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Timmins Gold to Combine With Newstrike Capital to Create an Emerging, Mexican-Focused Intermediate Gold Producer

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Timmins Gold to Combine With Newstrike Capital to Create an Emerging, Mexican-Focused Intermediate Gold Producer

 

 

 

 

 

 

Timmins Gold Corp. (TSX:TMM) (NYSE MKT:TGD) and Newstrike Capital Inc. (TSX-V:NES) are pleased to announce that they have entered into a definitive arrangement agreement pursuant to which Timmins Gold has agreed to acquire all of the issued and outstanding common shares of Newstrike by way of a court approved plan of arrangement.
 

The combination of Timmins Gold and Newstrike will create an emerging intermediate, Mexican-focused gold producer with a portfolio of high-quality production and development assets all based in Mexico. With the San Francisco mine providing a solid base of operations, the combined company will have a leading growth profile driven by what Timmins Gold believes are two economically robust development projects with manageable capital requirements, Newstrike’s Ana Paula gold project and Timmins Gold’s Caballo Blanco gold project. In addition, the combined company will have a strong balance sheet to advance Ana Paula and Caballo Blanco and will benefit from Timmins Gold’s proven track record of delivering growth and value creation for its investors. The boards of directors of both companies have each unanimously approved the terms of the Arrangement Agreement (a common director of Timmins Gold and Newstrike having recused himself) and agreed to recommend that their respective shareholders vote in favour of the proposed Arrangement.
 

Under the terms of the Arrangement, Newstrike shareholders will receive 0.9 of a Timmins Gold common share and C$0.0001 in cash for each Newstrike common share representing the equivalent of C$1.15 per Newstrike Share and a premium of 20.0% based on the closing prices of the Timmins Gold Shares on the Toronto Stock Exchange (“TSX”) and the Newstrike Shares on the TSX Venture Exchange (“TSX-V”) on February 13, 2015, and C$1.20 per Newstrike Share and a premium of 22.4% based on the 20-day volume-weighted-average-price (“VWAP”) of the Timmins Gold Shares on the TSX and the Newstrike Shares on the TSX-V as of February 13, 2015. The Exchange Ratio implies a total transaction value of approximately C$140 million on a fully-diluted in the money basis. In addition, each outstanding option to purchase a Newstrike Share will be exchanged for an option to purchase a Timmins Gold Share, based upon the Exchange Ratio.
 

In connection with the Arrangement, Timmins Gold announces that it will undertake a non-brokered private placement of Timmins Gold Shares in an aggregate amount of up to C$10 million at a price of C$1.25 per Timmins Gold Share. Each of the two companies controlled by a trust settled by the late Adolf H. Lundin and Sentry Investments Inc. have indicated that they will participate in the Private Placement, together with other accredited investors. Completion of the Private Placement is conditional upon execution of definitive subscription agreements, closing of the Arrangement, TSX and NYSE MKT approvals and other conditions typical for a transaction of this nature. The proceeds of the Private Placement will be used to support the continued development of Ana Paula.
 

The Timmins Gold shares will be offered and sold in Canada on a private placement basis pursuant to certain prospectus exemptions. This press release does not constitute an offer to sell or a solicitation of an offer to buy any Timmins Gold Shares in the United States or in any other jurisdiction. The Timmins Gold Shares have not been and will not be registered under the United States Securities Act of 1933, as amended or any state securities laws and may not be offered or sold within the United States or to or for the account or benefit of a U.S. person unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.
 

Upon completion of the Arrangement, the combined company will be owned approximately 63% by Timmins Gold shareholders and 37% by Newstrike shareholders (based on fully-diluted in the money shares outstanding and excluding common shares to be issued pursuant to the Private Placement).
 

Highlights of the Transaction:

 

 
 
--  Creates an emerging, Mexican-focused intermediate gold mining company
    with a portfolio of high-quality production and development assets all
    based in Mexico, including a producing mine, San Francisco, and two
    robust development assets, Ana Paula and Caballo Blanco 
--  Greatly enhances Timmins Gold's potential production growth and cash
    cost profile - life of mine annual average gold production expected to
    grow approximately 175%, reaching approximately 326,000 ounces of gold
    assuming both Ana Paula and Caballo Blanco are put into production at
    the levels estimated in the Ana Paula PEA and the Caballo Blanco PEA;
    all-in-sustaining cash costs per ounce are expected to be reduced by
    approximately 21% to less than US$780 per ounce gold 
--  Timmins Gold believes the capital requirements will be manageable,
    initially supported by cash flow from San Francisco and the ability to
    efficiently sequence the development of Ana Paula and Caballo Blanco 
--  Significant increase in global resource size and grade with 75% increase
    in total M&I gold resources and 34% increase in average M&I gold grade 
--  Experienced management team with a proven track record of building and
    operating open-pit mines and long-standing in-country relationships;
    supported by a highly-qualified board of directors 
--  Increased scale of the combined company will enhance its capital markets
    profile and liquidity and provides for strong re-rating potential 
--  Strong support from Newstrike's largest shareholders, two companies
    controlled by a trust settled by the late Adolf H. Lundin, and Timmins
    Gold's largest institutional shareholder Sentry Investments Inc.
 

 

 

“The combination of Timmins Gold and Newstrike will immediately position Timmins Gold as an emerging intermediate gold company supported by current production and a very attractive pipeline of development projects,” said Bruce Bragagnolo, CEO of Timmins Gold. Arturo Bonillas, President of Timmins Gold, added: “The assets and projects in both companies are highly complementary and we are excited about the many opportunities ahead for us to continue delivering value to Timmins Gold shareholders. This transaction provides significant benefits to Newstrike shareholders and is accretive to Timmins Gold on key financial and operating metrics.”
 

Commenting on the transaction, Richard Whittall, President and CEO of Newstrike, added “This transaction provides an attractive premium to Newstrike’s current share price, offers immediate leverage to gold production at the San Francisco mine and de-risks the future development of Ana Paula. We believe the consideration offered by Timmins Gold is highly attractive for our shareholders who will also have the opportunity to participate in the growth and re-rating potential of the combined company.”
 

Benefits to Timmins Gold Shareholders:

 

 
 
--  Ana Paula adds a high-quality development project to Timmins Gold's
    portfolio with what Timmins Gold believes are robust economics and
    upfront capital requirements that will be manageable - Ana Paula is
    expected to deliver an attractive rate of return in the current
    commodity environment. The project has a 32.8% after-tax IRR at US$1,300
    per ounce gold based on the Ana Paula PEA and significant potential to
    improve project economics through optimization 
--  Assuming it is put into production at the levels projected in the Ana
    Paula PEA, Ana Paula will add approximately 116,000 ounces of annual
    production, with Timmins Gold's average annual gold production expected
    to grow to 326,000 ounces assuming Ana Paula and Caballo Blanco are put
    into production at the levels projected in the PEAs, transforming
    Timmins Gold into an emerging intermediate gold producer with a leading
    growth profile 
--  Ana Paula to increase Timmins Gold's total M&I gold resource by 75% and
    average M&I gold resource grade by 34% 
--  Timmins Gold's future cash costs expected to decrease significantly
    assuming Ana Paula is put into production based on US$486 per ounce cash
    cost as projected in the Ana Paula PEA 
--  Further diversifies Timmins Gold's portfolio in prolific mining regions
    in Mexico with long histories of precious metals production 
--  Presents opportunity to leverage the Timmins Gold management team's
    strong in-country and open-pit expertise to ensure optimal development
    and operation of Ana Paula 
--  Creates emerging intermediate producer with a diversified asset base,
    proven operating and development team, a leading growth profile and
    significant exploration upside 
--  Significant re-rating potential as development projects are successfully
    advanced 
--  Accretive to Timmins Gold on key financial and operating metrics
 

 

 

Benefits to Newstrike Shareholders:

 

 
 
--  Represents an immediate premium to Newstrike shareholders of 20.0% based
    on each company's closing price on February 13, 2015 and 22.4% based on
    each company's 20-day VWAP as of February 13, 2015 
--  Pro forma ownership of 37% in Timmins Gold, provides immediate exposure
    to gold production and cash flow from the San Francisco mine and
    attractive growth potential from Caballo Blanco 
--  Enhanced ability to realize value from the future development of the Ana
    Paula project via stronger financial position of the combined company
    with greater access to the capital required to construct Ana Paula 
--  Ana Paula to be developed by a proven management team with in-country
    mine construction and operational expertise and track-record of creating
    shareholder value 
--  Opportunity to participate in benefits derived from increased capital
    markets profile 
--  Significant re-rating potential as development projects are successfully
    advanced
 

 

 

Readers are reminded that the Ana Paula PEA and the Caballo Blanco PEA are preliminary in nature and include inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the Ana Paula PEA or the Caballo Blanco PEA will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
 

Transaction Summary
 

The implementation of the Arrangement will be subject to the approval of at least 66 2/3% of the votes cast by holders of Newstrike Shares, and if required under applicable securities law a majority of disinterested Newstrike Shareholders, at a special meeting of Newstrike shareholders expected to take place in April 2015. The Arrangement is also subject to the approval of a majority of the votes cast by the holders of Timmins Gold Shares at a special meeting of Timmins Gold shareholders expected to take place in April 2015. In addition to the shareholder approvals, the Arrangement is also subject to the receipt of certain regulatory, court and stock exchange approvals and certain other closing conditions customary in transactions of this nature.
 

The Arrangement Agreement has been unanimously approved by the boards of directors of each of Newstrike and Timmins Gold (a common director of Timmins Gold and Newstrike having recused himself). The financial advisor to Timmins Gold, BMO Capital Markets, has provided a fairness opinion to the board of directors of Timmins Gold that, subject to the assumptions, limitations and qualifications set out in such fairness opinion, the Exchange Ratio provided for in the Arrangement Agreement is fair, from a financial point of view to Timmins Gold. Cormark Securities Inc. has provided a fairness opinion to the special committee of independent directors of Newstrike (the “Special Committee”) that, subject to the assumptions, limitations and qualifications set out in such fairness opinion, the consideration to be received by Newstrike shareholders in connection with the Arrangement is fair, from a financial point of view, to such Newstrike shareholders.
 

The directors and senior officers of each of Timmins Gold and Newstrike have entered into customary voting support agreements to vote in favour of the transaction. In addition, each of the two largest shareholders of Newstrike, companies controlled by a trust settled by the late Adolf H. Lundin, have entered into customary voting support agreements to vote in favour of the Arrangement.
 

The Arrangement Agreement includes a reciprocal non-solicitation covenant, the right of either Newstrike or Timmins Gold to accept a superior proposal in certain circumstances, with each party having a 5 business day right to match any such superior proposal for the other party. The Arrangement Agreement also provides for the payment by each of Newstrike and Timmins Gold of a C$5.5 million termination fee if the Arrangement is terminated in certain specified circumstances.
 

Upon completion of the Arrangement, one nominee of Newstrike will be appointed to the Timmins Gold board of directors.
 

Further information regarding the Arrangement will be contained in information circulars that each of Timmins Gold and Newstrike will prepare, file and mail in due course to their respective shareholders in connection with the special meetings of each of the Timmins Gold and Newstrike shareholders to be held to consider the Arrangement. All shareholders are urged to read the information circulars once they become available as they will contain additional important information concerning the Arrangement. The Arrangement Agreement will be filed on the SEDAR profiles of Timmins Gold and Newstrike on the SEDAR website at www.sedar.com.
 

Advisors and Counsel
 

BMO Capital Markets is acting as exclusive financial advisor to Timmins Gold. Paul, Weiss, Rifkind, Wharton & Garrison LLP and DuMoulin Black LLP are acting as legal counsel to Timmins Gold.
 

National Bank Financial Inc. and Minvisory Corp. are acting as financial advisors to Newstrike. Blake, Cassels & Graydon LLP is acting as legal counsel to Newstrike. Cormark Securities Inc. has been engaged by the Special Committee to provide a fairness opinion.

About Timmins Gold

 

Timmins Gold is in commercial gold production at its wholly owned San Francisco Gold Property in Sonora, Mexico. The mine is an open pit heap leach operation from which Timmins Gold has projected production of 115,000 to 125,000 ounces of gold in 2015 at a cash cost of US$800 to US$850 per ounce.
 

Timmins Gold also has a 100% interest in Caballo Blanco, an advanced stage open pit, heap leach gold project located 65km Northwest of Veracruz, Mexico.
 

About Newstrike

 

Newstrike is a precious metal focused explorer, targeting known and historic mining districts in Mexico. Newstrike’s flagship property, Ana Paula, is an advanced-stage, high grade, near surface gold/silver resource with robust economics in the Guerrero Gold Belt. Key senior members of the Company’s current management and directors have participated in Guerrero Gold Belt discoveries, including Goldcorp Inc.’s producing Los Filos Mine and Torex Gold Resources advanced stage Morelos Project in Guerrero State.
 

Newstrike holds a 100% interest in certain exploration properties in Mexico located within two established mining districts; the Au (Ag-Cu) skarn-porphyry camp of the Guerrero Gold Belt, and the polymetallic Pb-Zn-Ag (Au-Cu) rich epithermal camp of the mining districts of Oaxaca State.

Posted February 18, 2015

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