MARKLAND AGF PRECIOUS METALS CORP.

Transcription

1 No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. PROSPECTUS Initial Public Offering July 30, MAY MAY MARKLAND AGF PRECIOUS METALS CORP. Maximum: $75,000,000 (7,500,000 Units) (Each Unit consisting of one Equity Share and one-half of a Warrant for one Equity Share) Markland AGF Precious Metals Corp. (the Company ) is a corporation established under the laws of the Province of Ontario. The Company proposes to offer Units at a price of $10.00 per Unit. Each Unit consists of one non-voting redeemable Equity Share of the Company and one-half of a transferable Warrant. Each whole Warrant entitles the holder to purchase one Equity Share of the Company at a subscription price of $10.25 on July 30, 2010 by notifying the Warrant Trustee during the Warrant Notice Period (defined herein). Warrants may only be exercised on July 30, 2010 and Warrants not exercised on that date will be null and void. The Company s investment objective is to provide holders of Equity Shares (the Shareholders ) with the opportunity for capital appreciation by investing in an actively managed portfolio (the Portfolio ) of equity securities, consisting of Gold and Precious Metals Companies and, to a lesser extent, Base Metals and Minerals Companies, as well as precious metals, such as gold and silver bullion. AGF Funds Inc. ( AGF or the Investment Advisor ) intends to manage the Portfolio using substantially the same investment methodology and strategy as it employs in managing the AGF Precious Metals Fund. The AGF Precious Metals Fund, which has a 5 year annual compound rate of return of 35.95%, was awarded the Precious Metals Equity Fund of the Year in both 2006 and 2004 at the Canadian Investment Awards and the Best 5-Year Returns in Precious Metals category in 2007 by Canadian Lipper Funds. See The Investment Advisor. The Manager and the Investment Advisor believe that the Company offers an attractive investment opportunity for a number of reasons, including strong supply and demand dynamics for precious metals, the effectiveness of gold as a hedge against a depreciating U.S dollar and currently attractive relative valuations for bullion. The Investment Advisor expects to initially select a portfolio of approximately 135 securities. It is anticipated that holdings in the following 10 securities, presented by order of their initial weighting, will represent approximately 33% of the initial Portfolio: 1. Inmet Mining Corporation 6. Aurelian Resources Inc. 2. Goldcorp Inc. 7. European Goldfields Limited 3. IAMGOLD Corporation 8. Sherritt International Corporation 4. Kinross Gold Corporation 9. Agnico-Eagle Mines Limited 5. High River Gold Mines Ltd. 10. Freeport-McMoRan Copper & Gold Inc. Markland Street Asset Management Inc. (the Manager ) will act as manager of the Company and will provide administrative services to the Company, and AGF will provide investment advisory and portfolio management services to the Company. AGF is one of Canada s leading asset managers providing investment advisory and portfolio management services to investment funds and institutional clients since As of April 30, 2007, the AGF group of companies had approximately $55 billion of assets under management. The AGF investment team that will be responsible for the management of the Portfolio currently manages approximately $4 billion, $1.8 billion of which is in precious metals and resource mandates, including approximately $594 million in the AGF Precious Metals Fund. Prospective purchasers may purchase Units either by (i) cash payment, or (ii) an exchange (the Exchange Option ) of freely tradeable securities of those issuers set forth in this prospectus under the heading Exchange Option Exchange Eligible Issuers (collectively, the Exchange Eligible Issuers ). The Exchange Option does not constitute, and is not to be construed as, a take-over bid for any Exchange Eligible Issuer. See Exchange Option. (continued on next page)

2 (continued from cover) Price: $10.00 per Unit Minimum Purchase: 100 Units Price to the Net Proceeds Public (1) Agents Fee to the Company (2) Per Unit... $10.00 $0.525 $9.475 Total Minimum Offering (3)... $20,000,000 $1,050,000 $18,950,000 Total Maximum Offering (4)... $75,000,000 $3,937,500 $71,062,500 Notes: (1) The offering price was established by negotiation between the Agents (as defined herein) and the Manager. The price per Unit is payable in cash or in securities of Exchange Eligible Issuers deposited pursuant to the Exchange Option. (2) Before deducting the expenses of this offering estimated to aggregate $600,000, which, together with the Agents fees, will be paid out of the proceeds of the offering. The Manager has agreed to pay all expenses incurred in connection with the offering that exceed 1.5% of the gross proceeds of this offering. (3) There will be no closing unless a minimum of 2,000,000 Units are sold. (4) The Company has granted the Agents an option (the Over-Allotment Option ), exercisable for a period of 30 days from the closing of this offering, to purchase at the offering price additional Units in an amount equal to up to 15% of the aggregate number of Units issued at the closing of this offering, which Over-Allotment Option and additional Units are qualified under this prospectus. If the Over-Allotment Option is exercised in full, under the maximum offering, the total price to the public, Agents fees and net proceeds to the Company will be $86,250,000, $4,528,125 and $81,721,875, respectively. See Plan of Distribution. Commencing in December 2008, Equity Shares may be surrendered for redemption during the period from December 15 th until 5:00 p.m. (Toronto time) on the 20 th Business Day before the last Business Day in January in each year (the Notice Period ), subject to the Company s right to suspend redemptions in certain circumstances. Equity Shares surrendered for redemption by a Shareholder during the Notice Period will be redeemed on the last Business Day of January of each year (the Annual Redemption Date ) and the Shareholder will receive payment on or before the 15 th Business Day following the Annual Redemption Date. Shareholders will receive a redemption price per Equity Share equal to 100% of the Net Asset Value per Equity Share determined as of the Annual Redemption Date less (i) the aggregate of all brokerage fees, commissions and other costs relating to the disposition of securities in the Portfolio necessary to fund such redemptions or (ii) if the Manager determines that it is not practicable or necessary for the Company to effect all or part of such disposition, then the aggregate of all brokerage fees, commissions and other transaction costs that the Manager estimates would have resulted from such disposition. For the Annual Redemption Dates occurring in January 2009 and January 2010, Shareholders must concurrently surrender for redemption one half of a Warrant with each Equity Share surrendered for redemption. See Redemption of Equity Shares. An investment in the Units is subject to a number of risks that should be considered by a prospective purchaser. An investment in the Units is highly speculative and may result in the loss of an investor s entire investment. Only potential investors who are experienced in high risk investments and who can afford to lose their entire investment should consider an investment in the securities of the Company. The value of the Equity Shares held by a Shareholder may be diluted as a result of the exercise of Warrants by others. Upon exercise of a Warrant, the Company will pay a fee equal to $0.25 to the dealer whose client is exercising the Warrant. There is currently no market through which the Equity Shares or the Warrants may be sold and purchasers may not be able to resell securities purchased under this prospectus. There is no assurance that the Company will be able to achieve its capital appreciation objective. See Risk Factors for a discussion of various risk factors that should be considered by prospective investors. The Toronto Stock Exchange (the TSX ) has conditionally approved the listing of the Units, Equity Shares and Warrants, subject to the Company fulfilling all of the requirements of the TSX on or before September 18, 2007, including distribution of such securities to a minimum number of public holders. RBC Dominion Securities Inc., CIBC World Markets Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc., Scotia Capital Inc., TD Securities Inc., Canaccord Capital Corporation, Berkshire Securities Inc., Dundee Securities Corporation, HSBC Securities (Canada) Inc., Raymond James Ltd., Blackmont Capital Inc., Desjardins Securities Inc., Research Capital Corporation, and Wellington West Capital Inc. (collectively, the Agents ) conditionally offer the Units, subject to prior sale, on a best efforts basis, if, as and when issued by the Company and accepted by the Agents in accordance with the conditions contained in the Agency Agreement referred to under Plan of Distribution and subject to the approval of certain legal matters by Borden Ladner Gervais LLP on behalf of the Company and Blake, Cassels & Graydon LLP on behalf of the Agents. See Plan of Distribution. Berkshire Securities Inc., one of the Agents, is an affiliate of the Manager. Consequently, the Company may be considered to be a connected issuer or related issuer of Berkshire Securities Inc. under applicable securities legislation. See Plan of Distribution. In connection with this offering, the Agents may over-allot or effect transactions related to their over-allotted position as described under Plan of Distribution. Subscriptions will be received for the Units offered hereby subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time. Closing of this offering is expected to occur on or about August 8, 2007, or such later date as the Agents and the Company may agree, but in any event, no later than August 31, The Offering of Equity Shares and Warrants will be conducted through the book-based system administered by CDS Clearing and Depository Services Inc. ( CDS ). Investors will not receive physical certificates evidencing their ownership. See Plan of Distribution and Shareholder Matters Book-Based System.

3 TABLE OF CONTENTS Page PROSPECTUS SUMMARY... 4 Subscription Right GLOSSARY OF TERMS Sale or Transfer of Warrants THE COMPANY Dilution to Existing Shareholders INVESTMENTS OF THE COMPANY Repurchase of Equity Shares Investment Objectives SHAREHOLDER MATTERS Investment Rationale Meetings of Shareholders and Investment Strategy Extraordinary Resolutions AGF Precious Metals Resources Team Reporting to Shareholders Investment Process Termination of the Company Indicative Portfolio Book-Based System Investment Restrictions PLAN OF DISTRIBUTION Use of Derivative Instruments USE OF PROCEEDS Securities Lending FEES AND EXPENSES MANAGEMENT OF THE COMPANY Initial Expenses The Manager Warrant Exercise Fee Directors and Officers of the Manager Fees and Other Expenses Directors and Officers of the Company CANADIAN FEDERAL INCOME TAX Independent Review Committee CONSIDERATIONS THE INVESTMENT ADVISOR ELIGIBILITY FOR INVESTMENT Similar Funds Managed by the Investment EXCHANGE OPTION Advisor RISK FACTORS The Investment Advisory Agreement INTEREST OF MANAGEMENT AND Proxy Voting Policies and Procedures OTHERS IN MATERIAL CONFLICTS OF INTEREST TRANSACTIONS LOAN FACILITY MATERIAL CONTRACTS DIVIDENDS LEGAL OPINIONS REDEMPTION OF EQUITY SHARES PROMOTER Annual Redemption AUDITORS Monthly Redemption CUSTODIAN Exercise of Redemption Rights REGISTRAR AND TRANSFER AGENT.. 58 Resale of Equity Shares Surrendered for PURCHASERS STATUTORY RIGHTS Redemption AUDITORS CONSENT... F-1 Suspension of Redemptions AUDITORS REPORT... F-2 CALCULATION OF NET ASSET VALUE. 36 STATEMENT OF FINANCIAL POSITION F-3 DESCRIPTION OF SHARES AND NOTES TO STATEMENT OF FINANCIAL WARRANTS POSITION... F-4 Equity Shares CERTIFICATE OF THE COMPANY AND Warrants THE PROMOTER... C-1 Delivery Form and Book-Based System CERTIFICATE OF THE AGENTS... C-2 Page 3

4 PROSPECTUS SUMMARY The following is a summary only of the principal features of this offering and is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. All references in this prospectus to dollars or $ are to Canadian dollars unless otherwise indicated. MARKLAND AGF PRECIOUS METALS CORP. Markland AGF Precious Metals Corp. (the Company ) is a corporation incorporated under the laws of the Province of Ontario. Markland Street Asset Management Inc. (the Manager ) will act as manager of the Company and will provide administrative services to the Company. AGF Funds Inc. ( AGF or the Investment Advisor ) will provide investment advisory and portfolio management services to the Company. Offering: The offering consists of Units (the Units ). Amount: Maximum: $75,000,000 (7,500,000 Units) Minimum: $20,000,000 (2,000,000 Units) Price: $10.00 per Unit Minimum Purchase: 100 Units ($1,000) Units and Warrants: Each Unit consists of one Equity Share and one-half of a Warrant. Each whole Warrant entitles the holder to purchase one Equity Share at a subscription price of $10.25 on July 30, 2010 prior to 5:00 p.m. (Toronto time) (the Expiry Time ). Warrants may only be exercised on July 30, 2010 and Warrants not exercised on that date will be void and of no value. If a Shareholder does not exercise, or sells, the Warrants, then the value of the Equity Shares held by that Shareholder may be diluted as a result of the exercise of Warrants by others. Upon the exercise of a Warrant, the Company will pay a fee equal to $0.25 to the dealer whose client is exercising the Warrant. The Equity Shares and the Warrants comprising the Units will separate immediately following the earlier of the closing of the exercise of the Over-Allotment Option or 30 days after Closing, and may be transferred separately. See Description of Shares and Warrants. Investment Advisor: AGF Funds Inc. ( AGF or the Investment Advisor ) intends to manage the Portfolio using substantially the same investment methodology and strategy as it employs in managing the AGF Precious Metals Fund. The AGF Precious Metals Fund, which has a 5 year annual compound rate of return of 35.95%, was awarded the Precious Metals Equity Fund of the Year in both 2006 and 2004 at the Canadian Investment Awards and the Best 5-Year Returns in Precious Metals category in 2007 by Canadian Lipper Funds. See The Investment Advisor. The following table shows the historical annual compound returns achieved by the Investment Advisor with respect to the AGF Precious Metals Fund for the periods shown, as at April 30, This information does not reflect the expected performance of the Company and is provided only to illustrate the experience and historic investment results obtained by the Investment Advisor in the precious metals and mining sectors. This information is not, and should not be construed as, indicative of the future performance of the Units or amounts which may be distributed by the Company. This information is provided solely for illustrative purposes, and should not be construed as a 4

5 forecast or projection. Past performance does not guarantee future investment results. YTD 1-Year 2-Year 3-Year 5-Year AGF Precious Metals Fund (1)(2). +7.5% +20.8% +59.4% +35.0% +36.0% S&P/TSX Global Gold Total Return Index (3)(4) % 11.8% +28.1% +16.7% +10.1% Outperformance % 32.6% 31.3% 18.3% 25.9% Notes: (1) Source: AGF Funds Inc. (2) These returns are the historical annual compounded total returns on a gross basis, including reinvestment of all dividends, and do not take into account management fees, operating expenses and other charges that would have reduced returns or performance. (3) Source: Bloomberg (4) The S&P/TSX Global Gold Total Return Index is a total return index composed of companies that mine or process gold and the South African finance houses which primarily invest in, but do not operate, gold mines. This index was changed from the S&P/TSX Capped Gold Total Return Index on December 18, $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $- Growth of a hypothetical $10,000 investment in the AGF Precious Metals Fund (1) from April 30, 2002 to April 30, 2007, relative to the S&P/TSX Global Gold Total Return Index Apr-02 Aug-02 (1) Returns are net of fees Source: Bloomberg S&P/TSX Global Gold Total Return Index AGF Precious Metals Fund Dec-02 Apr-03 Aug-03 Dec-03 Apr-04 Aug-04 Dec-04 Apr-05 Aug-05 Dec-05 Apr-06 Aug-06 29MAY Dec-06 Apr-07 $40,497 $14,281 The AGF Precious Metals Fund differs from the Company in several ways. The AGF Precious Metals Fund is an open-end fund, has not employed leverage as part of its investment strategy, has not used derivatives and has not engaged in short sales. AGF has been retained to provide investment advisory and portfolio management services to the Company. A team of AGF s experienced professionals will be responsible for managing the investments within the Portfolio. This team currently manages approximately $4 billion, $1.8 billion 5

6 Exchange Option: Investment Objective: Investment Rationale: of which is in precious metals and resource mandates. The team will initially be headed by Charles Oliver. Mr. Oliver is a Senior Vice-President and Portfolio Manager for AGF and has over 19 years of industry expertise. AGF is one of Canada s leading asset managers providing investment advisory and portfolio management services to investment funds and institutional clients since As of April 30, 2007, the AGF group of companies had approximately $55 billion of assets under management. With investment management expertise located in Toronto, Dublin, and Singapore, AGF acts as an investment manager for retail and institutional clients and provides sub-advisory and managed account services for several Canadian financial institutions. Since November 2000, AGF has been managing a mutual fund devoted to precious metals. As at April 30, 2007, AGF Precious Metals Fund, which has been managed since December, 2002 by Charles Oliver, had approximately $594 million in assets. At the election of a prospective purchaser of Units, the price for each Unit purchased may be paid either by (i) cash or (ii) an exchange (the Exchange Option ) of freely tradeable securities of those issuers set forth in this prospectus under the heading Exchange Option Exchange Eligible Issuers (collectively, the Exchange Eligible Issuers ). The number of Units issuable for each security of an Exchange Eligible Issuer was determined by dividing the weighted average trading price of the securities of such Exchange Eligible Issuer on the applicable stock exchange during the three consecutive trading days ending on July 25, 2007 by $10.00 (being the original issue price per Unit). A prospective purchaser of Units who elects to pay for such Units by using the Exchange Option must have done so by depositing (in the form of a book-entry deposit) securities of Exchange Eligible Issuers with CIBC Mellon Trust Company, the Company s agent for the Exchange Option, through CDS Clearing and Depository Services Inc. ( CDS ) prior to 5:00 p.m. (Toronto time) on June 25, Such book-entry deposits must have been made by a participant in CDS. Each prospective purchaser who has authorized the deposit of securities of an Exchange Eligible Issuer through CDS has the right to withdraw such deposit of securities at any time on or before midnight on the second business day after receipt or deemed receipt of the final prospectus for this Offering and any amendment. See Exchange Option. The purchase of Units by the exchange of securities of an Exchange Eligible Issuer pursuant to the Exchange Option will be a taxable event for the purchaser. See Canadian Federal Income Tax Considerations. The Company s investment objective is to provide Shareholders with the opportunity for capital appreciation by investing in an actively managed portfolio (the Portfolio ) of equity securities, consisting of Gold and Precious Metals Companies and to a lesser extent Base Metals and Minerals Companies, as well as Precious Metals, including Gold Bullion and Silver Bullion, subject to the Company s investment restrictions. The Manager and the Investment Advisor believe that the Company offers an attractive investment opportunity for a number of reasons: 6

7 Strong Supply and Demand Dynamics for Precious Metals The Investment Advisor believes that precious metals are experiencing upward price pressure due in large part to current and forecast supply and demand imbalances. The Investment Advisor believes that: Demand Factors Individual investment demand for precious metals is increasing due to the rapid growth of exchange traded funds (ETFs) investing in gold and silver; Certain central banks, which have historically been large net sellers, have restated their interest in gold as a reserve asset with some central banks acquiring gold in the last few years; Growing investor demand from financial investors for precious metals is being driven by a portfolio allocation away from equities due to perceived increased inflation risk; and Demand is increasing in rapidly developing economies, such as China. Supply Factors Total global production of gold is in decline; Escalating capital and operating costs as well as equipment and labour shortages are delaying new mine development; Government demands for enhanced monetary, environmental and social benefits to local populations from new mine operations are hindering new investment; and A gold industry trend towards reduced production hedging is reducing supply. Hedge Against Depreciating U.S. Dollar Certain countries, including China, that hold substantial foreign exchange reserves of U.S. dollars have indicated that they are considering ways to diversify their foreign exchange reserve holdings. For example, approximately 70% of China s $1 trillion foreign exchange reserves are in U.S dollars. The Investment Advisor believes that: The twin deficits in the United States (trade and budget deficits) will likely result in continued downward pressure on the U.S. dollar; and Precious metals holdings can lessen overall volatility in a portfolio since precious metals have low or negative correlation with many other asset classes, including the U.S. dollar. 7

8 $160 $140 Gold versus the U.S. dollar USD Gold $120 $100 $80 $60 $ MAY Source: Bloomberg Effective Inflation Hedge The Investment Advisor believes that gold represents a strong inflation hedge against rising energy, materials, labour, food and other costs. U.S. Core CPI growth has averaged over 3.3% in the past 24 months and is not expected to drop below 2% in the next two years according to RBC Economics Research. Favourable Gold Prices The Investment Advisor believes that, on a historic basis, gold is inexpensive relative to equities and oil. As evidenced in the chart below, current gold prices are still well below their historical highs relative to the price of equities. At its peak in January 1980, gold prices were near a 1:1 ratio with the Dow Jones Index, whereas the current ratio is approximately 19:1. The Investment Advisor believes that this suggests that there is potential for strong growth in gold prices. Number of ounces of gold to buy the Dow Jones: Jan to March Jan. 31, oz Aug. 30, oz June 30, oz Jan. 31, oz Jan. 31, oz Aug. 31, oz Mar. 31, oz Gold = $664/oz DJI = 12,354 30MAY Source: Bloomberg Increasing Mergers and Acquisitions Activity The Investment Advisor believes that increasing mergers and acquisitions activity is expected to support share prices. A number of industry participants 8

9 Investment Strategy: have demonstrated interest in making acquisitions or have expressed a willingness to consider combinations. Portfolio allocation to Gold Bullion provides additional defensive positioning The Investment Advisor may also selectively invest a portion of the Company s total assets directly or indirectly in Gold Bullion and Silver Bullion. The Investment Advisor believes that an allocation into bullion provides additional security against large economic shocks. Gold and silver bullion are hard assets and, unlike currencies and most equities, the supply of gold and silver is limited and therefore is generally considered to be a safe haven asset by investors. The Company will seek to achieve its investment objectives by actively managing a portfolio of equity securities initially comprised of approximately 135 issuers, consisting of Gold and Precious Metals Companies and, to a lesser extent, Base Metals and Minerals Companies. The Company may also invest directly or indirectly in Precious Metals. The Investment Advisor expects that the initial Portfolio will be comprised approximately as follows: Gold and Precious Metals Companies... 60% Base Metals and Minerals Companies... 25% Precious Metals... 15% Total Portfolio % It is anticipated that holdings in the following 25 issuers, presented by order of their initial weighting, will represent approximately 53% of the initial Portfolio. 9

10 Market Security Ticker (1) Capitalization (2) (in millions) Inmet Mining Corporation... IMN $ 3,448 Goldcorp Inc.... G $17,765 IAMGOLD Corporation... IMG $ 2,271 Kinross Gold Corporation... K $ 8,435 High River Gold Mines Ltd.... HRG $ 666 Aurelian Resources Inc.... ARU $ 1,142 European Goldfields Limited... EGU $ 604 Sherritt International Corporation... S $ 2,568 Agnico-Eagle Mines Limited... AEM $ 4,634 Freeport-McMoRan Copper & Gold Inc.... FCX (4) $28,109 Meridian Gold Inc.... MNG $ 2,763 Lihir Gold Limited... LHG (5) $ 5,744 Randgold Resources Limited... GOLD (3) $ 1,611 Greystar Resources Ltd.... GSL $ 325 FNX Mining Company Inc.... FNX $ 2,234 Metallica Resources Inc.... MR $ 468 Yamana Gold Inc.... YRI $ 5,063 Teck Cominco Limited B... TCK.B $ 9,102 Aurizon Mines Ltd.... ARZ $ 528 Central Fund of Canada Limited... CEF.A $ 1,185 Eldorado Gold Corporation... ELD $ 2,131 First Quantum Minerals Ltd.... FM $ 5,582 Gold Fields Limited... GFI (4) $ 8,679 Aquiline Resources Inc.... AQI $ 425 Gold Eagle Mines Ltd.... GEA $ 856 Notes: (1) Ticker symbol used on the TSX, unless otherwise noted. (2) Based on closing prices on April 30, (3) Listed on NASDAQ. (4) Listed on New York Stock Exchange. (5) Listed on Australian Stock Exchange. The information in the table above is based on publicly available information, is historical and is not intended to be, and should not be construed as, an indication of future levels of market capitalization or value. In selecting investments for the Company, the Investment Advisor will employ a bottom-up approach. Issuers for the Portfolio will be selected based on fundamental research, including each issuer s potential to generate aboveaverage production growth and finance future growth. AGF meets with management and competitors of Gold and Precious Metals Companies and Base Metals and Minerals Companies and with investment analysts and industry experts. Securities will be sold where the Investment Advisor identifies opportunities which it believes are more attractive relative to the securities in question. Manager: The Manager, Markland Street Asset Management Inc., has taken the initiative in organizing the Company and, accordingly, is a promoter of the Company within the meaning of applicable securities legislation. The 10

11 Dividends: Loan Facility: Termination of the Company: Redemptions: Manager is the manager of Oil Sands Sector Fund, a closed-end trust listed on the TSX which raised $430 million in March, The Manager was co-founded by Desana Capital Partners Inc. and Portland Holdings Inc. The Company does not intend to pay regular dividends, but may do so at the discretion of the Manager. The Company may also pay a dividend to recover refundable tax. See Dividends and Canadian Federal Income Tax Considerations. On or subsequent to the closing of this Offering, the Company intends to enter into a loan facility (the Loan Facility ) with one or more Canadian chartered banks (collectively, the Lender ). The Loan Facility will permit the Company to borrow an amount not exceeding 15% of the value of the total assets within the Portfolio, determined at the time of borrowing, which may be used for various purposes, including purchasing additional securities for the Portfolio and for liquidity purposes. In the event that the total amount borrowed by the Company under the Loan Facility at any time exceeds 20% of the value of the total assets within the Portfolio, the Investment Advisor will as soon as practicable take appropriate steps with the Portfolio which may include liquidating a portion of the Portfolio securities in an orderly manner and using the proceeds thereof to reduce indebtedness so that the amount borrowed under the Loan Facility does not exceed 15% of the value of the total assets within the Portfolio. The Company initially does not intend to borrow under the Loan Facility. The interest rates, fees and expenses under the Loan Facility will be typical of credit facilities of this nature and the Company expects that the Lender will require the Company to provide a security interest in favour of the Lender over the assets of the Company to secure such borrowings. See Loan Facility. The Company may be terminated at any time with the approval of Shareholders by a % majority vote at a duly convened meeting called for such purpose. After paying or making provision for outstanding liabilities, the Company will distribute its remaining assets pro rata to Shareholders. See Shareholder Matters Termination of the Company. Commencing in December 2008, Equity Shares may be surrendered for redemption during the period from December 15 th until 5:00 p.m. (Toronto time) on the 20 th Business Day before the last Business Day in January in each year (the Notice Period ), subject to the Company s right to suspend redemptions in certain circumstances. Equity Shares surrendered for redemption by a Shareholder during the Notice Period will be redeemed on the last Business Day of January of each year (the Annual Redemption Date ) and the Shareholder will receive payment on or before the 15 th Business Day following the Annual Redemption Date. Shareholders whose Equity Shares are redeemed will be entitled to receive a redemption price per Equity Share equal to 100% of the Redemption Amount (as hereinafter defined). Redemption Amount means the Net Asset Value per Equity Share determined as of the Annual Redemption Date less (i) the aggregate of all brokerage fees, commissions and other costs relating to the disposition of securities in the Portfolio necessary to fund such redemptions or (ii) if the Manager determines that it is not practicable or necessary for the Company to effect all or part of such disposition, then the aggregate of all brokerage fees, commissions and other transaction costs that the Manager estimates would have resulted from such disposition. The redemption 11

12 Repurchase of Equity Shares: Description of Equity Shares: Registrar and Transfer Agent: Custodian proceeds will be paid net of any amount required to be withheld therefrom under applicable law. For the Annual Redemption Dates occurring in January 2009 and January 2010, Shareholders must concurrently surrender for redemption one half of a Warrant with each Equity Share surrendered for redemption and will receive a redemption price for both surrendered securities in an amount equal to 100% of the Redemption Amount. See Redemption of Equity Shares Annual Redemption. Equity Shares may also be redeemed on a Monthly Redemption Date, as described under Redemption of Equity Shares Monthly Redemption. The Company may, in its sole discretion, from time to time, purchase Equity Shares for cancellation subject to any applicable law and stock exchange requirements. See Description of Shares and Warrants Repurchase of Equity Shares. The Company is authorized to issue an unlimited number of non-voting redeemable Equity Shares. The holders of Equity Shares shall not be entitled to receive notice of, to attend or to vote at any meeting of securityholders of the Company, except as described under Shareholder Matters. Holders of Equity Shares have rights of redemption and shall be entitled to receive dividends and other distributions declared by the Company. See Redemption of Equity Shares and Dividends. On termination or liquidation of the Company, the holders of outstanding Equity Shares of record are entitled to receive on a pro rata basis all of the assets of the Company remaining after payment of all debts and liabilities of the Company and the liquidation rights of the Class J Shares. See Shareholder Matters Termination of the Company. CIBC Mellon Trust Company will be appointed registrar and transfer agent of the Company. CIBC Mellon Global Securities Services Company will be appointed custodian of the assets of the Company. Risk Factors An investment in Units is subject to various risk factors, including: (1) the Company may not able to achieve its investment objectives; (2) risk of loss of entire investment due to speculative nature of investment; (3) the NAV of the Company will vary depending on a number of factors, including the value of the securities in the Portfolio; (4) Equity Shares may trade in the market at a premium or a discount to the NAV per Equity Share; (5) commodity price fluctuations and, in particular, volatility of metal and mineral prices; (6) exploration and mining risks; (7) uninsurable risks associated with mining operations, including risks associated with the activities of non-governmental organizations; (8) risks associated with title or boundaries on mining claims or access to mining properties; (9) risks associated with properties located in foreign jurisdictions; (10) government regulations affecting mining issuers; 12

13 (11) environmental regulation of mining issuers; (12) financial investor demand and exchange traded funds may inflate demand for mining issuers and increase volatility in their securities; (13) dilution will result on the exercise of Warrants if the NAV per Equity Share exceeds $10.25; (14) risks associated with the annual redemption right; (15) holders of Equity Shares will not own securities held by the Company in the Portfolio; (16) risks associated with performance of the securities in the Portfolio; (17) reliance on the Investment Advisor for portfolio management and investment advisory services, including there being no certainty that the employees of the Investment Advisor who will be primarily responsible for the management of the Portfolio will continue to be employees of the Investment Advisor throughout the term of the Company; (18) the lack of operating history of the Company and the current absence of a public trading market for the Equity Shares and Warrants; (19) the possibility of the Company being unable to acquire or dispose of illiquid securities; (20) the risk of the Company being required to pay subsequent instalments on a security that has declined in value where the security was purchased on an instalment basis; (21) there can be no assurance that income tax laws and government incentive programs relating to the resource industry under the Tax Act will not be changed in a manner which adversely affects the dividends received by the Company and the Shareholders and/or the value of the Equity Shares or the securities in which the Company invests; (22) the NAV of the Company and the market price of Equity Shares and Warrants may be highly sensitive to interest rate fluctuations; (23) risks associated with the use of leverage by the Company; (24) the Company not being subject to regulation as a mutual fund; (25) the risks associated with the use of options and other derivative instruments; (26) the risks associated with securities lending; (27) the potential for conflicts of interest; (28) potential changes in legislation, including tax legislation; (29) the risk of a registered plan receiving a non qualified investment on a payment in kind on termination. See Risk Factors. Canadian Federal Income Tax Considerations Tax Treatment of the Corporation At the Closing Date, provided that Equity Shares are listed on a prescribed stock exchange in Canada (which includes the TSX), the Company will qualify, and intends to continue to qualify, as a mutual fund corporation under the Tax Act. Tax Treatment of Shareholders Resident in Canada A disposition, whether by way of redemption or otherwise, of an Equity Share held as capital property will result in a capital gain or capital loss to the holder thereof. 13

14 The exercise of a Warrant will not constitute a disposition of property for purposes of the Tax Act and, consequently, no gain or loss will be realized upon the exercise of a Warrant. A Shareholder who holds Warrants, as capital property will, upon the disposition of a Warrant other than pursuant to the exercise thereof, realize a capital gain (or capital loss) in the taxation year of the Shareholder in which the disposition occurs to the extent that the proceeds of disposition of the Warrants, net of any reasonable costs of the disposition, exceed (or are less than) the adjusted cost base of such Warrant to the Shareholder. For a detailed explanation of the Canadian federal income tax considerations generally relevant to investors, see Canadian Federal Income Tax Considerations. Forward-Looking Statements Certain statements included in this prospectus constitute forward looking statements, including those identified by the expressions anticipate, believe, plan, estimate, expect, intend and similar expressions to the extent they relate to the Company or the Manager. The forward-looking statements are not historical facts but reflect the Company s current expectations regarding future results or events. These forward looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including the matters discussed under Risk Factors and in other sections of this prospectus. Information Regarding Public Issuers Certain information contained in this prospectus relating to publicly-traded securities and the issuers of those securities is taken from and based solely upon information published by those issuers. Neither the Manager, the Investment Advisor, the Company nor the Agents have independently verified the accuracy or completeness of any such information or assume any responsibility for the completeness or accuracy of such information. Summary of Fees and Expenses Payable by the Company The following table contains a summary of the fees and expenses payable by the Company. For further particulars see Fees and Expenses. Type of Charge Fees payable to the Agents for selling Units Warrant Exercise Fee Expenses of Issue Fee payable to the Manager for acting as manager of the Company Operating expenses of the Company Service Fee Description $0.525 per Unit (5.25% of the Unit price). $0.25 per Warrant will be payable by the Company at the time a Warrant is exercised to the dealer whose client is exercising the Warrant. The Company will pay the expenses incurred in connection with this offering, which are estimated to be $600,000. The Manager has agreed to pay all expenses incurred in connection with the Offering that exceed 1.5% of the gross proceeds of this offering. Annual management fee of 1.10% of NAV calculated daily and payable monthly plus an amount equal to the service fee payable by the Manager to registered dealers of 0.40% of NAV, per annum, plus applicable taxes. The Manager will be responsible for paying an advisory fee to the Investment Advisor pursuant to an investment advisory agreement. See Fees and Expenses Fees and Other Expenses. The Company will pay all ordinary expenses incurred in connection with its operation and administration, estimated to be $250,000 per annum. The Company will also be responsible for commissions and other costs of portfolio transactions, debt service and costs relating to the Loan Facility and any extraordinary expenses which it may incur from time to time. The Manager will pay to registered dealers a service fee calculated and payable quarterly in arrears at an annual rate equal to 0.40% of the NAV held by clients of the sales representatives of such dealers at the end of the relevant calendar quarter, plus applicable taxes. 14

15 GLOSSARY OF TERMS In this prospectus, the following terms shall have the meanings set forth below, unless otherwise indicated. Additional Dividend means a dividend that, at the discretion of the Manager, will be paid in each year to Shareholders of record on December 31 if the Company has net taxable capital gains that would otherwise be subject to tax. Agency Agreement means the agency agreement dated July 30, 2007 among the Company, the Manager, the Investment Advisor and the Agents. Agents means RBC Dominion Securities Inc., CIBC World Markets Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc., Scotia Capital Inc., TD Securities Inc., Canaccord Capital Corporation, Berkshire Securities Inc., Dundee Securities Corporation, HSBC Securities (Canada) Inc., Raymond James Ltd., Blackmont Capital Inc., Desjardins Securities Inc., Research Capital Corporation, and Wellington West Capital Inc. AGF means AGF Funds Inc. AGF Precious Metals Fund means AGF Precious Metals Fund, an open-end mutual fund trust. Annual Redemption Date means the last Business Day in January of each year, commencing in January, Annual Redemption Payment Date means the 15 th Business Day following an Annual Redemption Date. Base Metals and Minerals Companies means issuers primarily involved in the exploration, extraction, development and refining of metals such as zinc, copper, iron, lead and nickel, and minerals, such as uranium and coal. Business Day means any day on which the TSX is open for business. cash equivalent has the meaning ascribed thereto in NI CDS means CDS Clearing and Depository Services Inc. CDS Participant means a participant in the CDS. Closing means the closing of the Offering on the Closing Date. Closing Date means the date of the Closing, which is expected to be on or about August 8, 2007, or such later date as the Company and the Agents may agree, but in any event not later than August 31, Closing Market Price in respect of a security on a Monthly Redemption Date means the closing price of such security on the TSX on such Monthly Redemption Date (or such other stock exchange on which such security is listed) or, if there was no trade on the relevant Monthly Redemption Date, the average of the last bid and the last asking prices of the security on the TSX on such Monthly Redemption Date (or such other stock exchange on which the security is listed). Company means Markland AGF Precious Metals Corp., a corporation incorporated under the laws of Ontario. CRA means the Canada Revenue Agency. Custodian means CIBC Mellon Global Securities Services Company, in its capacity as custodian under the Custodian Agreement. equity security means securities of any issuer, excluding debt securities that are not convertible into securities other than debt securities. Equity Shares means the class of shares of the Company designated as the Equity Shares. Exchange Agent means CIBC Mellon Trust Company. Exchange Eligible Issuers means those issuers set forth in this prospectus under the heading Exchange Option Exchange Eligible Issuers. 15

16 Exchange Option has the meaning ascribed thereto in this prospectus under the heading Exchange Option. Expiry Time means the date and time upon which all unexercised Warrants expire and thereafter are null and void, being 5:00 p.m. (Toronto time) on July 30, Extraordinary Resolution means a resolution passed by the affirmative vote of not less than % of the votes cast, either in person or by proxy, at a meeting of Shareholders duly convened for the consideration of such resolution. Gold and Precious Metals Companies means issuers primarily involved in the exploration, extraction, development and refining of metals such as gold, silver, platinum, palladium and rhodium, or minerals, such as diamonds or other gems. Gold Bullion means gold bullion, coins, certificates of deposit and exchange traded funds, including the Central Fund of Canada Limited, which provide the investor therein with exposure to market fluctuations in the price of gold. Investment Advisor means AGF Funds Inc. or, if applicable, its successor. Investment Advisory Agreement means the investment advisory agreement between the Company, the Manager and the Investment Advisor, as it may be amended from time to time. Lender means one or more Canadian chartered banks who may provide a loan facility to the Company. Loan Facility means the loan facility to be entered into by the Company and the Lender, as described under Loan Facility. Manager means Markland Street Asset Management Inc. or, if applicable, its successor. Management Agreement means the management agreement between the Manager and the Company. Market Price in respect of a security on a Monthly Redemption Date means the weighted average trading price on the TSX (or such other stock exchange on which such security is listed), for the 10 trading days immediately preceding such Monthly Redemption Date. Monthly Redemption Date means the second last Business Day of each month. Monthly Redemption Price means the lesser of (i) 94% of the Market Price of an Equity Share, and (ii) 100% of the Closing Market Price of an Equity Share on the applicable Monthly Redemption Date less, in each case, (i) the aggregate of all brokerage fees, commissions and other costs relating to the disposition of securities in the Portfolio necessary to fund such redemptions or (ii) if the Manager determines that it is not practicable or necessary for the Company to effect all or part of such disposition, then the aggregate of all brokerage fees, commissions and other transaction costs that the Manager estimates would have resulted from such disposition. NAV or Net Asset Value means the net asset value of the Company, as determined by subtracting the aggregate amount of the liabilities of the Company from the total assets of the Company, as more fully described under Calculation of Net Asset Value. Net Asset Value per Equity Share or NAV per Equity Share means the quotient obtained by dividing the NAV by the total number of Equity Shares then outstanding (on either a basic or diluted basis as more fully described under Calculation of Net Asset Value ) prior to any redemptions on the date the calculation is being made. NI means National Instrument Mutual Funds of the Canadian Securities Administrators, as it may be amended from time to time. NI means National Instrument Independent Review Committee for Investment Funds of the Canadian Securities Administrators. Notice Period means the period from December 15 th until 5:00 p.m. (Toronto time) on the 20 th Business Day before the last Business Day in January each year (starting in December 2008). Offering means the offering of a minimum of 2,000,000 Units and a maximum of 7,500,000 Units at the Offering Price, as contemplated in this prospectus. 16

17 Offering Price means a price of $10.00 per Unit. Ordinary Dividends means dividends other than capital gains dividends. Over-Allotment Option means the option granted by the Company to the Agents, exercisable for a period of 30 days following the Closing, to purchase additional Units in an amount of up to 15% of the aggregate number of Units issued at Closing at the Offering Price, on the same terms set forth in this prospectus. Precious Metals means gold, silver, platinum, palladium and rhodium, and includes Gold Bullion and Silver Bullion. Portfolio means the total assets held by the Company from time to time. Proposed Amendments means the specific proposals to amend the Tax Act that have been publicly announced by the Minister of Finance (Canada) prior to the date hereof. Redemption Amount means the NAV per Equity Share determined as of the Annual Redemption Date less (i) the aggregate of all brokerage fees, commissions and other costs relating to the disposition of securities in the Portfolio necessary to fund such redemptions or (ii) if the Manager determines that it is not practicable or necessary for the Company to effect all or part of such disposition, then the aggregate of all brokerage fees, commissions and other transaction costs that the Manager estimates would have resulted from such disposition. The redemption proceeds will be paid net of any amount required to be withheld therefrom under applicable law. Redemption Notice means the redemption notice that is given to CDS. Registrar and Transfer Agent means CIBC Mellon Trust Company. Securities Lending Agreement means an agreement between the Company and a borrower setting out terms for lending securities. Shareholders means holders of Equity Shares. SIFT Rules means the recent amendments to the Tax Act relating to the tax of specified investment flow-through trusts and partnerships contained in Bill C-52, which received Royal Assent on June 22, Silver Bullion means silver bullion, coins, certificates of deposit and exchange traded funds, including the Central Fund of Canada Limited, which provide the investor therein with exposure to market fluctuations in the price of silver. Subscription Price means the subscription price of one full Warrant which is $ Tax Act means the Income Tax Act (Canada) and the regulations thereunder. TSX means the Toronto Stock Exchange. Unit means a unit issued by the Company pursuant to the Offering, consisting of one Equity Share and one-half of a Warrant. Valuation Date means each of the following days: (i) each Thursday during the year (or, if a Thursday is not a Business Day, then on the Business Day following such Thursday); (ii) each Annual Redemption Date; and (iii) any other date on which the Manager elects, in its discretion, to calculate the NAV per Equity Share. Valuation Time means 4:00 p.m. (Toronto time) or such other time as the Manager or its agent deems appropriate on a Valuation Date. Warrant means one full Equity Share purchase warrant entitling the holder to purchase one Equity Share at the Subscription Price at the Expiry Time. Warrant Indenture means the warrant indenture dated the Closing Date between the Company and the Warrant Trustee applicable to the Warrants. Warrant Notice Period means the period from July 15, 2010 to the Expiry Time. Warrant Trustee means CIBC Mellon Trust Company. 17

18 THE COMPANY Markland AGF Precious Metals Corp. (the Company ) is a mutual fund corporation incorporated under the laws of the Province of Ontario. Markland Street Asset Management Inc. is the manager of the Company (the Manager ). The Company s investment advisor is AGF Funds Inc. ( AGF or the Investment Advisor ). The principal office of the Company is located at 141 Adelaide Street West, Suite 1410, Toronto, Ontario, M5H 3L5. The Company is not considered to be a mutual fund under the securities legislation of the provinces of Canada. Consequently, the Company is not subject to the various policies and regulations that apply to mutual funds, including National Instrument of the Canadian Securities Administrators ( NI ). INVESTMENTS OF THE COMPANY Investment Objectives The Company s investment objective is to provide Shareholders with the opportunity for capital appreciation by investing in an actively managed portfolio (the Portfolio ) of equity securities, consisting of Gold and Precious Metals Companies and to a lesser extent Base Metals and Minerals Companies, as well as Precious Metals, including Gold Bullion and Silver Bullion, subject to the Company s investment restrictions. Investment Rationale The Manager and the Investment Advisor believe that the Company offers an attractive investment opportunity for a number of reasons: Strong Supply and Demand Dynamics for Precious Metals The Investment Advisor believes that precious metals are experiencing upward price pressure due in large part to current and forecast supply and demand imbalances. The Investment Advisor believes that: Demand Factors Individual investment demand for precious metals is increasing due to the rapid growth of exchange traded funds (ETFs) investing in gold and silver; Certain central banks, which have historically been large net sellers, have restated their interest in gold as a reserve asset with some central banks acquiring gold in the last few years; Growing investor demand from financial investors for precious metals is being driven by a portfolio allocation away from equities due to perceived increased inflation risk; and Demand is increasing in rapidly developing economies, such as China. Supply Factors Total global production of gold is in decline; Escalating capital and operating costs as well as equipment and labour shortages are delaying new mine development; Government demands for enhanced monetary, environmental and social benefits to local populations from new mine operations are hindering new investment; and A gold industry trend towards reduced production hedging is reducing supply. 18

19 Hedge Against Depreciating U.S. Dollar Certain countries, including China, that hold substantial foreign exchange reserves of U.S. dollars have indicated that they are considering ways to diversify their foreign exchange reserve holdings. For example, approximately 70% of China s $1 trillion foreign exchange reserves are in U.S dollars. 3,000 Asian foreign exchange reserves: January 1986 to May ,500 Japan China Asia (ex. Japan & China)* USD Billions 2,000 1,500 1, MAY Source: UBS Securities Canada Inc. * Asia (ex. Japan and China) includes Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand. $160 The Investment Advisor believes that: the twin deficits in the United States (trade and budget deficits) will likely result in continued downward pressure on the U.S. dollar; and Precious metals holdings can lessen overall volatility in a portfolio since precious metals have low or negative correlation with many other asset classes, including the U.S. dollar. Gold versus the U.S. dollar $140 USD Gold $120 $100 $80 $60 $ MAY Source: Bloomberg 19

20 Effective Inflation Hedge The Investment Advisor believes that gold represents a strong inflation hedge against rising energy, materials, labour, food and other costs. U.S. Core CPI growth has averaged over 3.3% in the past 24 months and is not expected to drop below 2% in the next two years according to RBC Economics Research. Favourable Gold Prices The Investment Advisor believes that, on a historic basis, gold is inexpensive relative to equities and oil. As evidenced in the chart below, current gold prices are still well below their historical highs relative to the price of equities. At its peak in January 1980, gold prices were near a 1:1 ratio with the Dow Jones Index, whereas the current ratio is approximately 19:1. The Investment Advisor suggests that there is potential for strong growth in gold prices. Number of ounces of gold to buy the Dow Jones: Jan to March Aug. 30, oz Jan. 31, oz Aug. 31, oz Jan. 31, oz June 30, oz Jan. 31, oz Mar. 31, oz Gold = $664/oz DJI = 12,354 30MAY Source: Bloomberg Increasing Mergers and Acquisitions Activity The Investment Advisor believes that increasing mergers and acquisitions activity is expected to support share prices. A number of industry participants have demonstrated interest in making acquisitions or have expressed a willingness to consider combinations. Portfolio allocation to Gold Bullion provides additional defensive positioning The Investment Advisor may also selectively invest a portion of the Company s total assets directly or indirectly in Gold Bullion and Silver Bullion. The Investment Advisor believes that an allocation into bullion provides additional security against large economic shocks. Gold and silver bullion are hard assets and, unlike currencies and most equities, the supply of gold and silver is limited and therefore is generally considered to be a safe haven asset by investors. Investment Strategy The Company will seek to achieve its investment objectives by actively managing a portfolio of equity securities initially comprised of approximately 135 issuers, consisting of Gold and Precious Metals Companies 20

21 and, to a lesser extent, Base Metals and Minerals Companies. The Company may also invest directly or indirectly in Precious Metals, including Gold Bullion and Silver Bullion. In selecting investments for the Company, the Investment Advisor will employ a bottom-up approach. Issuers for the Portfolio will be selected based on fundamental research, including each issuer s potential to generate above-average production growth and finance future growth. AGF meets with management and competitors of Gold and Precious Metals Companies and Base Metals and Minerals Companies and with investment analysts and industry experts. Securities will be sold where the Investment Advisor identifies opportunities which it believes are more attractive relative to the securities in question. AGF Precious Metals Resources Team Investment Process 29MAY Indicative Portfolio The Investment Advisor expects that the initial Portfolio will be comprised approximately as follows: Gold and Precious Metals Companies... 60% Base Metals and Minerals Companies... 25% Precious Metals... 15% Total Portfolio % 21