Baja Mining Corp.

 

 

Nature of operations, going concern and subsequent events (note 1)
Guarantees, commitments and contingencies (note 12)

Approved by the Board and authorized for issue on August 14, 2013.

The accompanying notes form an integral part of these unaudited condensed interim consolidated financial statements.

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Consolidated Statements of Operations - Unaudited

The accompanying notes form an integral part of these unaudited condensed interim consolidated financial statements.

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The accompanying notes form an integral part of these unaudited condensed interim consolidated financial statements.

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The accompanying notes form an integral part of these unaudited condensed interim consolidated financial statements.

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Baja Mining Corp. (the “Company” or “Baja”) was incorporated on July 15, 1985, under the Company Act of British Columbia. The Company’s primary focus has been the development of the El Boleo copper-cobalt-zinc-manganese deposit (the “Boleo Project” or the “Project”) located near Santa Rosalia, Baja California Sur, Mexico. In addition, the Company intends to investigate and potentially pursue alternative project opportunities, subject to any capital investment or expenditure constraints the Company may be under pursuant to the Boleo Project funding agreements. The Company is a reporting issuer in Canada and the United States and trades on the Toronto Stock Exchange, the Frankfurt Stock Exchange and the OTCQB. The Company is domiciled in Canada and its registered office is 1430 – 800 West Pender Street, Vancouver, British Columbia, V6C 2V6.

These consolidated financial statements include the accounts of Baja Mining Corp. and its subsidiaries. The Company’s significant subsidiaries are Baja International, S.à r.l. (“Baja Luxembourg”) and its wholly owned subsidiary Boleo International, S.à r.l. (“Boleo Luxembourg”). Until August 26, 2012, Boleo Luxembourg held a 70% interest in Minera y Metalúrgica del Boleo, S.A.P.I. de C.V. (“MMB”), which holds the mineral property rights to the Boleo Project. The remaining 30% interest was held by Korea Resources Corporation (“KORES”), LS Nikko Copper Inc., Hyundai Hysco Co. Ltd., SK Networks Co. Ltd. and Iljin Materials Co. Ltd. (collectively the “Consortium”). On August 27, 2012, pursuant to the terms of a funding agreement entered into between the Company and the Consortium on July 25, 2012 (the “Consortium Financing”), the Company’s ownership interest in MMB was reduced to 49% and further reduced to 26.2% on February 12, 2013, to 20.9% on April 18, 2013, to 15.7% on May 10, 2013, and to 10% on July 30, 2013. MMB held a 100% interest in Desarrollos y Servicios Costeros, S.A. de C.V. (“Costeros”) and Servicios y Desarrollos Meseta Central, S.A. de C.V. (“Meseta”).

These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business; however, there are events and conditions that cause substantial doubt regarding that assumption as detailed below. During the six months ended June 30, 2013, the Company reported a loss of $28,313; and as at June 30, 2013, the accumulated deficit attributable to shareholders amounted to $433,836. As at June 30, 2013, the Company’s consolidated working capital deficit was $3,592.

Event of default

In April 2012, the Company forecast that the cost to complete the Boleo Project could be $1,667,000, which significantly exceeded the Company’s available project funding ($1,167,000 plus additional cost overrun facilities of $100,000).

The Company was unable to finance the funding shortfall within 60 days of identifying the forecast cost overruns, thereby putting MMB in an Event of Default as defined in MMB’s senior lending agreements (the “2010 Project Financing”). As a result, MMB was unable to access any of the previously approved senior debt facilities. However, KORES and MMB have been successful in negotiating several standstill agreements or extensions with MMB’s senior lenders, whereby the lenders have agreed to refrain from exercising rights and remedies available to them under the 2010 Project Financing. However, the latest standstill agreement expired in May 2013. Numerous discussions are ongoing regarding a further extension but no standstill agreement is currently in place.

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Event of default (continued)

Furthermore, the commercial banks included among the senior lenders (the “Commercial Banks”) had a right to close out their hedge positions, which they began during the quarter and completed subsequent to the quarter end (note 12(a)).

MMB is also in default of its borrowing agreements related to the Korean Development Bank (“KDB”) subordinated debt and the Baja funding loan due to the fact that MMB’s liabilities continued to exceed the carrying value of its assets as at June 30, 2013.

Consortium financing and Baja participation rights

The Consortium Financing comprised two funding stages: Phase I, completed on August 27, 2012, upon MMB having received $90,000 of interim financing, pursuant to which the Company’s ownership interest in MMB was reduced from 70% to 49%, resulting in a loss of control in MMB; and Phase II, providing the Consortium the option to contribute additional funding of $443,390 to complete the Boleo Project (the “Phase II Funding Requirement”).

Baja has a right to contribute to the Phase II funding such amount that would result in it holding up to a maximum 40% interest in MMB. If Baja makes no contribution to the Phase II funding, Baja’s interest in MMB will be reduced from 49% to 10%. Baja’s right to contribute to the Phase II funding is subject to contributing a minimum of $10,000. Baja may attempt to raise funds for its contribution only through a non-backstopped rights offering to Baja’s shareholders. The Company’s largest shareholder, Mount Kellett, has advised that it does not intend to participate in such a rights offering. In addition, if the total funding costs to complete the project exceed $1,751,190 and further equity funding is required, Baja must participate on a pro rata basis or Baja’s remaining 10% interest in MMB will be diluted according to a formula to be negotiated.

If Baja exercises its right to contribute, Baja’s interest in MMB will be 10% plus a percentage determined by multiplying 39% (the percentage of MMB represented by 100% of the Stage II Funding Requirement) by a number determined by dividing the amount contributed by Baja to MMB pursuant to the exercise of its Phase II participation right by the total amount of the Phase II Funding Requirement. If Baja fully exercises its Phase II participation right, it would be required to contribute approximately $341,069 to retain a maximum 40% interest in MMB.

Following the date of filing an updated NI 43-101 compliant technical report on the Boleo Project, the Company will have 60 days without financial penalties to make such contribution to complete a non-backstopped rights offering to provide it with funds to exercise its Phase II participation right.

Consortium phase II funding commitment

On February 12, 2013, the Company announced that pursuant to receipt of a definitive commitment by KORES on behalf of the Consortium and as contemplated in the Consortium Financing, the Company had agreed to a framework for the transfer of its MMB equity and shareholder loans to a KORES appointed entity based on the pro rata contributions made by the Consortium and/or KORES toward the total Phase II Funding Requirement.

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Consortium phase II funding commitment (continued)

Based on Phase II contributions made of $259,027 as at February 12, 2013, representing 58.4% of the Phase II Funding Requirement, a further 22.8% equity interest in MMB was transferred to KORES, reducing the Company’s equity interest in MMB from 49% to 26.2%.

In addition, on February 12, 2013, the Company transferred to KORES $67,313 of its MMB shareholder loans plus associated accrued interest to adjust the shareholder loans owed by MMB to the Company so they correspond with its proportionate equity interest in MMB as provided for under the Consortium Financing. The framework agreed between the parties provides for three further pro rata transfers of equity and shareholder loans plus accrued interest to the KORES appointed entity upon contributions being made by the Consortium or KORES to MMB of $60,000, $60,000 and $64,393, which will dilute Baja’s equity interest in MMB to 20.9%, 15.7% and 10%, respectively. No fixed schedule had been set out for the timing of the further funding contributions to be made by the Consortium or KORES to MMB.

During the quarter ended June 30, 2013, KORES contributed $124,962 of shareholder loans to MMB, triggering the next two pro rata transfers of MMB equity and shareholder loans as detailed above. With effect on April 18, 2013, the Company transferred to KORES a further 5.3% equity interest in MMB and $27,288 in shareholder loans plus accrued interest, reducing the Company’s ownership interest in MMB to 20.9% and the principal balance of its shareholder loans to MMB to $170,301. With effect on May 10, 2013, the Company transferred to KORES a further 5.2% equity interest in MMB and $33,627 in shareholder loans plus accrued interest, reducing the Company’s ownership interest in MMB to 15.7% and the principal balance of its shareholder loans to MMB to $136,674.

Subsequent to June 30, 2013, KORES contributed an additional $74,748 of shareholder loans to MMB triggering the final pro rata transfers of MMB equity and shareholder loans as detailed above. With effect on July 30, 2013, the Company transferred to KORES a further 5.7% equity interest in MMB and $42,854 in shareholder loans plus accrued interest, reducing the Company’s ownership interest in MMB to 10% and the principal balance of its shareholder loans to MMB to $93,820.

MMB loss of control

Pursuant to the terms of the Consortium Financing, upon the loss of control of MMB, management responsibility transitioned from the Company to the Consortium and changes to be made to the shareholders’ agreement governing the rights of the shareholders of MMB were agreed. The changes will expand the power of the Consortium to manage the business of MMB and limit Baja’s rights. Baja approval will continue to be required for changes to the rights attaching to Baja’s MMB shares and to any related party transactions with a value over $1,000. Baja will continue to have the right to proportional board representation, and will be entitled to have one director on the MMB board, as long as its interest in MMB is at least 8%. As stated in the Consortium Financing term sheet, when financing documents are renegotiated, the Company will seek to reduce its debt guarantees to reflect its proportionate equity interest in MMB.

On February 12, 2013, KORES became the ultimate controlling party and parent and at the end of the second quarter held 64% ownership in MMB.

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Going concern considerations

Should the Phase II Funding Requirement not be sufficient to complete the Boleo Project and MMB is unable to obtain additional funding and/or an agreement cannot be reached with Remaining 2010 Project Financing Lenders, this could result in the shutdown of the Boleo Project and the insolvency of MMB.

Should MMB be forced to shut down the Project and/or the Remaining Project Financing Lenders choose to exercise remedies available to the lender group, the Company may be ultimately held accountable for the settlement of its proportionate obligation under the 2010 Project Financing completion guarantee. Regardless of any changes in the Company’s ownership interest in MMB, currently, under the terms of the 2010 Project Financing, the Company remains liable as a guarantor for 70% of MMB’s senior borrowings and any amounts to be funded to achieve economic completion. As at June 30, 2013, MMB had drawn $232,449 against the 2010 Project Financing (note 12(a)).

Critical factors, amongst others, impacting the likelihood of any demand arising under the senior borrowing guarantee and, therefore, the Company’s ability to continue as a going concern, include the following:

	(i)	the continued funding of the Boleo Project by the Consortium or KORES;
	(ii)	the continued support of the Remaining 2010 Project Financing Lenders in choosing not to exercise any further remedies available to them under the Event of Default;
	(iii)	the renewal of the latest standstill agreement that expired in May 2013 and/or the reinstatement or replacement of the remaining 2010 Project Financing;
	(iv)	completion of development of the Boleo Project;
	(v)	establishing profitable operations.

In addition, should the Company be required to repay the refundable manganese deposit liability, it currently has insufficient funds available to settle this liability (note 6).

The success of these factors above cannot be assured. Accordingly, there is a substantial doubt about the Company’s ability to continue as a going concern.

These consolidated financial statements do not reflect adjustments in the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used, that would be necessary if the company were unable to realize its assets and settle its liabilities in the normal course of operations. Such adjustments could be material.

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Subsequent events

	a)	Subsequent to June 30, 2013, $1,189 in funds were released from restricted cash and transferred to unrestricted cash.
	b)	Subsequent to June 30, 2013, the Company was informed by MMB that KORES had advanced a further $74,748 to MMB for continued construction of the Boleo Project completing the final of three outstanding pro rata contributions of the Phase II Funding Requirement. With effect on July 30, 2013, the Company transferred to KORES a further 5.7% equity interest in MMB and $42,854 in shareholder loans plus accrued interest, reducing the Company’s ownership interest in MMB to 10% and the principal balance of its shareholder loans to MMB to $93,820.

Basis of preparation

These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including International Accounting Standard (“IAS”) 34 Interim Financial Reporting.

These condensed interim consolidated financial statements follow the same accounting policies and methods of application as the Company’s most recent annual consolidated financial statements except as described below. Accordingly, these condensed interim consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements for the year ended December 31, 2012, which were prepared in accordance with IFRS as issued by the IASB.

Exploration and evaluation expenditures

The Company expenses exploration and evaluation expenditures as incurred. Exploration and evaluation expenditures include property option payments and evaluation activity. Once a project has been established as commercially viable and technically feasible, related development expenditures are capitalized.

New and amended standards adopted

The Company has adopted the following new and revised standards, along with any consequential amendments, effective January 1, 2013. The changes were made in accordance with the applicable transitional provisions.

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New and amended standards adopted (continued)

IFRS 10, Consolidated Financial Statements, replaces the guidance on control and consolidation in IAS 27, Consolidated and Separate Financial Statements, and SIC-12, Consolidation – Special Purpose Entities. IFRS 10 requires consolidation of an investee only if the investor possesses power over the investee, has exposure to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect its returns. Detailed guidance is provided on applying the definition of control. The accounting requirements for consolidation have remained largely consistent with IAS 27.

The Company assessed its consolidation conclusions on January 1, 2013, and determined that the adoption of IFRS 10 did not result in any change in the consolidation status of any of its subsidiaries and investees.

IFRS 13, Fair Value Measurement, provides a single framework for measuring fair value. The measurement of the fair value of an asset or liability is based on assumptions that market participants would use when pricing the asset or liability under current market conditions, including assumptions about risk. The Company adopted IFRS 13 on January 1, 2013 on a prospective basis. The adoption of IFRS 13 did not require any adjustments to the valuation techniques used by the Company to measure fair value and did not result in any measurement adjustments as of January 1, 2013.

IFRS 13 also establishes disclosures about fair value measurement. Previous IFRS guidance on measuring and disclosing fair value was dispersed among several standards, and in many cases did not reflect a clear measurement basis or consistent disclosures. The disclosure requirements of IFRS 13 will be incorporated in the annual consolidated financial statements for the year ended December 31, 2013. However, certain disclosure requirements of IFRS 13 have been incorporated into these condensed interim financial statements as discussed below in note 2(e).

In May 2011, the IASB issued IFRS 12 Disclosure of Interests in Other Entities (“IFRS 12”), which establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles, and off balance sheet vehicles. The standard carries forward existing disclosures and introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity’s interests in other entities.

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New and amended standards adopted (continued)

The requirements of IFRS 12 relate to disclosures only and are applicable for the first annual period after adoption. IFRS 12 does not require the disclosure to be included for any period presented that precedes the first annual period for which IFRS 12 is applied. Accordingly, the Company will include additional disclosures about its interests in other entities for the year ended December 31, 2013. This will include summarized financial information for significant associates.

The Company has adopted the amendments to IAS 1 effective January 1, 2013. These amendments required the Company to group other comprehensive income items by those that will be reclassified subsequently to profit and loss and those that will not be reclassified. The Company has reclassified comprehensive income items of the comparative period. These changes did not result in any adjustments to other comprehensive income or comprehensive income.

IAS 34, Interim Financial Reporting, was amended to establish criteria for disclosing total segmented assets and require certain fair value disclosures. The Company adopted the amendments to IAS 34 effective January 1, 2013. The disclosures are based on certain disclosure requirements of IFRS 13 as discussed in note 2(b) and IFRS 7, Financial Instruments: Disclosures.

No additional disclosures were required in these condensed interim consolidated financial statements for the period ended June 30, 2013 from adopting the amendments to IAS 34.

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On February 12, 2013, the Company announced it agreed to a framework for the transfer of its MMB equity and shareholder loans to a KORES appointed entity based on the pro rata contributions made by the Consortium and/or KORES toward the total Phase II Funding Requirement, which would dilute the Company’s equity interest in MMB in stages from 49% to 26.2%, 20.9%, 15.7% and 10% (note 1).

On February 12, 2013, the Company’s ownership interest in MMB was reduced from 49% to 26.2%. As the investment in MMB continued to be an associate at that time, the Company derecognized the carrying value of the associate proportionate to its 22.8% equity reduction. The resulting loss of $17,667 was recognized in the Consolidated Statements of Operations.

The Company’s ownership interest in MMB was further reduced to 20.9% on April 18, 2013 and to 15.7% on May 10, 2013. The Company lost significant influence over MMB when its equity interest in MMB dropped below 20%, which is estimated to be at April 30, 2013.

Upon the loss of significant influence, the Company recognized a further loss of $13,975 in the Consolidated Statements of Operations being the difference between the $17,905 fair value of the retained investment in MMB and the $31,880 carrying value of the investment in associate at the date when significant influence was lost.

In approximating a fair value for its retained investment in MMB, management considered that MMB represents the Company’s most significant asset. Therefore, a reliable and verifiable proxy for the fair value attributable to the Company’s investment in MMB as at April 30, 2013, may be determined by the market capitalization of the Company using a volume weighted average share price during the period April 18, 2013 to May 10, 2013 and adjusted for the fair values at April 30, 2013, of the Company’s other assets and liabilities. This method results in an estimated fair value of $17,905 for the Company’s interest in MMB as of April 30, 2013.

The Company’s investment in MMB is a combination of shares in common stock and shareholder loans receivable. Upon loss of significant influence, 100% of the fair value of the Company’s retained interest in MMB was allocated to shareholder loans receivable (note 4), resulting a nil value allocated to the equity investment in MMB.

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As discussed in note 3, the fair value of $17,905 for the Company’s retained interest in MMB as of the date of loss of significant influence on April 30, 2013 was allocated 100% to the shareholder loans receivable from MMB.

As discussed in note 1, the principal balance of the shareholder loans to MMB is $136,674 as of June 30, 2013. Subsequent to June 30, 2013, the principal balance was further reduced to $93,820 when the Company’s ownership in MMB reduced to 10%. It is management’s judgement that the initial fair value of $17,905 incorporates the expectation that the loan balance would be reduced to $93,820, and therefore no further adjustment will be required to the carrying value of the loan receivable when the final scheduled loan principal transfer is completed on July 30, 2013.

Subsequent to the initial recognition, the shareholder loans receivable is to be measured at amortized cost using the effective interest method and will be accreted to the face value of $93,820 over the remaining term of the loans, which mature on September 7, 2020.

Management considered the going concern uncertainties for MMB as described in note 1, and concluded that no interest income from these shareholder loans should be recognized during the period ended June 30, 2013.

Louis Dreyfus put option

As part of the project debt facility, MMB was required to arrange a $100,000 cost overrun facility. MMB obtained $50,000 of the cost overrun facility proportionately from the Commercial Banks. The Company and the Consortium had agreed to proportionately provide the remaining $50,000 of which the Company had satisfied its $35,000 contribution through an equity cost overrun facility agreed to with Louis Dreyfus Commodities Metals Suisse S.A (“Louis Dreyfus”) in the form of an irrevocable letter of credit.

Should the Company utilize this equity cost overrun facility, Louis Dreyfus will be issued common shares of the Company to the equivalent value of the amounts drawn under the facility, based on a value of Cdn$1.10 per common share, translated at the prevailing exchange rate. The cost overrun facility represents a purchase put option that does not meet the definition of equity. Consequently, the Company initially recorded a non-current derivative financial asset on its balance sheet.

During the quarter ended June 30, 2012, Louis Dreyfus filed a Request for Arbitration with the London Court of International Arbitration, seeking a declaration that the Louis Dreyfus cost overrun facility is terminated. This was followed by litigation commenced by Louis Dreyfus in the Supreme Court of British Columbia. During the quarter ended September 30, 2012, the Company applied to stay the Supreme Court proceedings and stay was granted (note 12(d)).

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Louis Dreyfus put option (continued)

Under the terms of the Louis Dreyfus cost overrun facility, a draw on the facility is only possible if there is a simultaneous, pro rata draw on the Commercial Banks cost overrun facility. During the quarter ended December 31, 2012, the Commercial Banks elected to terminate the Commercial Banks cost overrun facility. As such, a draw on the Louis Dreyfus cost overrun facility does not appear to be possible. Due to the Company’s inability to utilize the facility, the value of the Louis Dreyfus put option is $Nil as of June 30, 2013 (December 31, 2012 - $Nil).

Refundable deposit liability

A refundable deposit liability of $10,000 was included in the cash proceeds received from the sale of 30% of the Company’s interest in MMB to the Consortium in 2008. This deposit is refundable to the Consortium should a decision be made not to produce manganese from the Boleo Project by the economic completion date. Alternatively, additional consideration may be paid to the Company by the Consortium of approximately $13,000 upon a positive decision related to the production of manganese being made by the time of economic completion of the Boleo Project.

As the manganese production decision is to be made by the board of directors of MMB, the Company recognized the face value of the refundable deposit liability when the Company lost control of MMB on August 27, 2012 (note 1). The Company cannot accurately predict the outcome or possibility of manganese production decision.

 

The Company has been authorized to issue an unlimited number of common shares without par value.

There was no change to the number of warrants outstanding of 7,408,727 since December 31, 2012.

The following table summarizes information about share purchase warrants outstanding at June 30, 2013.

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Details of the Company’s stock option activity are as follows:

The following table summarizes information about stock options outstanding and exercisable June 30, 2013:

The Company’s stock option plan (“the plan”) allows the Company to grant stock options up to a maximum of 10% of the number of issued shares of the Company. Stock options available to be granted to non-executive directors are limited to 1% of the Company’s outstanding shares. At June 30, 2013, the Company has reserved 28,463,558 common shares under the plan. Options granted under the plan will vest with the right to exercise one-quarter of the options upon conclusion of every six months subsequent to the grant date, unless the specified contract length is a shorter period. The fair value of the options granted to employees or those providing services similar to employees, is measured at the grant date, using the Black-Scholes option-pricing model, and is recognized over the period that the employees earn the options.

During the second quarter of 2013, the vesting period of all previously issued outstanding stock options was completed. The total stock-based compensation recorded during the three and six months ended June 30, 2013 on all vested options was $10 (2012 – $(183)) and $27 (2012 – $895). This has been recognized, based upon the work carried out by the employee or consultant, to either general and administration expense (three months ended: $10; 2012– $(97) and six months ended: $27; 2012 – $641) or to property, plant and equipment (three months ended: $Nil; 2012 – $(86) and six months ended: $Nil; 2012 – $254), with the offsetting amount recorded to contributed surplus.

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Cinto Colorado

On April 30, 2013, the Company entered into an option agreement (the “Agreement”) whereby it can earn up to an 80% interest in Cinto Colorado S. de R.L. de C.V. (“Cinto Colorado”), a private Mexican company. Cinto Colorado’s main asset is a surface lease, which entitles Cinto Colorado to process and/or sell tailings and slag now stored on the lands subject to the lease (the “Lands”). The Lands are situated within Santa Rosalia, Baja California Sur, Mexico and are adjacent to the existing Boleo Project of MMB.

Under the Agreement, for Baja to exercise its right to acquire the interest in Cinto Colorado it is required to:

• Pay $72 to Cinto Colorado (already paid);

• Deliver a NI 43-101 compliant preliminary feasibility study (“PFS”), on or before October 27, 2013, subject to a 90-day extension;

• Deliver a NI 43-101 compliant definitive feasibility study (“DFS”) on or before eight months following the completion of the PFS; and

• If needed, complete a financing on or before six months following the delivery of the DFS, equal to the minimum amount estimated in the DFS needed to implement the DFS’ recommendations.

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The Company entered into the following related party transactions with directors or officers of the Company or with companies with directors or officers in common:

Transactions with MMB

The Company recognized $58 of general and administrative expense recoveries from its associate. MMB ceased being an associate and a related party to the Company when the Company lost significant influence over MMB in the second quarter of 2013 (note 3). At June 30, 2013, $1,663 is included in other receivables (December 31, 2012 - $1,736).

The Company currently operates in one business segment, being the acquisition, exploration and development of resource properties.

 

a)

Under the terms of the Company’s current senior lending facilities completion guarantee, the Company is liable for 70% of 2010 Project Financing as a guarantor. In addition, the Company has provided an overall economic completion guarantee but shall not be required to contribute more than 70% of any such amounts required. As at June 30, 2013, there is $232,449 drawn (including accrued interest) by MMB under the 2010 Project Financing. In addition, under the terms of the 2010 Project Financing, the Company has provided a proportionate guarantee (70%) in respect of MMB’s zero cost collar copper hedging contracts. During June 2013, the commercial banks closed out the majority of the hedge position resulting in a receivable to MMB of $1,229 which was paid in July 2013. At June 30, 2013 only 24,250,850 lbs of copper remained hedged (fair value - $290) and this was closed out for $Nil on July 5, 2013. The terms of the Consortium Financing state that Baja will seek to reduce its guarantee to reflect its proportionate equity interest in MMB when financing documents are renegotiated as part of an overall financing solution.

The 2010 Project Financing is senior to all other debt held by MMB, and limits MMB’s ability to transfer funds to the Company in the form of dividends or repayment of debt or advances.

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The future aggregate minimum lease payments by the assignee to the landlord covered by this indemnity agreement are as follows:

No amount has been accrued for this indemnity as of June 30, 2013, as management has assessed that it was not probable that the Company will be required to cover any amounts under the indemnity.

Following the stay being granted, Louis Dreyfus amended its claim in the Arbitration to include the relief it sought in the Supreme Court and in addition, sought an order that Baja pay an unspecified amount of damages to Louis Dreyfus for unlawful oppression of Louis Dreyfus contrary to section 227 of the British Columbia Business Corporations Act. Louis Dreyfus also seeks an order that Baja pay all costs and expenses, including legal costs and arbitral expenses, incurred by Louis Dreyfus in connection with preparation and conduct of the arbitration. The arbitration hearing has recently been postponed from November 4-8 and 11-13, 2013 to April 28-May 9, 2014.

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• a declaration that the defendants made misrepresentations with respect to the costs of the Boleo project contrary to the Securities Act (Ontario) during a class period extending from November 1, 2010, to April 23, 2012 and that they conspired with each other and with others in doing so;

• general and special damages in the amount of Cdn$250,000;

• punitive damages in the amount of Cdn$10,000; and

• interest, legal costs and costs of notice to class members and administration of a plan of distribution.

The class has not yet been certified and leave has not yet been granted to proceed with certain claims under the Securities Act. Accordingly, the Company has not accrued any provision for this class action suit as of June 30, 2013. The Company intends to defend itself and has engaged legal counsel to advise and assist the Company in its defense against this lawsuit.

 

In addition to the non-cash balance transfer from Investment in Associate to Shareholder Loans Receivable of $17,905 arising from the loss of significant influence over MMB (notes 3, 4), other non-cash investing and financing activities of the Company include the following:

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