DENVER, COLORADO -- As a result of a review by the British Columbia Securities Commission, West Hawk Development Corp. (TSX VENTURE:WHD) ("West Hawk" or the "Company") is issuing the following news release to clarify the Company's disclosure.
On September 4, 2008 the Company disclosed that it had entered into a letter of intent (the "LOI") to acquire the Heavener Mine, which it described as a "near term production" metallurgical coal mine having measured and indicated resources of approximately 60 million tons and inferred resources of approximately 138 million tons. The Company disclosed that these estimates were supported by a National Instrument 43-101 ("NI 43-101") August 2008 technical report prepared for the Company by Weir International. The technical report was at that time in draft form (the "Draft Report").
The Company also stated in the September 4, 2008 press release that it had commissioned Weir International to prepare an "NI 43-101 and SEC compliant feasibility study and resource report". The Company clarifies that Weir International was commissioned to prepare an NI 43-101 compliant resource and reserve estimate, to prepare a geological model for the property, and to audit an internal feasibility study to be prepared by West Hawk. Weir was not commissioned to prepare the feasibility study. To date, the Company has received only the Draft Report and has not completed the internal feasibility study. The Company has, however, completed an engineering and economic evaluation comprised of detailed mine design, preparation and processing design, electrical power distribution, mine cost projection, capital schedule, geotechnical design, degas design and productivity modeling in respect of the Heavener Mine.
The disclosure of the resource estimate in the September 4, 2008 press release triggered the obligation under NI 43-101 to file an NI 43-101 compliant technical report in respect of the Heavener Mine property on or before October 20, 2008. As of October 20, 2008 the Company had the Draft Report prepared, but failed to meet the filing deadline. The Draft Report is not compliant with NI 43-101. As a result, the British Columbia Securities Commission (the "Commission") issued a cease trade order against the Company on November 5, 2008 pending completion and filing of the report.
The Company clarifies that the statements made in the September 4, 2008 press release that the Heavener Mine was near term production and could be brought to production in 18 months were based on the Company's internal analyses and projections, not the Draft Report.
The Draft Report did not provide sufficient scientific and technical information to support the resource estimate and near term production characterization that the Company disclosed in the September 4, 2008 press release. The Company therefore retracts the resource estimate and the characterization of the property in the press release as near term production.
In addition, the Company clarifies that the inferred resource estimate relates to an adjacent property (the "Adjacent Property"), not the Heavener Mine property. The Adjacent Property is comprised of both tracts administered by the Bureau of Land Management ("BLM") and private tracts. The Company had no rights to acquire the Adjacent Property, however, on acquisition of the Heavener Mine, it was the Company's intention to acquire the Adjacent Property by applying to the BLM to extend the lease over the BLM tracts and to negotiate the acquisition of the private tracts with the assistance of Farrell Cooper Mining Company, as and when the Company was prepared to mine such tracts. The Company can provide no assurance, however, that the lease modification would be granted or that the Company could ultimately negotiate the acquisition of the private tracts on terms acceptable to the Company, if at all.
As the Company has terminated the proposed acquisition of the Heavener Mine due to an inability to finance the transaction under current market conditions, the Company has determined not to spend the further financial resources that would be required to finalize and file an NI 43-101 report in respect of the property.
The scientific and technical information in this press release is based on information prepared by the Company under the supervision of Wm. Mark Hart, the Company's qualified person for the purpose of this press release.
The Company would also like to update investors on the status of the memorandum of understanding with Petrobras-Petroleo Brasileiro S.A. ("Petrobras") originally announced June 12, 2008. In its June 12, 2008 press release the Company advised that it had entered into a memorandum of understanding with Petrobras to jointly develop the Company's Figure Four Natural Gas Project in the Piceance Basin, Colorado. On July 29, 2008 the Company advised that Petrobras was conducting due diligence on the project and on August 26, 2008 the Company announced that the due diligence was nearing completion. Petrobras has, however, recently advised the Company that it has put the project on hold.
Fuselier Holding LLC
Pursuant to a definitive debt settlement and assignment agreement entered into between the Company and Fuselier Holding, LLC ("Fuselier") announced on April 10, 2008, the Company assigned US$10.6 million in trade debt to Fuselier in exchange for US$800,000 in previously issued common shares of West Hawk and convertible promissory notes having a combined principal amount of US$11,174,490 (the "Notes"). Fuselier has in turn entered into settlement agreements with 68 of the original 74 creditors, representing approximately US$9.7 million of the originally assigned debt.
At the time of execution of the definitive agreement, US$10.6 million represented the Company's best estimate of the aggregate creditor claims then outstanding. During the course of negotiating settlements with the creditors, Fuselier has determined that the actual amount of debt outstanding is approximately US$12,000,000. In these circumstances, the definitive agreement contemplates that a corresponding adjustment to the amount of debt assigned under the agreement and the principal amount of the Notes will be made, subject to TSX Venture Exchange approval. As at the date of this press release the Company and Fuselier are negotiating the adjustment and the Company will thereafter seek Exchange approval.
In early November, Fuselier defaulted in payments under the settlement agreement. Fuselier has advised the Company that, as a consequence of the default, certain of the creditors subject to settlement agreements filed agreed judgements on November 14, 2008. Additional agreed judgements were filed on November 17, 2008. Fuselier's ability to meet its obligations under the settlement agreements with the creditors was materially impacted by the unprecedented declines experienced by the equities and commodities markets and the freezing up of the credit markets, the significant drop in the trading price and the volume of the Company's stock, and the halt in trading of the Company's stock imposed by the Commission.
Fuselier and the Company are liable under the agreed judgements filed for approximately US$1.3 million. The Company understands that Fuselier has, however, received assurances from these creditors that, provided payments in the aggregate amount of approximately US$350,000 are promptly made, the creditors will withhold enforcement of the judgments. In this regard, the Company has advanced Fuselier US$50,000 for these creditor payments and may make additional payments to support Fuselier in the short term in the event that it is unable to pay the balance of the US$350,000 within the time provided. All such payments will be treated as cash pre-payments under the Notes, thereby reducing the outstanding principal amount due to Fuselier under the Notes.
Fuselier has indemnified the Company against all liabilities, judgments and costs arising from or in any way related to any claim of any person relating to the assigned debt. However, if Fuselier continues to have difficulty meeting its obligations under the settlement agreements and is not financially able to support the indemnity should the Company have to enforce it, the Company remains ultimately liable to the creditors for the full amount of the unpaid debt, which is currently approximately US$10.3 million, assuming the adjustment of the aggregate outstanding debt from US$10.6 million to US$12 million discussed above. Further information regarding Fuselier's acquisition of the Company's trade debt and the related settlements is disclosed in the Company's May 15, 2008 and October 6, 2008 press releases.
Mr. Roger A. Baer has resigned from the position of Managing Director, Canadian Operations, of West Hawk Development Corp.
"We thank Roger for all of his efforts while at WHD and wish him the best in all of his future endeavours," said Dr. Wm. Mark Hart, Chairman and CEO of West Hawk Development Corp.
Mr. Fabio Capponi has resigned from his position as a Director on the West Hawk Board. Mr. Capponi is starting a new company and is therefore resigning from West Hawk. At this time the Company is working with Mr. Capponi in order to negotiate a contract for Mr. Capponi's consulting services.
"It has been a great pleasure to have Mr. Capponi on the Board of Directors of West Hawk. He has been a great asset and has provided a great deal of insight. We look forward to working with him in the future and we wish him continued success in his new endeavours," said Dr. Wm. Mark Hart, Chairman and CEO of West Hawk Development Corp.
The Company is taking all possible measures to reduce costs and preserve its cash.
On behalf of the Board of Directors,
Wm. Mark Hart, Chairman and Chief Executive Officer
About the Company: West Hawk Development Corp. is focused on providing valuable, high-demand energy products from a variety of sources. Assets include the Figure Four natural gas property located in the Piceance Basin, Colorado, being developed under a drilling and development agreement; and the Groundhog coal property located in northwest British Columbia.
SOURCE: West Hawk Development Corp.
West Hawk Development Corp. Wm. Mark Hart Chairman and Chief Executive Officer 1-800-830-0988 Website: www.westhawkdevelopment.com