Securities Law & Instruments

Headnote

Related party transaction -- issuer and related party to issuer each agree to transaction with arm's length third party -- as a step in the transaction, the issuer will acquire assets of the related party and then transfer the assets to the arm's length party -- direct acquisition of assets of the related party by the arm's length party would not be subject to MI 61-101 -- transaction is related party transaction in form but not in substance.

Applicable Legislative Provisions

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 5.6, 9.1.

IN THE MATTER OF

MULTILATERAL INSTRUMENT 61-101

PROTECTION OF MINORITY SECURITY

HOLDERS IN SPECIAL TRANSACTIONS

AND

IN THE MATTER OF

SILVERMET INC.

ORDER

UPON the application (the "Application") of Silvermet Inc. ("Silvermet" or the "Filer") to the Director pursuant to section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") for a decision that the requirements to call a meeting of shareholders and send an information circular to such sharholders set out in section 5.3 of MI 61-101 and to obtain minority approval for a related party transaction set out in section 5.6 of MI 61-101 do not apply to the Filer with respect to the Transaction (as defined below) (the "Requested Relief");

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

AND WHEREAS defined terms contained in the Instrument have the same meaning in this order unless they are defined in this order;

AND UPON Silvermet having represented to the Director as follows:

1. Silvermet is a corporation organized under the laws of the Province of Ontario and its head and registered office is located at 8 King Street East, Suite 1700, Toronto, Ontario, M5C 1B5.

2. Silvermet is a reporting issuer in the provinces of Alberta, British Colombia and Ontario and is not in default of securities legislation in any such jurisdiction.

3. Silvermet's authorized share capital consists of an unlimited number of common shares without par value (the "Common Shares"). As at October 4, 2010, 134,405,216 Common Shares were issued and outstanding.

4. The Common Shares are listed for trading on the TSX Venture Exchange (the "TSX-V"). Based on the closing price of $0.17 of the Common Shares on the TSX-V on October 4, 2010, the current market capitalization of Silvermet is approximately $22.85 million.

5. Silvermet is the owner of a 58.5% interest in Straits Metals Recycling Corp. Pte. Ltd. ("Straits Metals"), a corporation organized under the laws of Singapore, which owns a 100% interest in SYI Metalurji Madencilik Sanayi ve Ticaret A.S. ("SYI"), a corporation organized under the laws of Turkey. SYI is the operator of a Waelz kiln facility in Iskenderun, Turkey that processes electronic arc furnace dust to produce a zinc oxide concentrate for sale to smelters throughout the world.

6. Straits Metals is the owner of a 100% interest in Straits Metals Sales Corp. ("Straits Sales"), a corporation organized under the laws of Ontario, a commercial company that manages SYI's relationship with smelters by acquiring concentrate from SYI and arranging for sales to smelters.

7. MRH Residuos Metá;licos, S.L.U. ("Befesa") is a corporation organized under the laws of Spain and its head office is located at Ctra. Bilbao-Plencia, 21, 48950 Erandio, Spain.

8. Befesa is not a reporting issuer or a registrant in any Canadian jurisdiction and is not in default of securities legislation in any Canadian jurisdiction.

9. Cooper Island, LLC ("Cooper Island") is a corporation organized under the laws of the State of Delaware and its head office is located at 5910 North Central Expressway, Suite 1350, Dallas, Texas, 75206.

10. Cooper Island is not a reporting issuer or a registrant in any Canadian jurisdiction and is not in default of securities legislation in any Canadian jurisdiction.

11. Cooper Island is the owner of a 41.5% interest in Straits Metals.

12. Cooper Island owns 367,000 Common Shares and Greyling Investments Inc., an affiliated entity of Cooper Island, owns 13,850,000 Common Shares. Collectively, Cooper Island and Greyling Investments Inc. own approximately 10.58% of the issued and outstanding Common Shares, and Cooper Island is thus considered a related party of Silvermet under MI 61-101.

13. Befesa is not a related party to either of Silvermet or Cooper Island and has at all times acted at arm's length in its dealings with both Silvermet and Cooper Island.

14. Cooper Island is not a related party to Befesa and has at all times acted at arm's length in its dealings with Befesa.

15. Befesa and Cooper Island entered into a letter of intent dated July 28, 2010 pursuant to which Befesa agreed to acquire the 41.5% equity interest of Cooper Island in Straits Metals for aggregate cash consideration of US$4,000,000 (the "Cooper Island Agreement").

16. Silvermet and Befesa entered into a letter of intent dated July 28, 2010, followed by an investment agreement dated September 27, 2010 (the "Investment Agreement") pursuant to which Silvermet and Befesa agreed to enter into a series of strategic transactions that will result in (a) Befesa and Silvermet holding 51% and 49% participating interests, respectively, in Befesa Silvermet Turkey, S.L. ("Befesa Silvermet"), a corporation organized under the laws of Spain, which will be formed to own and operate SYI, and (b) Befesa owning approximately 10% of the issued and outstanding Common Shares.

17. Each of the Investment Agreement and the Cooper Island Agreement were negotiated at arm's length by the respective parties thereto and their legal counsel.

18. Silvermet issued and filed a press release on SEDAR on September 27, 2010 disclosing certain terms of the Investment Agreement, including the aggregate investment amount by Befesa of US$10,000,000.

19. Pursuant to the Investment Agreement, on the closing date thereof, the following transactions (the "Transaction") will occur in the order set out below:

(a) Befesa will subscribe for and purchase 16,000,000 Common Shares, representing approximately 10% of the issued and outstanding Common Shares, at a price of Cdn.$0.125 per Common Share for aggregate consideration of Cdn.$2,000,000;

(b) Silvermet will subscribe for and purchase the number of shares of Befesa Silvermet determined by the Euro equivalent of the amount referred to in paragraph 19(a);

(c) Befesa will subscribe for and purchase the number of shares of Befesa Silvermet determined by the Euro equivalent of US$4,000,000;

(d) Befesa Silvermet will advance a loan of US$4,000,000 to Silvermet (Singapore) Pte. Ltd., a corporation organized under the laws of Singapore ("Silvermet Singapore"), in exchange for a promissory note from Silvermet Singapore;

(e) Befesa will cause the shares of Straits Metals owned by Cooper Island to be delivered to Silvermet Singapore for aggregate consideration of US$4,000,000 paid to Cooper Island by Befesa Silvermet;

(f) Silvermet Singapore will assign the loan referred to in paragraph 19(d) to Straits Metals pursuant to an assignment and assumption agreement;

(g) Pursuant to an assignment and assumption agreement, and in exchange for the cancellation of the promissory note and in full satisfaction of the repayment of the loan referred to in paragraph 19(d), the following will occur:

(i) Straits Metals will (A) sell 2,490,000 shares of SYI (representing approximately 41.5% of the outstanding shares of SYI) plus intercompany receivables to Befesa Silvermet and (B) sell 100% of the shares of Straits Sales to Silvermet;

(ii) Silvermet will transfer all of the assets of Straits Sales to Befesa Silvermet; and

(iii) Befesa Silvermet will assume certain liabilities of Straits Metals and Straits Metals and Straits Sales;

(h) Straits Metals will transfer 3,510,000 shares of SYI (representing approximately 58.5% of the outstanding shares of SYI) to Silvermet for the equivalent fair market value per share paid by Befesa Silvermet for the shares of SYI referred to in paragraph 19(g)(i);

(i) Silvermet will transfer the 3,510,000 shares of SYI acquired in the previous step to Befesa Silvermet in exchange for the number of shares of Befesa Silvermet equal to the Euro equivalent of the 3,510,000 shares of SYI to be transferred to Befesa Silvermet; and

(j) Befesa will subscribe for and purchase from Befesa Silvermet the number of shares of Befesa Silvermet that will result in Befesa and Silvermet holding 51% and 49%, respectively, of the shares of Befesa Silvermet for aggregate consideration of US$6,000,000 less the U.S. dollar equivalent of the amount referred to in paragraph 19(a).

20. The closing of the transaction contemplated by the Cooper Island Agreement will occur concurrently with the closing of the Transaction.

21. Upon completion of the Transaction: (i) Cooper Island will cease to hold its indirect interest in SYI; (ii) Befesa and Silvermet will become the 51% and 49% holders, respectively, of Befesa Silvermet; and (iii) SYI will continue to exist as an operating subsidiary of Befesa Silvermet.

22. For tax planning purposes, the Transaction has been structured in a manner such that the indirect interest of Cooper Island in SYI will be acquired by a subsidiary of Silvermet and subsequently transferred to Befesa. By virtue of this intermediary step, the Transaction is technically a related party transaction under MI 61-101. This step of the Transaction, however, is a purely structural step and the Transaction is, in substance, an arm's length transaction.

23. Silvermet is relying upon the exemption set out in section 5.5(b) of MI 61-101 from the requirement under section 5.5 of MI 61-101 to obtain a formal valuation for a related party transaction as no securities of Silvermet are listed or quoted on any of the markets specified in section 5.5(b) of MI 61-101.

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

IT IS ORDERED by the Director pursuant to section 9.1 of MI 61-101 that the Requested Relief is granted.

DATED October 25, 2010.

"Naizam Kanji"
Deputy Director, Corporate Finance Branch
Ontario Securities Commission