TESORO GOLD LTD — Capital/Financing Update 2017

Mar 5, 2017

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6 March 2017

ASX: PKA

REVOLVING INVENTORY FINANCE FACILITY TO ACCELERATE REVENUE GROWTH

Key highlights

• Treliss Worldwide agrees to provide Plukka with US$1M revolving inventory facility.

• • Unique industry strategic collaboration or partnership is expected to accelerate revenue growth with the potential for higher gross margins and minimal inventory risk.

• • Facility strengthens the strategic alliance with one of the world’s largest multi-generational diamond and fine jewelry manufacturers, Treliss Worldwide Inc.

• • Plukka to expand marketing and commercialization of proprietary brands and seek new designer and brand acquisitions to drive the Company toward profitability.

Plukka Limited ( Plukka or the Company ) is excited to announce that it has entered into a major financing agreement ( Agreement ) with Treliss Worldwide Inc. ( Treliss ), one of the world’s largest diamond and fine jewelry manufacturers.

Treliss will provide Plukka with a US$1M revolving inventory financing facility for two years ( Facility ), providing Plukka with the opportunity to significantly expand its online revenue platforms without incurring the significant working capital risks associated with the acquisition of inventory. Over the two-year period, Plukka expects to utilize the full capacity of the inventory facility approximately five times, and the Facility is expected to generate US$2.5-3M[1] of additional sales revenue for Plukka over the term of the Facility.

Commenting on the Agreement Plukka’s, Managing Director Natalia Obolensky stated “ This Agreement is a powerful endorsement of the potential of Plukka’s strategy to disrupt the fine jewelry market through online platforms. Having inventory available for the consumer to fulfil immediate orders is imperative and cannot be undertaken without the support of a strong industry player like Treliss. This level of vertical integration, and the opportunity to overcome inventory supply risks, are very rare in the fine jewellery space and the strong alliance between Treliss and Plukka will bring a unique combination of market, product and consumer knowledge, backed by manufacturing excellence, to the market.”

Under the Agreement, Plukka has creative discretion as to the designs and collections to be manufactured by Treliss and Plukka may hold such inventory on a consignment basis or return the inventory to Treliss any time in full discharge of its obligations relating to that inventory. Any inventory remains the property of Treliss until sold and paid for. Plukka’s data to date indicates that online customers are 80% more likely to purchase where the product is in stock so it is critical that Plukka enable inventory to be stocked, without affecting Plukka’s inventory risk profile. This level of vertical integration is rare in the fine jewelry world, and provides Plukka with a business model that is financially more sustainable than most retailers who struggle to maintain inventory and drive sales.

Additionally, Treliss will be:

• providing drop shipping services from USA and India, reducing duplicative (or select) shipping, duty and tax costs in select market opportunities, as well as further stream-lining operations;

• • increasing business transparency to Plukka, including but not limited to pricing, real time inventory access and sharing select operational data;

• • facilitating opportunities for the possible expansion of Plukka’s distribution network in USA and online through Treliss’ relationships developed over decades of industry know how and experience; and

1 This valuation was calculated with reference to the Board’s reasonable assumptions that Plukka will utilize the Facility 5 times, providing Plukka with US$5M (at wholesale prices) of inventory to sell and assuming a conservative 25% conversion rate which would generate approximately US$2.7M of additional sales revenue over the term.

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• collaborating with Plukka to create and improve customer experiences, attract new designers and explore how Plukka can use Treliss’ existing IP and patents to create innovative technologies and services to disrupt the fine jewelry online sales experience.

The Board of Plukka expect that the alliance between Treliss and Plukka under the Agreement will:

• increase revenues through improved distribution achieved by Treliss introductions into existing retail partners, increased in-stock items through the Treliss inventory facility and better product/market fit through detailed product development work;

• • improve gross margin through improved manufacturing planning, lead times and processes providing more competitive purchase prices, as well as opportunities to streamline operations with drop shipping.

• • create inorganic growth opportunities. With the combination of the Plukka sales platform and Treliss manufacturing facility, Plukka will aim to acquire smaller jewelry brands on a royalty or low-dilution equity basis;

• position Plukka as a true disruptor and market leader in the fine jewelry industry. This deal allows Plukka to feedback valuable customer data to Treliss as a manufacturer and reduce inventory costs and improved product cycles while simultaneously attracting, protecting and investing in creative designers.

In consideration for the provision of the Facility, and the above strategic benefits and opportunities, Plukka has issued to Treliss 20,963,531 ordinary shares ( Shares ) in Plukka all of which will be escrowed for 24 months. Should the Facility be terminated by Plukka before the expiry of the two-year term for cause, Treliss agrees to forfeit all Shares. Conversely, if the Facility is terminated by Treliss before the expiry of the term for cause, Treliss shall be entitled to keep the Shares and the escrow restrictions shall be released. Further information regarding the termination events are set out in Annexure A.

As a condition of the Agreement, Treliss’ Chief Executive Officer, Mr. Nirav Mehta, will join the Board of Directors of Plukka. Mr. Mehta brings significant global industry experience and knowledge in sourcing, and polishing of diamonds, manufacturing of jewelry and strategic brand building and distribution across global markets.

Natalia further added: “ In the nine months since I assumed the role of Managing Director, Plukka has undergone significant changes, including major cost reductions, personnel changes, the launching of a proprietary and exclusive Plukka brand collection, and a renewed focus on the online jewellery market. I am convinced that Plukka can create a truly disruptive fine jewelry online sales experience and our core focus in 2017, once the Treliss Facility is in place, will be on scaling up the revenue generating capacity of Plukka and driving the Company forward sustainable profitability.”

Treliss’ Chief Executive Officer Nirav Mehta, comments, “We see huge strategic value in aligning with a disruptive retail player such as Plukka. Their strong online presence and deep consumer knowledge, combined with our strong history of high quality manufacturing and product expertise, uniquely positions us to attack the fragmented jewellery industry. ”

Treliss is one of the world’s largest diamond and fine jewellery manufacturers and distributors. It forms part of a larger network with a collective turnover of several hundred million (USD) per annum and employs over 1,200 people globally across the group. Over the last 50 years Treliss, as part of its broader network, has developed a ‘mine to market’ business with sites at diamond mines, trading arms in Antwerp and Hong Kong for the sourcing and trading of rough diamonds and polished diamonds respectively, manufacturing facilities and offices in Antwerp, Mumbai and New York and extensive distribution channels and brand and design partnerships globally. The breadth of Treiss’ interests in diamonds and fine jewellery has enabled them to be a significant partner to some of the world’s largest and successful online and traditional brands and online and traditional retailers. Treiss is a member of both the World Diamond Council and the Responsible Jewellery Council, demonstrating both its excellence and commitment to sustainable sourcing and responsible manufacturing.

Subject to the Company satisfying the relevant regulatory requirements, Plukka’s largest shareholder, Jai Waney, and Natalia Obolensky have both agreed to voluntary escrow restrictions being applied to their securities for the same duration that those restrictions apply to Treliss’ Shares. Jai Waney’s shares remain subject to ASX mandatory escrow restrictions until December 2017.

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Natalia Obolensky has also agreed to extend the period of notice she is required to give Plukka to terminate her executive services agreement to 6 months. During this notice period, Plukka can reduce Ms. Obolensky’s notice period to a minimum of 3 months with 1 months’ notice. Plukka’s obligation to give notice to terminate Ms. Obolensky’s employment remains unchanged at 3 months.

Plukka’s Chairman, Andrew Worland, stated “ These additional commitments offered by each of Treliss, Mr. Waney and Ms. Obolensky are clear demonstrations of their support of Plukka and belief in, and commitment to, the potential of this strategic alliance with Treliss and Plukka’s growth objectives. These escrow arrangements are a strong vote of confidence in the capability of Plukka to deliver shareholder value into the future. ”

The securities which will be subject to voluntary escrow restrictions for 24 months from the date of issue of the Shares to Treliss (or until earlier termination of the Agreement) are as follows:

• 50,388,475 ordinary shares[2] ;

• 14,731,976 Performance Rights[3] ; and

• 2,500,000 Options[4] .

Furthermore, in the continued focus on reducing overheads, Plukka’s Chairman, Andrew Worland, has agreed to take on additional group financial reporting preparation and responsibilities and streamline the finance function to allow Natalia and her team to focus on operational performance. Gloster Capital, an entity related to Andrew Worland, will charge a monthly fee of AUD $3,000 (plus GST) for the services. The provision of these services by Mr. Worland improves the quality of the business’ financial management and controls, at a significant cost saving to commercial market rates for such services.

The Company’s Managing Director, Natalia Obolensky, has also elected to convert 1,081,458 Time Based Performance Rights into that number of fully paid ordinary Shares ( Conversion Shares ). These Time Based Performance Rights vested upon satisfaction of the relevant service based milestones attaching to the Time Based Performance Rights issued to Ms Obolensky on 3 March 2016.

The Performance Rights (and consequently the Conversion Shares) were issued to Ms Obolensky prior to her becoming a Director of the Company pursuant to the Company’s 15% placement capacity under ASX Listing Rule 7.1 and without disclosure in accordance with Chapter 6D of the Corporations Act 2001(Cth) (Act).

An Appendix 3B and Appendix 3X accompany this Announcement.

2 27,262,028 of these shares are subject to ASX mandatory escrow until December 2017 and voluntary escrow restrictions past this date are subject to regulatory approval.

3 3,990,000 of these performance rights are subject to ASX mandatory escrow until December 2017 and voluntary escrow restrictions past this date are subject to regulatory approval.

4 These unlisted options are exercisable at $0.20 expiring 3 years from the date of issue and remain subject to ASX mandatory escrow until December 2017 and voluntary escrow restrictions past this date are subject to regulatory approval.

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Notice given under Section 708A(5) of the Corporations Act

The Company hereby provides notice in accordance with section 708A(5)(e) of the Act that:

• (a) on 6 March 2017 the Company completed the issue and allotment of 20,963,531 fully paid ordinary shares to Treliss Worldwide Inc. and 1,081,458 fully paid ordinary shares to Managing Director, Natalia Obolensky;

• (b) the Company issued the securities without disclosure under Part 6D.2 of the Act;

• (c) as at the date of this notice:

• a. the Company has complied with the provisions of Chapter 2M and section 674 of the Act as they apply to the Company;

• b. there is no information that has been excluded from a continuous disclosure notice in accordance with the ASX Listing Rules or that investors and their professional advisors would reasonably require for the purpose of making an informed assessment of:

  • i. the assets and liabilities, financial position and performance, profits and losses and prospects of the Company; or

  • ii. the rights and liabilities attaching to the fully paid ordinary shares.

For more information, please contact:

	Natalia Obolensky		CharlyDuffy
	natalia@plukka.com		charly@cdplus.com.au
	ManagingDirector		Director / CompanySecretary

About PLUKKA

Plukka is a global, bricks and clicks retailer for creative and fashion-forward fine jewelry. Founded in 2011 as a discovery machine for jewellery, Plukka has evolved into a sophisticated ecommerce platform, supported by offline retail operations, that is actively disrupting the highly fragmented, but growing jewellery market world-wide.

The majority of the collections on the website are priced between US$500 and US$2,000, but all feature stylish, edgy pieces which are true style signifiers and have been embraced by the press and celebrities world-wide. The collection, including rings, earrings, bracelets and necklaces, is made of precious and semiprecious stones, 14K or 18K gold, as well as other precious metals.

With industry spending forecast to reach $370B in 2020[5] , and with 10% of spending shifting to online, Plukka is uniquely positioned to capture this new and dynamic jewellery market. Additionally, Plukka is one of the first creative fine jewellery retailers to vertically integrate through strategic partnerships and ensure that the jewellery designs are customer-centric, rather than product driven. www.plukka.com

Disclaimer

This announcement contains “forward-looking statements.” These can be identified by words such as “may”, “should”, “anticipate”, “believe”, “intend”, “estimate”, and “expect”. Statements which are not based on historic or current facts may be forward-looking statements. Forward-looking statements are based on:

• (a) assumptions regarding the Company’s financial position, business strategies, plans and objectives of management for future operations and development and the environment in which the Company will operate; and

• (b) current views, expectations and beliefs as at the date they are expressed and which are subject to various risks and uncertainties.

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The forward-looking statements contained within the presentation are not guarantees or assurances of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of the Company, which may cause the actual results, performance or achievements of the Company to differ materially from those expressed or implied by forward-looking statements. For example, the factors that are likely to affect the results of the Company include: general economic conditions in Australia and globally; exchange rates; competition in the markets in which the Company does and will operate; weather and climate conditions; trading conditions and prices of precious stones and materials; technology and infrastructure; conduct of contracted counterparties; and the inherent regulatory risks in the businesses of the Company. The forward-looking statements contained in this announcement should not be taken as implying that the assumptions on which the projections have been prepared are correct or exhaustive. The Company disclaims any responsibility for the accuracy or completeness of any forward-looking statement. The Company disclaims any responsibility to update or revise any forwardlooking statement to reflect any change in the Company’s financial condition, status or affairs or any change in the events, conditions or circumstances on which a statement is based, except as required by law. The data, projections or forecasts included in this presentation have not been audited, examined or otherwise reviewed by the independent auditors of the Company. You must not place undue reliance on these forward-looking statements.

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ANNEXURE A: TERMINATION EVENTS UNDER THE AGREEMENT

A Party to the Agreement (“ Terminating Party ”) may terminate this Agreement with immediate effect where another Party to the Agreement (“ Defaulting Party ”):

• (a) has committed a breach of any of the material terms, conditions or provisions of this Agreement on its part to be observed or performed and, if such breach be remediable, has failed to remedy the same within 30 days after receipt of written notice to do so; or

• (b) has failed to comply with, or satisfy, its Delivery obligations in respect of 8% or more of all Orders within the applicable time frame over any calendar quarter; and the Terminating Party has provided 10 days written notice to the Defaulting Party within which period the Parties have negotiated in good faith to resolve the issue and the Terminating Party has not withdrawn its notice to terminate; or

• (c) suspends or discontinues its business or sells or otherwise disposes of all or a substantial part of its assets which materially detrimentally affects its financial position; or

• (d) consents to the appointment of a receiver, trustee, liquidator or similar office of itself or all or a substantial part of its assets, or admits in writing its insolvency, or bankruptcy or inability to pay its debts as they become due, or makes a general assignment for the benefit of creditors, or files a petition of bankruptcy, or (being insolvent) seeks relief under the provisions of any bankruptcy or other similar law which provides for the reorganization or winding up of insolvent corporation (other than for the purpose of amalgamation or reconstruction); or

• (e) has an order made against it for bankruptcy, insolvency or winding up; or

• (f) has a receiver appointed of its assets or any arrangement made for the benefit of its creditors.