American Bonanza Gold Corp. (TSX:BZA)(OTCQX:ABGFF) announces that it has entered into a binding letter agreement with Kerr Mines Inc. (TSX:KER) to merge their respective businesses pursuant to an amalgamation or plan of arrangement.
Pursuant to the terms of the Letter Agreement, American Bonanza and Kerr Mines have agreed to enter into a definitive agreement for the Transaction. Under the terms of the Transaction, each American Bonanza Shareholder (other than an American Bonanza shareholder that exercises dissent rights) will be entitled to receive 0.53 of a Kerr Mines common shares for approximately every one common share of American Bonanza held by such shareholder subject to adjustment. Currently, Kerr Mines has approximately 392 million Kerr Mines Shares outstanding and American Bonanza has approximately 234 million American Bonanza Shares outstanding. In addition, each holder of the outstanding stock options and share purchase warrants of American Bonanza will receive such number of replacement options or warrants of Kerr based upon the Exchange Ratio.
Further, pursuant to the terms of the Letter Agreement, Kerr Mines has advanced $1,000,000 at an annual interest rate equal to the prime rate plus 1%, to American Bonanza to satisfy certain amounts and payables outstanding of American Bonanza. The Loan and a break fee of $500,000 are payable by American Bonanza in the event of termination of the Transaction in certain circumstances.
In connection with the Transaction, American Bonanza may settle certain outstanding unsecured indebtedness through the issue of American Bonanza Shares. The terms of the settlements have not yet been determined, but are expected to result in the issue of approximately 337 million American Bonanza Shares prior to completion of Transaction. American Bonanza Shares issued to settle this indebtedness will be exchanged for Kerr Mines Shares based upon the Exchange Ratio.
Upon completion of the Transaction, the Kerr Mines board will be reconstituted to consist of five nominees of the Kerr Mines shareholders and two nominees of the American Bonanza shareholders. Such directors will hold office until the next annual meeting of shareholders of Kerr Mines, or until their successors are elected or appointed.
Completion of the Transaction will be subject to certain standard conditions including, without limitation: (a) execution of a definitive agreement by February 15, 2014; (b) satisfactory due diligence; (c) receipt of all necessary consents, waivers, permits, exemptions, orders and approvals, including the approval of each of the Toronto Stock Exchange (the “TSX”), as applicable; (d) receipt of a fairness opinion concerning the Transaction by American Bonanza; and (e) receipt of shareholder approval of the Transaction by the American Bonanza and if required, Kerr Mines shareholders.
Notice from Noteholder
American Bonanza also advises that it has received notice from a holder of an Amended and Restated Promissory Note dated April 1, 2013 issued by the Company, that the Company is in default of making interest and principal payments due under the Note. In accordance with the terms of the Note, the Company has until February 3s to cure a default from the date it is provided with valid notice.
The Note is one of a series of promissory notes issued by the Company having a principal amount outstanding of $8.6 million. The notes are governed by the terms of an inter creditor agreement that provides that the only holders of a majority of the notes may take action to recover on the notes, with the result that the subject Noteholder cannot take action to recover on the note. Pursuant to the terms of the Inter creditor Agreement, the Noteholder has also given notice of the default to the other holders of this series of notes.
The Company is working with the other holders of the notes, who together represent the majority of the principal amount outstanding on the notes and a majority of the notes, to negotiate a sustainable solution to the Company’s obligations under the notes. To date, none of the other holders of the notes have indicated that they will seek any enforcement action in respect of the notes. There is no guarantee that a deferral will be provided, or that the Company will be able to find means of rectifying the default.
The Company also advises that the common shares of the Company were voluntarily delisted from the OTCQX effective as of close of market on January 10, 2014. The common shares of Bonanza continue to trade on the Toronto Stock Exchange under the symbol “BZA”, and in the US on the OTCQB under the symbol “ABGFF”.
About American Bonanza Gold Corp:
Bonanza is operating the newly constructed Copperstone gold mine in Arizona, where operations have been suspended pending the completion of certain work programs and funding efforts, in order to bring the mine back into production at or above feasibility design production rates
About Kerr Mines Inc.:
Kerr Mines, a Canadian-based exploration and development company, is the owner of the McGarry gold mine in Ontario’s Kirkland Lake area. Including the McGarry Mine property, Kerr Mines has established a sizeable footprint of contiguous gold properties in Virginiatown on the prolific Larder Lake-Cadillac Break that extends 200 km east-west straddling the Ontario and Quebec border and that have produced 95 million ounces of gold in past operations. The McGarry Mine consists of 33 contiguous patented mining claims, including three licenses of occupation, totaling 484 hectares. The McGarry Mine is fully permitted and all equipment and systems at the site have been brought up to standards.
In addition, in December 2010, Kerr Mines signed a definitive five-year option agreement for the purchase of up to 100 percent of the mineral rights on the Kerr-Addison property, which is adjacent to the McGarry Mine. The Kerr-Addison Gold Mine was one of Canada’s largest gold producers, producing more than 11 million ounces of gold during a 58-year operating life from 1938 to 1996. In December 2012, Kerr Mines completed the purchase of the mineral rights on 18 mining claims totaling 627 acres (the Barber-Larder Property) located on the western boundary of the McGarry Mine.
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