Acquisition of Sunward Resources Ltd.

9 Months Ended

Aug. 31, 2015

Acquisition of Sunward Resources Ltd. [Text Block]

4 Acquisition of Sunward Resources Ltd.

On April 22, 2015, the Company entered into a definitive agreement to acquire all of the issued and outstanding common shares of Sunward Resources Ltd. (“Sunward”), a publicly listed company on the Toronto Stock Exchange, by way of a court-approved plan of arrangement (the “Sunward Arrangement”). Shareholders of each of NovaCopper and Sunward voted in favour of the Sunward Arrangement at special meetings held on June 15, 2015. The companies received all regulatory, court and stock exchange approvals required and closed the Sunward Arrangement on June 19, 2015. Under the terms of the Sunward Arrangement, Sunward shareholders received 0.3 of a NovaCopper common share for each Sunward common share held. On June 19, 2015, the Company issued 43,116,312 common shares to Sunward shareholders and holders of Sunward deferred share units pursuant to the Sunward Arrangement. Each Sunward stock option outstanding was exchanged for a fully-vested option (“Sunward Arrangement Option”) to purchase NovaCopper common shares for a period of 90 days, such number and exercise price were adjusted based on an exchange ratio of 0.3 NovaCopper options for each Sunward option. Sunward had 8,350,000 options outstanding immediately prior to consummation of the arrangement. As a result, 2,505,000 Sunward Arrangement options were exchanged for the Sunward options. Consideration transferred to consummate the Sunward Arrangement comprised of the issuance of 43,116,312 common shares valued at $22.9 million and 2,505,000 Sunward Arrangement options valued at $0.1 million. The value of the common shares issued was calculated based on the closing price of NovaCopper common shares on June 18, 2015 of $0.53, the date of last trading prior to the closing of the acquisition. The fair value of the Sunward Arrangement options were determined using the Black-Scholes option pricing model.

Assumptions used in the pricing model in the measurement of the fair value of the Sunward Arrangement options are as follows:

Risk-free interest rates	0.62%
Exercise price	CAD $0.54 - 6.27
Expected life	0.245years
Expected forfeiture rate	0%
Expected volatility	50.2%
Expected dividends	nil

This acquisition has been accounted for as a business combination under ASC 805. NovaCopper incurred $0.8 million in acquisition costs related to the Sunward Arrangement. The acquisition costs for the Sunward Arrangement are included in professional fees on the consolidated statement of loss and comprehensive loss for the three and nine month period ended August 31, 2015.

The consolidated financial statements included herein reflect our results of operations for the three months and nine months ended August 31, 2015, including those of Sunward since the June 19, 2015 acquisition date. We have determined that the functional currency for our Colombian operations acquired from Sunward is the U.S. dollar.

As permitted under ASC 805, we are in the process of determining the fair value of assets acquired and liabilities assumed on the acquisition of Sunward. The process of determining fair value for certain assets including plant and equipment and mineral properties and development costs requires a high degree of judgement. The following summarizes the consideration paid and preliminary estimates of fair value of assets acquired and liabilities assumed (in thousands):

in thousands of US dollars
Consideration:	$
Common Shares issued (43,116,312 at $0.53 per share)	22,851
Sunward Arrangement options	108
Total consideration	22,959
Fair value of net assets acquired:
Cash	19,399
Accounts receivable	19
Deposits and prepaid amounts	104
Plant and equipment	343
Mineral properties and developments costs	3,264
Accounts payable and accrued liabilities	(170	)
Net Assets	22,959

The net loss of Sunward since June 19, 2015, the acquisition date, included in these consolidated financial statements is $0.2 million. The unaudited pro-forma financial information below summarizes the combined results of our as if the acquisition occurred as of the beginning of fiscal 2015. The pro-forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place as of December 1, 2014.

in thousands of US dollars, except share and per share amounts
		August 31, 2015
		$
Net loss		9,824
Basic and diluted loss per common share	$	0.09