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.
The Marmato security gets released as soon as US$37.5m of the GCM.NT.U are paid off which should happen in April 2020. It’s in the indenture.
Bluenose will probably wave the condition if GCM agrees to put the April payment in escrow if the deal is ready to close before then.
I don’t like the promote that Frank is getting paid either. It’s frustrating. The explanation, I assume, is that they will help bring the money to the table for the private placement and further financings like a notes issue similar to GCM.NT.U.
As for the valuation, given the size of the resources it’s probably worth a lot more but on the basis of the production it’s a tougher argument to make. I own some SGI.V and it has ~100k oz of production in Australia and has an EV of US$37m (~US$17m in cash). It’s also a high cost operation but production should be trending higher and costs lower. They were supposed to have a new mine plan out in the past week but we are still waiting.
Your memory (or lookup) is quite good. Anyway, upon further research, 13.5(e) of the indenture, and yes, after the April 2020 note payment this will be released.
It wouldn’t be up to Bluenose to have this security released though, it would be up to the noteholders until the amount has been amortized? Upon reflection, they could just take their time or even do an early partial redemption of notes if timing is really an issue.
Thank you again for a very high value comment.
I’m reading all of your high value posts so I should thank you!
I remembered it was early next year that Marmato dropped off but had to look it up to make sure. I think the security automatically drops off when the payment in April is made so my thought was that they could waive the condition if the money is already in escrow.
Does this transaction affect the exercise price or ratio to existing GCM.WT.B – any anti-dilution clause that it can trigger?
Reading article 4 of the indenture, my take is that unless GCM spins off its shares of Bluenose directly to shareholders in the form of some special distribution or share dividend, no.