Golden Tag Resources Ltd. (TSX-V:GOG, OTCQB:GTAGF) said it has entered into a definitive agreement with First Majestic Silver Corp (FMS) to acquire a 100% interest in the 69,478-hectare La Parrilla silver mine complex in San Jose de la Parrilla, Durango, Mexico.
The La Parrilla Complex is located approximately 76 kilometres southeast of the capital city of Durango and comprises 41 contiguous mining concessions, in good standing, covering 69,478 hectares. The property was acquired by First Majestic in 2004 and became their first silver mine in 2005. When placed on care and maintenance in September 2019, the complex hosted five underground mines surrounding the mill including Rosarios, La Rosa, San Jose, Quebradillas and San Marcos, as well as the Quebradillas open pit.
“This is a transformative acquisition for Golden Tag and we strongly believe in the upside resource growth potential of this long-life prolific asset,” Greg McKenzie, Golden Tag president & CEO said in a statement.
READ: Golden Tag Resources hails findings of metallurgical test work at Fernandez zone, San Diego project
“Our short-term objective is to commence exploration within and near mine workings in order to expand the resource base, to support our ultimate goal & vision of placing the asset back into production.
“We would like to thank our key shareholders for their support on this transaction and look forward to working with First Majestic to complete the acquisition,” he added
Highlights of the transaction include:
- New labour and Ejido agreements in place
- Historical Measured and Indicated Mineral Resources of approximately 9.95 M oz Ag.Eq and Inferred Mineral Resources of approximately 12.51 million ounces of silver equivalent (Ag.Eq)
- Located only 45 minutes from Durango City, paved highway to site
- Large underexplored land package totaling 69,478 hectares
- Debt-free transaction with upfront consideration of US$20M in equity, and deferred payments totaling US$13.5M for a total acquisition price of US$33.5M
- Requirement to raise a minimum of C$9M in equity concurrent with the acquisition, with participation of US$2.7M from First Majestic
- Support received from key existing shareholders representing 54 million shares
- First Majestic to become strategic and largest shareholder of Golden Tag, inclusive of standard support agreements in place until May 2024
During 2018, the last year of open pit operations at La Parrilla, metallurgical recoveries in the cyanidation circuit were 74% for silver and 81% for gold, and metallurgical recoveries in the flotation circuit were 76% for silver, 73% for lead and 55% for zinc. Tailings from both circuits are filtered separately before being dry‐stacked in the tailings storage facility, which currently holds approximately 6.5 million tonnes of capacity, sufficient for nine years of operations at a throughput rate of 2,000 tonnes per day (tpd).
Transaction Summary
In consideration, Golden Tag will pay First Majestic the following:
- 143,673,684 common shares of Golden Tag , or US$20M at a deemed price of C$0.19 per Golden Tag share;
- Deferred payments totaling US$13.5M, comprised of the following: US$2.7M on the earlier of 18 months post-closing, or upon receipt of certain approvals from the Mexican government; US$5.75M when either (a) 5 million ounces of Ag.Eq reserves are declared from the La Parrilla claims, or (b) 22 million ounces of Ag.Eq of measured and indicated resources are declared, from the La Parrilla claims;
- US$5.05M when a new zone is discovered on the La Parrilla claims inclusive of a NI 43-101 resource of 12.5 million ounces of Ag.Eq;
- FMS may distribute shares held in excess of a19.9% issued and outstanding Golden Tag holding (on a non-diluted basis) pro-rata to its shareholders.
- After closing, FMS will have a participation right to maintain its pro-rata interest in Golden Tag (to a maximum of 19.9%) in any future Golden Tag share issuances, subject to customary exceptions.
- The consideration shares held by FMS will be subject to the following contractual resale restrictions, in addition to any securities laws resale restrictions: 25% subject to a 6-month resale restriction; 25% subject to a 12-month resale restriction; 25% subject to a 18-month resale restriction;25% subject to a 24-month resale restriction.
- The resale restrictions above will not apply to the excess shares and will be subject to customary carve-outs in the event of a takeover bid or merger or acquisition transaction involving the common shares of Golden Tag.
- Shareholders, along with certain directors and officers of Golden Tag holding a total of 54M shares (representing approximately 25% of Golden Tag’s issued and outstanding shares), have entered into voting and support agreements with Golden Tag under which they have agreed, among other things, to support the transaction (which creates a new control person of Golden Tag) and to vote their Golden Tag shares in favour of the transaction.
- FMS has also entered into a standard and customary voting support agreement with Golden Tag for a period that is the longer of (i) May 24, 2024, or (ii) First Majestic’s ownership percentage of Golden Tag is greater than or equal to 19.9%.
- Closing of the Transaction is expected to occur in H1 2023, and is subject to certain conditions
Financing the acquisition
Golden Tag will complete a private placement to raise gross aggregate proceeds of C$9M, inclusive of US$2.7M subscribed for by First Majestic. Further details regarding the private placement will be announced once the final terms have been determined.
The company said it will undertake a rebranding initiative on the closing of the transaction, subject to regulatory approval.
Headquartered in Toronto, Golden Tag's 100% owned San Diego property in Mexico is one of the largest undeveloped silver assets in the country.
Contact the author at jon.hopkins@proactiveinvestors.com