Divestor

Ladies and Gentlemen, hold onto your wallets!

TORONTO, Oct. 07, 2019 (GLOBE NEWSWIRE) — Gran Colombia Gold Corp. (TSX: GCM, OTCQX: TPRFF) (the “Company” or “Gran Colombia”) announced today, further to the press release of the Company dated September 16, 2019, that it has entered into a letter of intent (the “LOI”) on October 4, 2019 with Bluenose Gold Corp. (TSX-V: BN.H) (“Bluenose”) in respect of the proposed acquisition by Bluenose of certain mining assets (the “Mining Assets”) at the Company’s Marmato Project located in the Department of Caldas, Colombia (the “Transaction”).

Gran Colombia has two operating mines. One is Segovia, which produces the substantial majority (89%) of its gold. The other is Marmato. They have three other potential avenues, all of which are not operating. There is Zancudo, which they optioned off to IAMGOLD for exploration and potential development. There is their Venezuelan properties, which is a “good luck if they democratically elect a new government before the country is completely destroyed” situation, and finally the Chicharron project which is being reflected in GCM’s equity investments in Sandspring (TSX: SSP).

The press release above is an attempt to spin off their Marmato operation in another publicly listed entity.

Marmato is currently undergoing exploration and finalization of another development project that will expand the mining capacity well beyond the 25,000 ounces/year it currently is producing. The initial plan was an open pit mine, but now that is revised in a tunneled project. Needless to say, this will consume gigantic amounts of capital.

The finance deal is very questionable for GCM shareholders.

Bluenose will be the recipient of a reverse takeover. After accounting for a 1:10 reverse split, Bluenose has 10.6 million shares outstanding. The current corporation is a shell (a few bucks on the balance sheet, no debt). GCM will be throwing in its Marmato asset for 28.75 million shares, notionally valued at $2/share.

Is an existing mining operation producing 25,000 ounces of gold a year (US$37.5 million top-line) worth a capitalization of US$43.1 million?

GCM will also be throwing in another $5 million for 2.5 million shares and warrants to purchase at $3. Bluenose will also sell to the public 5-7.5 million shares at the same terms.

It’s going to take a lot more money than this to get the mine up and operating.

There is also an insider relationship involved. On November 2, 2018, the following was announced by Bluenose:

The Company has been advised that Frank Giustra and his related entities will acquire an aggregate of 11,700,000 post-consolidated common shares of the Company representing 11.14% of the issued and outstanding post-consolidated common shares of the Company pursuant to a private transaction. Radcliffe Corporation, Fiore Financial Corp. and Fiore Farms Inc. (companies indirectly owned by Mr. Giustra) will acquire an aggregate of 4,000,000 post-consolidated common shares, representing 3.81% of the issued and outstanding common shares of the Company. Canada Life Ltd. through an investment account controlled and directed by Mr. Giustra) and The Giustra Foundation (a charitable organization controlled by Mr. Giustra) will acquire 7,700,000 post-consolidated common shares of the Company representing in aggregate 7.64% of the issued and outstanding shares of the Company. Following these transactions, Mr. Giustra will have indirect ownership and/or control, over an aggregate of 11,700,000 post-consolidated common shares of the Company representing 11.14% and would have indirect ownership and/or control over an aggregate of 12,050,000 post-consolidated common shares representing 11.43% on a partially diluted basis, assuming the exercise of 350,000 incentive stock options granted to the Giustra Foundation.

This was probably the connection that lead GCM to choose Bluenose as the reverse merger candidate.

Finally, what is most interesting is the following:

The closing of the Transaction will also be subject to the following conditions, amongst others:

…

all liens and encumbrances in respect of Marmato Panama, Marmato Colombia and the Mining Assets granted in favour of the holders of the 8.25% senior secured notes due in 2024 shall have been released and discharged, on terms and conditions satisfactory to Bluenose, acting reasonably;

This remains to be seen how this will be resolved. Noteholders are not simply going to give up security to the Maramato asset. It will cost GCM something to get the noteholders to agree to it. Will noteholders receive shares/warrants in Bluenose, will they receive cash, or will they receive a boost in their coupon to compensate for the loss in collateral? (Disclosure: I own a not insubstantial amount of GCM notes.)

Either way, I view this as a negative for GCM shareholders.