Aquila Resources Inc. (TSX: AQA,
OTCQB: AQARF) (“Aquila” or the “Company”) is pleased
to announce that it has entered into a binding letter agreement
(the “Letter Agreement”) with Gold Resource Corporation
(“GORO”) (NYSE American: GORO) setting out certain key terms
of a proposed acquisition by GORO of all the issued and outstanding
common shares of Aquila by way of a plan of arrangement under the
Business Corporations Act (Ontario) (the “Transaction”).
Pursuant to the Transaction, which is subject to the entering
into of a definitive arrangement agreement (the “Arrangement
Agreement”), GORO will acquire all the issued and outstanding
Aquila shares for 0.0399 of a GORO share per Aquila share (the
“Exchange Ratio”). Based upon the 20-day volume-weighted
average price (“VWAP”) of GORO’s shares on the NYSE American
stock exchange on September 3, 2021, being the last trading day
prior to the date of the Letter Agreement, the Exchange Ratio
represents a 29% premium to the 20-day VWAP of Aquila’s shares on
the Toronto Stock Exchange as of such date. The Exchange Ratio
represents consideration of C$0.09 per Aquila share (the “Per
Share Price”), reflecting a premium of 12.5%, based upon the
closing prices of the Aquila shares and the GORO shares on
September 3, 2021. The Per Share Price implies an aggregate
acquisition price for 100% of the outstanding Aquila shares of
approximately C$30.9 million.
Upon closing of the Transaction, the existing GORO and Aquila
shareholders will own approximately 85.1% and 14.9%, respectively,
of the combined company on a fully diluted basis.
Strategic Rationale for the
Transaction
Barry Hildred, Executive Chair, commented, “We believe strongly
that this Transaction provides substantial immediate and long-term
benefits to Aquila shareholders. The business combination with
GORO, a proven operator of a cash flowing mine in the Americas,
materially de-risks the financing and development of the Back Forty
Project. The Transaction also allows our shareholders to maintain
exposure to the value that is created as Back Forty advances
towards production.”
Guy Le Bel, President & CEO, added, “We share Allen’s vision
for the combined company which, as a growth-oriented,
multi-jurisdictional, diversified precious and base metal producer,
will be well-positioned to create value for all shareholders.”
Commenting on the entering into of the Letter Agreement, Allen
Palmiere, President and Chief Executive Officer of GORO, said:
“This proposed business combination offers an attractive
opportunity to the shareholders of both GORO and Aquila. By
combining our complementary assets, we will enhance our mineral
inventory and add jurisdictional diversification to our project
portfolio. The combined company will become a new intermediate gold
producer following the commencement of production at Aquila’s Back
Forty Project, and its shareholders can look forward to the
potential of a company that is expected to benefit from a peer
leading growth profile, underpinned by a healthy balance sheet and
strong cash flow capable of supporting the development of the Back
Forty Project. We look forward to entering into the Arrangement
Agreement with Aquila and successfully completing the
Transaction.”
Further details of the benefits of the Transaction to Aquila and
GORO shareholders include the following:
- Immediate and Significant Premium to Aquila Shareholders. Based
on the 20-day VWAPs of the GORO shares and the Aquila shares, the
Transaction offers an immediate and significant premium to Aquila’s
shareholders of 29%.
- Enhanced Market Presence and Re-Rating Potential. GORO
currently benefits from inclusion in the VanEck Junior Gold Miners
ETF (the “GDXJ”) and from an average daily trading volume of
approximately 1 million shares, trailing three months. The
Transaction is intended to result in the Back Forty Project being
placed into production on a more accelerated basis, funded by cash
flow generation, thus elevating the combined company to
intermediate producer status. Following the completion of the
Transaction, GORO is expected to continue to be included in the
GDXJ and to benefit from an enhanced capital markets profile in the
United States and Canada, as well as increased trading liquidity
and broadened appeal to global index, resource, and generalist
investors. This offers the potential for a re-rating to a multiple
more in line with other intermediate gold producers.
- Enhanced Project and Jurisdictional Diversification. Each of
GORO and Aquila is currently a single-asset, single-jurisdiction
company. Through the Transaction, GORO and Aquila shareholders will
have the opportunity to participate in the ongoing growth of a
multi-jurisdictional, diversified precious and base metal producer
with exposure to gold, silver, zinc, copper and lead through GORO’s
producing Don David Gold Mine in Oaxaca, Mexico and Aquila’s Back
Forty Project in Menominee County, Michigan. It is anticipated that
Aquila’s previously announced sale of its Bend and Reef exploration
properties will be completed prior to the completion of the
Transaction.
- Growth Profile and Financial Strength of Combined Company. The
combined company is expected to benefit from a peer leading growth
profile, a robust balance sheet with no debt and cash of US$30.2
million at June 30, 2021, free cash flow generation from its Don
David Gold Mine and the synergies that generally accrue from scale
in the areas of general and administrative expenses, from less
duplication of salaries, wages and other public company expenses,
improved concentrate sales and marketing and supply chain
efficiencies.
- Materially De-Risks the Financing and Development of the Back
Forty Project for Aquila Shareholders. Benefitting from the free
cash flow generated by the Don David Gold Mine, Aquila shareholders
will not be diluted by a near-term equity financing that would
otherwise be required to advance the Back Forty Project through the
final stages of permitting and engineering. GORO is supportive of
Aquila’s project development plans including continuing working
towards an optimized Feasibility Study. The combined Company’s
position of financial strength is also expected to result in an
improved ability to access required additional financing to fund
the Back Forty Project’s construction capital expenditures.
- All-Stock Transaction Enables Aquila Shareholders to Maintain
Upside Exposure. Through their ownership in the combined company,
Aquila shareholders will maintain exposure to the value that is
expected to be unlocked as the Back Forty Project is advanced
towards construction and production. Despite being a proven gold
producer, GORO currently trades at only approximately 2.5 times
free cash flow from operations. Aquila shareholders will
participate in the anticipated re-rating of GORO from a one mine
company in Mexico to a two-mine company with jurisdictional
diversification.
- Experienced Management Team. The combined company will benefit
from GORO’s and Aquila’s technical and operational teams’ expertise
in polymetallic open pit and underground mines. The GORO executive
team has a demonstrated record of success in developing and
operating mining projects in the Americas.
- Demonstrated Consistent Dividend History. Post-Transaction,
GORO intends to continue to pay dividends in accordance with its
past practice. GORO has made consistent dividend payments to its
investors for more than ten years.
Support for the Transaction from Key
Aquila Stakeholders
Aquila’s largest shareholder, Orion Mine Finance
(“Orion”), which holds 28.6% of the issued and outstanding
Aquila shares, has confirmed to GORO that it is supportive of the
Transaction. Subject to its review of the proposed Arrangement
Agreement, Orion has indicated its intention to enter into a voting
support agreement in favor of the Transaction, on terms to be
agreed between GORO and Orion, contemporaneously with the execution
of the Arrangement Agreement. The Letter Agreement also provides
for the delivery of voting support agreements by each of Aquila’s
directors and officers at such time (together with the
aforementioned Orion agreement, the “Support
Agreements”).
Osisko Bermuda Limited, a wholly-owned subsidiary of Osisko Gold
Royalties and which is a party to gold and silver stream agreements
with Aquila relating to the Back Forty Project, has also confirmed
that it considers GORO to be an approved purchaser under those
agreements, and that it is supportive of the proposed
Transaction.
Board Approvals
The Letter Agreement has been unanimously approved by the boards
of directors of both GORO and Aquila. The Aquila board’s approval
of the Letter Agreement was based in part on the unanimous
recommendation of a special committee of independent directors of
Aquila which was appointed to consider the Transaction.
Arrangement Agreement and Transaction
Approvals
The Letter Agreement provides for a period of up to 45 days of
exclusive negotiations by Aquila with GORO (the “Exclusivity
Period”) with a view to entering into a mutually acceptable
Arrangement Agreement, and provides that the Arrangement Agreement
will reflect the Exchange Ratio and other economic terms set out in
the Letter Agreement. The Arrangement Agreement will contain
customary representations and warranties, covenants, closing
conditions and deal protection mechanisms for a transaction of this
nature, including a break fee payable by Aquila to GORO equal to
4.0% of the total Transaction value in the event of termination of
the Arrangement Agreement under certain circumstances.
The entering into of the Arrangement Agreement is subject to
certain conditions set out in the Letter Agreement, including (i)
the satisfaction of each of GORO and Aquila with its respective
ongoing due diligence investigations, (ii) the receipt by Aquila’s
board of directors of an opinion that the consideration proposed to
be received by the Aquila shareholders pursuant to the Transaction
is fair, from a financial point of view, to the Aquila
shareholders, (iii) the approval of the Arrangement Agreement by
the boards of directors of each of GORO and Aquila, and (iv) the
entering into of the Support Agreements and certain other
arrangements with third parties under certain of Aquila’s material
contracts on a basis acceptable to GORO. The Letter Agreement also
provides that if the Arrangement Agreement is not entered into,
Aquila or GORO will reimburse the other party for certain of its
expenses incurred in connection with the proposed Transaction
depending on the circumstances.
The Transaction will require the approval of at least 66⅔% of
the votes cast in person or by proxy at a special meeting of Aquila
shareholders. The Transaction is also subject to Ontario court
approval and the receipt of applicable regulatory approvals. The
parties anticipate that the Aquila special shareholder meeting and
the closing of the Transaction will take place in the fourth
quarter of 2021. The Transaction will not require the approval of
GORO’s shareholders.
Advisors
Goodmans LLP is Aquila’s Canadian
legal advisor and Scotiabank is Aquila’s financial advisor.
Conference Call and Live
Webcast
Management of GORO will host a conference call and live webcast
at 10:00 a.m. Toronto time / 8:00 a.m. Denver time on September 8,
2021 to discuss the Transaction. Please use the following
information to access the call and/or webcast:
There are two ways to join the conference call.
To join the conference via webcast, please click on the
following link:
https://www.webcaster4.com/Webcast/Page/2361/42777.
To join the call via telephone please use one of the following
dial-in details: Participant Numbers: Toll Free: 844-602-0380
International: 862-298-0970
Replay Number: Toll Free: 877-481-4010 International:
919-882-2331 Replay Passcode: 42777
Please connect to the conference call at least 10 minutes prior
to the start time using one of the connection options listed
above.
ABOUT AQUILA Aquila Resources Inc. (TSX: AQA, OTCQB:
AQARF) is a development‐stage company focused on high grade
polymetallic projects in the Upper Midwest, USA. Aquila’s
experienced management team is currently advancing pre-construction
activities for its flagship 100%‐owned gold and zinc‐rich Back
Forty Project in Michigan.
The Back Forty Project is a
volcanogenic massive sulfide deposit with open pit and underground
potential located along the mineral‐rich Penokean Volcanic Belt in
Michigan’s Upper Peninsula. Back Forty contains approximately 1.1
million ounces of gold and 1.2 billion pounds of zinc in the
Measured & Indicated Mineral Resource classifications, with
additional exploration upside. An optimized Feasibility Study for
the Project is underway.
Additional disclosure of Aquila’s
financial statements, technical reports, material change reports,
news releases and other information can be obtained at
www.aquilaresources.com or on SEDAR at www.sedar.com.
ABOUT GOLD RESOURCE CORPORATION Gold Resource Corporation
is a gold and silver producer, developer, and explorer with its
operations centered on the Don David Gold Mine in Oaxaca, Mexico.
Under the direction of a new board and senior leadership, the
company’s focus is to unlock the significant upside potential of
its existing infrastructure and large land position surrounding the
mine. For more information, please visit GORO’s website, located at
www.goldresourcecorp.com and read the company’s Form 10-K for an
understanding of the risk factors associated with its business.
Cautionary statement regarding
forward-looking information
This press release may contain
certain forward-looking statements. In certain cases,
forward-looking statements can be identified by the use of words
such as “plans”, “expects” or “does not anticipate”, or “believes”,
or variations of such words and phrases or statements that certain
actions, events or results “may”, “could”, “would”, “might” or
“will be taken”, “occur” or “be achieved”. In particular, this news
release contains forward-looking information pertaining to the
following: statements regarding the proposed Transaction (including
with respect to the satisfaction of conditions to the entering into
of the Arrangement Agreement, the terms and conditions of the
Arrangement Agreement and Support Agreements, and the receipt of
shareholder, court and regulatory approvals for the Transaction);
the potential strategic benefits of the Transaction and
expectations regarding the combined company (including its growth
profile and resource profile, the development of the Back Forty
Project, cash flow generation from the Don David Gold Mine, and its
market presence and re-rating potential and expectations regarding
the payment of dividends); and timing expectations for all of the
foregoing. Forward-looking statements and information are subject
to various known and unknown risks and uncertainties, many of which
are beyond the ability of Aquila to control or predict, that may
cause their actual results, performance or achievements to be
materially different from those expressed or implied thereby, and
are developed based on assumptions about such risks, uncertainties
and other factors set out herein, including but not limited to: the
ability of the Company and GORO to negotiate the Arrangement
Agreement and the satisfaction of the conditions precedent to the
execution of the Arrangement Agreement (including the satisfaction
of each of GORO and Aquila with their respective due diligence
investigations, the approval of the Arrangement Agreement by the
boards of directors of each of GORO and Aquila, and the execution
of the Support Agreements); the satisfaction of all conditions
precedent to closing the Transaction (including the obtaining of
all shareholder, court, and regulatory approvals); inherent risks
of mining exploration, development and production operations;
economic factors affecting the Company and/or GORO; the integration
of the businesses of the Company and GORO; political conditions and
the regulatory environment in the United States and Mexico; and the
scope, duration, and impact of the COVID-19 pandemic on the Company
and GORO as well as the scope, duration and impact of government
action aimed at mitigating the pandemic; and other related risks
and uncertainties, including, but not limited to, risks and
uncertainties disclosed in Aquila’s filings on its website at
www.aquilaresources.com and on SEDAR at www.sedar.com. Aquila
undertakes no obligation to update forward-looking information
except as required by applicable law. Such forward-looking
information represents Aquila’s best judgment based on information
currently available. No forward-looking statement can be guaranteed
and actual future results may vary materially. Accordingly, readers
are advised not to place undue reliance on forward-looking
statements or information. Furthermore, mineral resources that are
not mineral reserves do not have demonstrated economic
viability.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210907005878/en/
Guy Le Bel, President & CEO, Director Tel: 450.582.6789
glebel@aquilaresources.com
David Carew, VP Corporate Development & IR Tel: 647.943.5677
dcarew@aquilaresources.com