Securities Law & Instruments


Rule 61-501 - related party transactions - exemption from minority approval requirement in connection with proposed loan to be made to issuer by a related party - minority approval required because warrants to be provided to the related party in connection with the loan - issuer listed on TSX Venture Exchange - related party involved in the transaction owns less than 20% of the issuer's outstanding shares, is a passive investor in the issuer and has no representation on the issuer's board of directors - loan is on commercial terms and was negotiated by an independent board after reviewing a wide range of proposals and receiving independent financial advice - shares to be issued on exercise of the warrants will be under 25% of issuer's market capitalization -- exemption granted.

Rules Cited

Rule 61-501 -- Insider Bids, Issuer Bids, Going Private Transactions and Related Party Transactions, ss. 5.6 and 9.1.



RULE 61-501 ("Rule 61-501")






(Section 9.1 of Rule 61-501)

UPON the application (the "Application") of Red Back Mining Inc. ("Red Back") to the Director for a decision pursuant to section 9.1 of Rule 61-501 that, in connection with the creation of certain credit facilities (including the issuance of warrants of Red Back) (the "Loan") obtained by Red Back with Macquarie Bank Limited ("Macquarie"), Red Back be exempt from section 5.6 of Rule 61-501 (the "Minority Approval Requirement");

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON Red Back having represented to the Director as follows:

1. Red Back is a corporation continued under the Canada Business Corporations Act and is a reporting issuer or the equivalent in Ontario, Alberta and British Columbia. As of August 4, 2004, Red Back was not in default of any requirement of the securities legislation of Ontario, Alberta or British Columbia. The registered head office of Red Back is located in Vancouver, British Columbia.

2. Red Back is a mineral resource corporation engaged in exploring, acquiring and developing mineral properties. Red Back's properties are in the exploration and development phase and it does not have any properties in commercial production. Red Back has received a bankable feasibility study prepared in respect of its Chirano Gold Project (the "Chirano Project") in Ghana. Red Back intends to commence construction and development of the Chirano Project as soon as the funds to be disbursed under the Loan are available.

3. Red Back is authorized to issue an unlimited number of common shares (the "Red Back Shares"). As of August 4, 2004, the issued and outstanding share capital of Red Back consists of 62,438,058 Red Back Shares (or 80,407,889 Red Back Shares on a fully diluted basis). The Red Back Shares are listed on the TSX Venture Exchange.

4. Macquarie is an Australian-based provider of investment banking and financial services internationally.

5. Macquarie, and affiliates thereof, and the associates of each of them, own or control, as of August 4, 2004, in aggregate, approximately 18.0% of the Red Back Shares, or approximately 14.0% of the Red Back Shares on a fully diluted basis.

6. Macquarie does not have any representation on the board of directors of Red Back.

7. The Loan is on commercial terms and consists of a Corporate Loan Facility, a Standby Loan Facility, and a Gold Hedging Facility.

8. The Corporate Loan Facility is anticipated to be in the amount of USD$30,000,000. The interest rate will be 2.5% per annum above the USD LIBOR rate. There will also be an Undrawn Line Fee of 0.35% per annum and a Commitment Fee of 1.00% on the total Corporate Loan Facility amount. Repayment of the Corporate Loan Facility will be pursuant to a commercially standard repayment schedule.

9. The Standby Loan Facility is anticipated to be in the amount of USD$13,000,000. The interest rate will be 2.5% per annum above the USD LIBOR rate. There will also be an Undrawn Line Fee of 0.35% per annum and a Commitment Fee of 2.00% on the total Standby Loan Facility amount. Within five business days of each draw-down of the Standby Loan Facility, Red Back will issue warrants exercisable for Red Back Shares at a price of CDN$2.25 per share to Macquarie (the "Warrants"). The number of Warrants received will be based on a formula whereby the draw-down amount is converted from US to Canadian dollars and then divided by the exercise price of CDN$2.25. At the current exchange rate, the total number of Warrants issuable will be a maximum of 7,600,667 which, if exercised, represents less than 11.0% of the issued and outstanding Red Back Shares (or 9.0% on a fully diluted basis). The Warrants will expire within three years of the date of issue. The first draw-down date shall be no later than June 30, 2005 (unless otherwise agreed to by Macquarie), with a final repayment date of June 30, 2009. Repayment of the Standby Loan Facility will be pursuant to a commercially standard repayment schedule. If the Standby Loan Facility is not drawn down or is cancelled by Red Back by June 30, 2005, a number of Warrants will be issued to Macquarie within five business days. The number of Warrants issued will be calculated based on a formula whereby one tenth of the total Standby Loan Facility is multiplied by the US/Canadian exchange rate and divided by the exercise price of $2.25. After such issuance, Red Back will no longer be obligated to issue any additional Warrants to Macquarie under the terms of the Standby Loan Facility.

10. The Gold Hedging Facility will consist of USD denominated gold puts and calls based on recoverable gold production from the Chirano Project. A hedging margin of 1.10% will apply to standard flat forward gold hedging structures during the term of the facility. This facility will have no margin calls and will expire December 31, 2010.

11. The Loan will be secured against all the present and after acquired property of Red Back and will be on terms that are standard for transactions of this type in the industry.

12. Red Back's board of directors and management are satisfied that the terms of the Loan are reasonable commercial terms that are not less advantageous to Red Back than if the Loan was obtained from a person or company dealing at arm's length with Red Back. Red Back has held previous arm's length negotiations with other potential lenders within the last 12 months and has, in the opinion of Red Back's board of directors and management, accepted the Loan on terms more favourable than the financing terms offered by other potential lenders.

13. Red Back engaged an independent financial advisor who invited offers to provide debt financing for the construction and development of the Chirano Project. Red Back received several financing offers and a total of nine potential lenders were put on a short list. Negotiations proceeded with those bidders and term sheets were presented by Macquarie and five other bidders. Red Back concluded, based in part on the advice of its financial advisor, that the terms of the Loan, as negotiated with Macquarie, were the most advantageous to Red Back.

14. As neither Macquarie, nor any of its affiliates, is represented on the board of directors of Red Back, the decision to accept the terms of the Loan was made by a board consisting entirely of directors independent of Macquarie in consultation with Red Back's management and independent financial advisor.

15. The terms of the Loan require Red Back to first exhaust the Corporate Loan Facility prior to drawing on the Standby Loan Facility. Red Back believes this is unusual in the current market and is advantageous to it. The Warrants will be exercisable at a premium over the current trading price of Red Back Shares. The Warrants, if exercised based upon prevailing exchange rates, will represent less than 9.0% of the currently outstanding Red Back Shares on a fully diluted basis. Red Back believes the issuance of the Warrants, and any subsequent exercise of these Warrants, will have an insignificant impact on the capitalisation of Red Back and the holdings of Red Back's shareholders.

16. As Macquarie owns more than 10% of the Red Black Shares, it is a related party of Red Back. The Loan is therefore a related party transaction under Rule 61-501. Red Back would therefore be required, absent an exemption or discretionary relief, to comply with the Minority Approval Requirement.

17. The application of the Minority Approval Requirement will impose significant additional delays that will adversely affect the financial position of Red Back. Red Back is party to certain construction contracts that it has entered into in the ordinary course of business and that impose penalties for delays. Therefore, the delay caused by the requirement to obtain minority approval of Red Back shareholders may result in the imposition of significant penalties against Red Back. In the opinion of the board of directors and management of Red Back, these penalties would render its Chirano Project economically unfeasible and result in serious financial distress for Red Back.

18. Pursuant to subsection 6.3(2) of Rule 61-501, Red Black is exempt from the requirement to provide a formal valuation as the non-cash consideration consists of securities of Red Back and there is no material information regarding Red Back, the Warrants, or any other securities of Red Back that has not been generally disclosed.

AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;

IT IS DECIDED pursuant to section 9.1 of Rule 61-501 that, in connection with the Loan, Red Back shall not be subject to the Minority Approval Requirement, provided that Red Back complies with the other applicable provisions of Rule 61-501.

August 12, 2004.

"John Hughes"