Dolly Varden Silver Corp., a junior explorer focused on the Dolly Varden silver property located in northwestern British Columbia, Canada, thwarted an unsolicited takeover bid from Hecla Mining Corp. During mid-June, Dolly Varden announced plans to borrow money from three lenders — Sprott Private Resource Lending, an additional Sprott affiliate and The K2 Principal Fund — to pay off an existing $2.5 million loan to “become debt free.”

Restrictions on the loan prohibited Dolly Varden from issuing securities to pay it off without obtaining the Hecla’s consent. Dolly Varden was borrowing the money to pay back the loan and then planning to issue stock to pay off the lenders. On June 27, Hecla Mining Co. and its affiliates made an unsolicited takeover bid for all of roughly 80% of outstanding shares of Dolly Varden, which it did not already own.

Dolly Varden reported on July 4 it had repaid the senior secured loan with proceeds from a short-term loan. Hecla, however, filed a formal takeover bid circular to purchase all of the outstanding shares of Dolly Varden.

On July 26, Dolly Varden reported it had been granted favorable decisions on both matters considered in joint hearings before the British Columbia Securities Commission (BCSC) and the Ontario Securities Commission (OSC). The commissions denied a request by Hecla to stop Dolly Varden from completing the previously announced financing and agreed with Dolly Varden that Hecla’s unsolicited bid for Dolly Varden was an insider bid and therefore Hecla must obtain and disseminate to the company’s shareholders (at its own expense) an independent formal valuation. Hecla withdrew its bid for Dolly Varden.

“We were grateful the hearings were expedited and are very pleased with the commissions’ decisions,” said Rosie Moore, director and interim president and CEO for Dolly Varden. “We now look forward to completing our yearlong transformation of Dolly Varden into a well-funded junior exploration company with an exciting project. By eliminating our debt and properly funding our company, we will be able to refocus on further exploration and expansion of our prospective Dolly Varden silver property.”

Once Dolly Varden receives a formal valuation, Moore explained, it will be able to fully evaluate Hecla’s offer.
The company now plans to close the offering announced July 5, upon receipt of the approval of the TSX Venture Exchange, which would raise $6 million from the sale of more than 7.2 million shares at a price of $0.62/share, and repay the $2.5 million loan from Sprott and K2.

In instances where a takeover offer is submitted by an entity that has either management representation or material undisclosed information, Multilateral Instrument 61-101 Protection of Minority Shareholders in Special Transactions mandates an Independent Formal Valuation be provided to shareholders of the target company. A formal valuation was not included in Hecla’s bid circular, dated July 8, in which Hecla also announced that, if the offering was completed, Hecla would not proceed with its bid. At the request of the Dolly Varden, the commissions determined Hecla was an insider and MI 61-101 applied.

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