its legal advisors. 5. PROPOSED MEETING ORDER At the Court application scheduled for August 14, 2015, the Company will be seeking the Meeting Order which, among other things, accepts the Plan for filing and authorizes the Company to distribute the Plan to Affected Creditors and convene a meeting of the Affected Creditors (the Meeting ) to vote on the Plan. 13

16 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 A summary of the proposed timelines going forward are set out below: Timeframe August 14, 2015 By August 17, 2015 August 31, 2015 at 5:00pm September 2, 2015 at 10:00am September 10, 2015 September 23, 2015 October 2, 2015 Activity Meeting Order granted. Meeting Materials posted to the Monitor s website and sent to Affected Creditors. Deadline to submit Proxy forms, Cash Election Notices and Assignment Election Notices to the Monitor. Meeting. Monitor s report on the vote completed and filed with the Court. Sanction Application. Effective Date date which all Conditions Precedent must be satisfied or waived. Distribution to Affected Creditors. October 15, 2015 Stay of Extension expires. By no later than August 17, 2015, the Monitor shall post on its website the Meeting Materials, which include: The Assignment Election Notice; The Cash Election Notice; The Notice to Affected Creditors; The Plan Information Letter; The Proxy; The Plan; 14

17 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 The Monitor s 9th Report dated August 13, 2015; and A copy of the Meeting Order. The Monitor is required to send the Meeting Materials to each Affected Creditor on or before August 17, The Monitor shall publish the Notice to Affected Creditors in the Vancouver Sun and the Yukon News as soon as practicable following the issuance of the Meeting Order. The proposed Meeting Order authorizes the Monitor to chair the Meeting on September 2, 2015 at 10:00am at the offices of Fasken Martineau DuMoulin LLP, Burrard Street, Vancouver, B.C. Affected Creditors may either vote in person at the Meeting or, in advance of the Meeting, by submitting a completed Proxy in the form contained in the Meeting Materials. Proxies must be received by the Monitor by 5:00pm on August 31, Votes required to pass the Plan In order for the Plan to be accepted by the Affected Creditors, both of the following tests must be met: Voting Affected Creditors (including those deemed to be voting) representing a majority in number (i.e. 50% +1) vote in favour of Plan; and Voting Affected Creditors (including those deemed to be voting) representing two-thirds (2/3) in value of the Affected Creditors vote in favour of the Plan. The Meeting Order provides that if the Plan is approved by the Affected Creditors at the Meeting, the Company will seek the Court s approval of the Plan by way of a Sanction Order at a Court application on September 23, On or before September 10, 2015, the Monitor will report to the Court on the results of the vote at the Meeting and any other matter which the Monitor considers relevant in regards to the Sanction Order application. 15

18 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 Plan Implementation If the Plan is approved by the Affected Creditors and the Court and the conditions precedent are met including, most importantly, funding from JDC Canada, on the Effective Date, all Affected Creditors will receive the distributions they are entitled to under the Plan and the Assignment Offer. If implemented, the Plan will be binding in accordance with its terms on the Effective Date and shall constitute: A full, final and absolute settlement of the rights of all Affected Creditors; and An absolute release and discharge of all indebtedness, liabilities and obligations of the Petitioner of or in respect of the Affected Claims that are not Assigned Claims. 6. MONITOR S VIEW ON THE PROPOSED PLAN The Monitor supports the Company s proposed Plan. In the Monitor s view the Plan provides meaningful recovery to the Affected Creditors. In particular, the Monitor notes that the Plan provides former employees of the Company and small balance creditors with full repayment of the amounts owing to them for their Proven Claims. The Monitor estimates that the overall amount payable to the Affected Creditors under the Plan will be approximately $4.5 million, which amount is being funded by JDC Canada. On average, creditors will receive a 15% recovery of their claim based on the estimated total claims filed of approximately $29 million. The Monitor is aware that the provisions within the Plan which provide for an additional payment to Eligible Creditors who accept the Assignment Offer may be viewed as a twotier distribution, as those creditors that do not accept the Assignment Offer would receive a lower recovery than those creditors that accept the Assignment Offer. The Monitor is of the view that the Assignment Offer is fair and reasonable as the Assignment Offer will be provided to all Eligible Creditors. 16

19 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 The Monitor is also of the view that sufficient notice of the Assignment Offer will be provided to the Eligible Creditors. This is based on the following: A creditor who is involved in the CCAA proceeding knew or ought to have known as of June 26, 2015 that the Company was required to notify the Monitor on or before July 31, 2015 that it intended to file a plan and that it must file its plan on or before August 14, As a result, creditors should have been proactively looking for the Company s plan or in the alternative, notice from the Monitor that such a plan is not forthcoming and explaining the alternative path forward; On August 4, 2015, the Monitor posted on its website and published in its Eighth Report the Company s letter confirming its intention to file a Plan; and The Monitor is required to send the Meeting Materials to Affected Creditors on or before August 17, 2015 which is 15 days before the deadline to submit the Assignment Election Notice to the Monitor and 17 days before the meeting of creditors. This period is within established notice period timeframes for restructuring. The Plan provides that Convenience Creditors, Cash Election Creditors and Assignment Creditors shall be deemed to vote in favour of the Plan. The Monitor is supportive of these provisions, but wishes to ensure that Affected Creditors designated or choosing to make either of these elections are aware of this implication. Since April 17, 2015, the Company, with the assistance of the Monitor, has been engaged in a concurrent Solicitation Process to secure an investment by a related party or purchaser for the Company s assets. Based on the information received from the Solicitation Process, the Monitor is of the view that the Company s Plan offers a better recovery to creditors in aggregate than an en bloc sale of the Company s assets or through a liquidation. 7. UPDATE ON THE SOLICITATION PROCESS Following the June 26, 2015 Court application and the resulting Order that was made, the Monitor selected a preferred bidder from the Solicitation Process and has worked exclusively with that party to advance its offer. In the weeks following, the Monitor has expended significant time and effort working with this party, and the preferred bidder has 17

20 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 worked diligently to deal with the conditions set out in its original offer. In particular, the offer from the preferred bidder was conditional on it obtaining financing for the transaction. The Monitor advises that during the period subsequent to the June 26, 2015 hearing and the August 11, 2015 filing by the Company of the Plan, the Company has cooperated with the efforts of the Monitor to advance the Solicitation Process and the offer from the preferred bidder. The identity of the preferred bidder was initially not disclosed other than in the Monitor's Supplemental Sixth Report dated June 26, 2015, which was filed with the Court on a sealed basis as it contained the details of all offers received. Meaningful progress has been made with the conditions in its original offer as well as the terms of a definitive asset purchase agreement and accordingly, the identity of the preferred bidder was announced publically a few weeks ago. The announcement disclosed that MinQuest Limited ("MinQuest"), an Australian based public company, was the party with whom the Monitor was dealing on an exclusive basis. The Monitor is generally pleased with the nature and extent of the progress made with MinQuest since the end of June However, given the commercial realities with the complex nature of a public company raising new capital in the current economic environment, this process has not been finalized at this time. As a result, the Monitor remains optimistic that MinQuest represents a real and appropriate alterative transaction in the event that the Company does not complete its restructuring as contemplated. As noted earlier in this report, the Company was required by August 14, 2015 to file its restructuring plan and seek Court authorization to proceed with a creditors meeting. The Company is intending to seek this authorization at the Court application scheduled for August 14, Should this authorization be granted, then the creditors meeting will take place on September 2, 2015 and assuming a favourable outcome, it is the Company's intention to complete its restructuring plan by October 2, The purpose of the Solicitation Process together with the detailed negotiations with MinQuest that have transpired over the past several weeks have been driven by the doubts and concerns raised by the stakeholders in these CCAA proceedings about the intentions and abilities of the Company to convince its primary controlling party, JDC 18

21 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 Group, to support a restructuring plan and fund same. At the June 26, 2015 Court application, the Company advised that JDC Group was in the process of planning to send a delegation to Canada to assess the Company s situation. Accordingly, significant uncertainty existed at that time whether JDC Group would support a restructuring. Subsequent to June 26, 2015, the JDC Group delegation travelled to Vancouver as well as to the Mine to perform its assessment. In total, eight JDC Group officials formed part of the delegation and were in Canada for approximately 13 days in early July The Monitor understands that this delegation returned to China and submitted a favourable report to JDC Group. On July 31, 2015, the Monitor was advised by Yukon Zinc that it intended to proceed with a restructuring of the Company and such restructuring was supported by JDC Group, who would be providing the funding to allow the restructuring to be performed. On August 11, 2015, the Company filed its Plan for which it is now seeking Court authorization to distribute to creditors and to convene a meeting to consider and vote on the Plan. The Monitor is supportive of the Company's restructuring Plan and as a result, anticipates that the September 2, 2015 creditors meeting will yield a favourable outcome. Should this occur as anticipated, the Monitor has been advised that JDC Group will be in position to fund the Company by September 25, 2015, allowing the Conditions Precedent for Plan Implementation to be satisfied by October 2, In terms of the funding from JDC Group, the Monitor has reviewed the quantum of the funding requirements with the Company and should JDC Group fund as indicated, it expects that funds will be sufficient to: Deal with the Plan distribution to Affected Creditors; Satisfy the payments to certain Unaffected Creditors; Provide funds for immediate working capital requirements extending well into 2016; and 19

22 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 With respect to ongoing working capital requirements the Company expects to have in place a credit facility with JDC Canada that will allow it to draw funds on an as needed basis. The Monitor notes that there are still several events that must materialize in order for this restructuring to be completed, most notably the funding of the JDC Group, thereby allowing the Company to exit CCAA. However, it appears that all of these events are moving forward and the majority of the steps required will be completed over the next six weeks. As noted earlier in this section, the Monitor and MinQuest are close to reaching an agreement on the final form of the asset purchase. Such an agreement with MinQuest would be conditional only on financing. While MinQuest is not in a position to complete a transaction at this time as it requires further time to unconditionally secure its financing, MinQuest is highly confident that such financing is achievable. As a result, MinQuest is prepared to enter into a definitive agreement and continue pursuing this financing notwithstanding the Company's clear indications that it will complete a restructuring. Although the Company has filed its Plan and appears committed to a restructuring, there is still risk that this will not materialize. Accordingly, the Monitor intends to continue with its work to finalize the form of the asset purchase agreement with MinQuest. The Monitor anticipated that this will be completed over the next few days. Assuming an agreement with MinQuest is completed in the near term, then both the Company and MinQuest will be focused on ensuring that their respective financing is completed as soon as possible. In the case of the Company, that will be the receipt of funding from JDC Group by September 25, 2015; in the case of MinQuest, which may take up to 60 days (i.e. end of November 2015) from the time the Monitor advises MinQuest that its offer is the primary option. In this regard, MinQuest has advised the Monitor that a definitive agreement is of great assistance in advancing its financing efforts as such will provide confirmation to potential financiers that MinQuest has secured the transaction, subject only to the Company completing its restructuring as contemplated. The Monitor is supportive of the proposed MinQuest transaction in the event the Company's restructuring does not unfold as contemplated. Therefore, the Monitor is of the view that it is appropriate to cause the MinQuest agreement to be executed and 20

23 YUKON ZINC CORPORATION MONITOR S NINTH REPORT TO COURT August 13, 2015 thereby allow MinQuest the best opportunity to secure its financing in order to serve as the back-up transaction should the restructuring not come to fruition. In this way, the beneficiaries of the Company will be best served with multiple options in light of the respective uncertainties that exist. 8. DIRECTIONS AND RELIEF SOUGHT The Company is seeking the following relief from the Court: Authorization to present the Plan to the Affected Creditors and convene a creditor meeting in order to seek approval of the Plan by the Affected Creditors; and An extension of the stay of proceedings to October 15, CONCLUSIONS OF THE MONITOR The Monitor is supportive of all of the relief sought by the Company. The Monitor is of the view that Company is acting in good faith and with due diligence. This report is respectfully submitted this 13 th day of August, PricewaterhouseCoopers Inc. Court Appointed Monitor of Yukon Zinc Corporation Michael J. Vermette, CPA, CA, CIRP Senior Vice President Christopher Stocco, CIRP Vice President 21

24 APPENDIX A Cash Flow Statement updated to October 16, 2015

25 Yukon Zinc Corporation Appendix A CCAA Cash Flow Statement 1 For the Period March 13, 2015 to October 16, 2015 Canadian Dollars Actual Actual Forecast Variance Forecast Actual + Forecast Mar 13 - Jun 20 - Jun 20 - Jun 20 - March 13 - Jun 19 Aug 7 Aug 7 Aug 7 14-Aug 21-Aug 28-Aug 4-Sep 11-Sep 18-Sep 25-Sep 2-Oct 9-Oct 16-Oct Total Oct 16 Receipts Collection of pre-filing accounts receivable 2 1,196, , ,000 (9,204) ,487,730 GIC interest 30,387 20,311 5,700 14, ,698 Transfer from Bank of Communications 3 5,320, , ,882 5,354,769 Post-filing inventory sales 4-524, ,000 16, , , ,670 JDC funding ,400, ,400,000 2,400,000 Other miscellaneous 259,406 1,406 12,000 (10,594) ,209 10, , ,161 Total receipts 6,807, , ,700 11,283-33,882 14,209 10, ,200 2,400, ,762,431 10,407,029 Operating costs Raw material / freight / storage / disposal 6 (7,978) (20,279) (16,250) (4,029) (28,257) Assay / royalties 7 (4,626) (3,585) (7,000) 3, (2,000) (2,000) (10,211) Surface maintenance 8 (1,369,467) (517,120) (651,289) 134,169 (99,764) (56,500) (142,134) (57,500) (19,764) (64,500) (96,000) (486,500) (22,238) (51,250) (1,096,149) (2,982,737) Underground re-entry 9 (103,742) (103,742) Mill decommissioning 10 (86,829) (86,829) Insurance - (217,838) (147,000) (70,838) (225,000) - - (225,000) (442,838) Other (17,517) (27,191) (101,181) 73,990 (14,965) (8,475) (21,620) (8,625) (2,965) (9,675) (14,400) (123,975) (3,336) (7,688) (215,722) (260,430) Total operating costs (1,590,159) (786,013) (898,720) 112,707 (114,729) (64,975) (165,754) (66,125) (22,729) (74,175) (110,400) (835,475) (25,573) (58,938) (1,538,872) (3,915,044) Head office costs Lease / utilities (103,934) (54,420) (53,800) (620) (16,700) - - (16,500) (16,700) (29,700) - (79,600) (237,954) Employee (354,772) (183,258) (182,212) (1,046) (43,500) (9,500) (47,606) (9,500) (45,500) (9,500) (47,606) (9,500) - (39,303) (261,515) (799,545) Other head office costs 11 (182,856) 163,368 (114,625) 277,993 (17,600) (35,200) (8,000) (35,350) (600) (25,725) - (13,625) (1,250) (6,750) (144,100) (163,588) Total head office costs (641,562) (74,310) (350,637) 276,327 (77,800) (44,700) (55,606) (61,350) (62,800) (35,225) (47,606) (23,125) (30,950) (46,053) (485,215) (1,201,087) Non-operating costs Restructuring professional fees (992,320) (664,199) (654,780) (9,419) (170,000) (273,000) - (219,500) - (161,600) - (85,000) - (40,000) (949,100) (2,605,619) Professional fee retainers (95,000) (95,000) CCAA restructuring costs 12 (55,290) (10,500) - (10,500) (65,790) Interim financing interest & fees (136,762) (18,630) (231,470) (250,100) (386,862) Total non-operating costs (1,279,372) (674,699) (654,780) (19,919) (188,630) (273,000) - (219,500) - (393,070) - (85,000) - (40,000) (1,199,200) (3,153,271) Total disbursements (3,511,093) (1,535,022) (1,904,137) 369,115 (381,159) (382,675) (221,360) (346,975) (85,529) (502,470) (158,006) (943,600) (56,523) (144,991) (3,223,287) (8,269,402) Net receipts (disbursements) 3,296,522 (698,039) (1,078,437) 380,398 (381,159) (348,793) (207,150) (336,835) (85,529) (198,270) 2,241,994 (943,600) (56,523) (144,991) (460,856) 2,137,627 Cash Balance Opening cash balance ,545 5,659,067 5,659,067-4,961,027 4,579,869 4,231,076 4,023,925 3,687,090 3,601,561 1,203,291 3,445,285 2,501,685 2,445,162 4,961, ,545 Net receipts (disbursements) 3,296,522 (698,039) (1,078,437) 380,398 (381,159) (348,793) (207,150) (336,835) (85,529) (198,270) 2,241,994 (943,600) (56,523) (144,991) (460,856) 2,137,627 Interim financing borrowing (repayment) in period 2,200, (2,200,000) (2,200,000) - Ending cash balance 5,659,067 4,961,027 4,580, ,398 4,579,869 4,231,076 4,023,925 3,687,090 3,601,561 1,203,291 3,445,285 2,501,685 2,445,162 2,300,172 2,300,172 2,300,172 Restricted cash - post-filing inventory sales (net) Restricted cash - sales of equipment Restricted cash - employee retention bonus Cash available for use , ,000 (44,802) 463, , , , , , , , , , , , ,140 10,140 10,140 10,140 10,140 10,140 10,140 10,140 10, ,000 90,000-90,000 90,000 90,000 90,000 90,000 90,000 90, ,659,067 4,407,829 3,982, ,200 4,026,671 3,677,878 3,470,727 3,123,752 3,038, ,753 2,577,747 1,724,147 1,667,624 1,522,634 1,522,634 1,522,634 Interim financing borrowing Interim financing borrowing at beginning of period - 2,200,000 2,200,000-2,200,000 2,200,000 2,200,000 2,200,000 2,200,000 2,200, ,200,000 - Interim financing borrowing (repayment) in period 2,200, (2,200,000) (2,200,000) - Interim financing borrowing at end of period 2,200,000 2,200,000 2,200,000-2,200,000 2,200,000 2,200,000 2,200,000 2,200,

26 Yukon Zinc Corporation CCAA Cash Flow Statement 1 For the Period March 13, 2015 to October 16, 2015 Canadian Dollars Appendix A Notes 1 The purpose of this Cash Flow Statement is to determine the cash requirements for Yukon Zinc Corporation during the CCAA proceedings. 2 Receipts related to final settlements of pre-ccaa concentrate sales. 3 Relates to the excess funds held at the Bank of Communications San Francisco branch that were a result of an overpayment of the Company's credit facility by Shaanxi Zinc Industrial Co, Ltd. who guaranteed the credit facility. 4 Relates to funds received from post-filing inventory sales, which, per the April 17, 2015 Court Order, are required to be held by the Monitor pending further Order of the Court. 5 Relates to cash receipts from JDC Canada to fund future operations Includes costs to store and transport non-transamine identified concentrate inventory. Additional amounts forecasted to dispose of hazardous materials at the Mill site. There were several shipments in transit at the Filing Date. As a result, the Company is required to fund assay services by an independent third party prior to the final settlement of the sales contract. Includes costs for basic care and maintenance of the Mine such as food, fuel, propane, travel expense to transport maintenance staff to the Mine. Costs relate to the reentry into the Mine to assess the current conditions and estimate the cost and time involved to rehabilitate and dewater the Mine. Decommissioning work on the mill processing facilities has been completed and no further cost is anticipated Amount for the period of June 20 - August 7 includes uncrystalized foreign exchange gains from a large amount of US dollars on hand. The US dollar cash balances primarily relate to the funds received from the Shaanxi Zinc overpayment discussed in Note 3 above and are only being converted to Canadian dollars when required to fund operations. Amount for the period of March 13 - June 19 includes reclassification of freight and storage fees as they relate to costs incurred pre-filing, but was necessary to pay for the sale of post-filing inventory. Amount for the period of June 20 - August 7 relates to the SISP data room Amounts in $USD have been converted to $CAD based on Bank of Canada closing rate of on March 13, 2015 for opening balance and based on Bank of Canada closing rate on each transaction date for activities in $USD. Relates to funds received from post-filing inventory sales net of cost of sales, which, per the April 17, 2015 Court Order, are required to be held by the Monitor pending further Order of the Court. Relates to funds to be received from sales of equipment, which, per the April 17, 2015 Court Order, are required to be held by the Monitor pending further Order of the Court. Relates to funds held in the Monitor's trust account for Mine employee retention bonuses to be paid out in September.

27 APPENDIX B Proposed Plan of Compromise and Arrangement

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