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Delta Gold Corp
Symbol DLT
Shares Issued 191,171,258
Close 2014-04-21 C$ 0.025
Market Cap C$ 4,779,281
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Delta Gold to merge with Commonwealth Silver

2014-04-24 15:35 ET - News Release

Mr. Marco Romero reports

DELTA GOLD CORPORATION AND COMMONWEALTH SILVER AND GOLD MINING INC. SIGN BINDING AGREEMENT FOR PROPOSED BUSINESS COMBINATION

Delta Gold Corp., and Commonwealth Silver and Gold Mining Inc., a privately held company incorporated under the laws of Canada, have entered into a binding letter agreement dated April 23, 2014, with respect to a proposed business combination, which would result in a reverse takeover (RTO) of Delta Gold by Commonwealth Silver thereby resulting in a going-public transaction for Commonwealth Silver.

Under the terms of the transaction, Delta Gold's outstanding common shares will be consolidated on a 1-for-20 basis. For the purposes of determining an exchange ratio, Delta Gold is being valued at 60 cents per Delta share on a postconsolidation basis, for a market capitalization of $5.7-million. Delta Gold's primary assets include cash and cash equivalents of approximately $4.7-million (unaudited as at March 31, 2014), and an option to acquire a 100-per-cent interest in the Imperial gold project in Imperial county, California, from Goldcorp USA Inc. (a wholly owned subsidiary of Goldcorp Inc.). The primary asset of Commonwealth Silver is a 98-per-cent interest in its flagship Commonwealth gold and silver project in Cochise county, Arizona. In connection with the transaction, Commonwealth Silver expects to complete a minimum concurrent financing of $3-million and up to $10-million to be priced in the context of the market. Shares of Commonwealth Silver will be valued from the price established for the financing. Shareholders of Commonwealth Silver will receive one Delta share (postconsolidation) for that number of Commonwealth shares calculated as 60 cents divided by the price of the Commonwealth shares issued in the financing. On a posttransaction, prefinancing basis, it is expected that existing Commonwealth Silver and Delta Gold shareholders will own approximately 80 per cent and 20 per cent of the combined company, respectively.

While both the Imperial project and Commonwealth project are at the preliminary economic assessment (PEA) stage, the Commonwealth project has a much shorter expected timeline to production as it is situated on private patented mining claims and can be placed into production at an estimated capital cost of approximately $27-million (U.S.).

Highlights of the resulting issuer:

  • Well-capitalized precious metals company with the advanced-stage Commonwealth project in Arizona on private land with low initial capital required to become a producing company;
  • Well-diversified and strong shareholder base providing enhanced market liquidity for shareholders and, accordingly, a greater ability to source capital;
  • Strong postfinancing balance sheet enabling successful execution of initiatives aimed at growing shareholder value;
  • Pipeline of other precious metals projects in the United States including the Imperial project in California, and the Blue Jeep and San Ignacio exploration projects in Arizona;
  • Enhanced market presence.

Proposed management and directors of the resulting issuer

Upon completion of the transaction, executive management of the resulting issuer is expected to consist of Michael H. Farrant, BComm, CPA, CA, president and chief executive officer (currently co-founder, president and CEO of Commonwealth Silver); Eugene T. Lee, BComm, CPA, CA, chief financial officer and corporate secretary (currently CFO and corporate secretary of Commonwealth Silver); Hall H. Stewart, BSc, CPG, RG, vice-president, exploration (currently co-founder and vice-president, exploration, of Commonwealth Silver); and Marco A. Romero, vice-president, corporate development (currently president and CEO of Delta Gold). It is expected that the board of directors of the resulting issuer will comprise seven directors, including Michael H. Farrant and Hall H. Stewart as non-independent directors, and Julian Kemp, BBA, CPA, CA, CDir (the vice-president, finance, and CFO of Fortune Minerals Ltd. from 2004 until January, 2014), Robert Hatch, BA (currently president of two privately held mining companies) and Andrea Zaradic, MASc (the president and CEO of Troon Ventures Ltd. from 2012 to February, 2014) as independent directors, with two additional independent directors to be named in due course.

Mr. Farrant, president and chief executive officer of Commonwealth Silver, commented: "We are delighted with the announcement of the transaction with Delta Gold. The last two years have been an extremely challenging time for the mining industry, and I am very happy to have found a partner in Delta Gold that recognizes the superior value of the work that we have done on the Commonwealth project and who is willing to combine their financial resources in an effort to build an emerging precious metals producer. We are also very excited for the shareholders of Commonwealth Silver, some of whom have waited nearly three years to see the company go public. While staying private over that period allowed Commonwealth Silver to avoid times of extreme volatility in the public markets and retain a fair valuation, the time has come to provide our shareholders with liquidity now that confidence is returning to the marketplace and the Commonwealth project has been advanced to the PEA stage."

Mr. Romero, president and chief executive officer of Delta Gold, added: "We have been searching for a long time to deliver to the shareholders of Delta Gold an additional high-quality precious metals project in a safe jurisdiction. We believe that we have found that in the Commonwealth project. With a much shorter permitting timeline than the Imperial project, we can now look forward to being shareholders of a producing precious metals company much sooner than we otherwise would have. For a private company, Commonwealth Silver has an excellent shareholder base, which will broaden the longer-term support for the company in the marketplace. I look forward to working with the Commonwealth Silver team to build a precious metals company founded on the execution of high standards and best practices."

Benefits of the transaction for Delta Gold shareholders:

  • Provides Delta Gold shareholders with an ownership stake in an advanced gold and silver project in Arizona with a much shorter permitting timeline to production than the Imperial project, and with low capital requirements and positive economics at current and lower metal prices;
  • Diversifies operating risk amongst multiple projects;
  • Allows for general and administrative synergies;
  • Delivers a team with solid open-pit, heap-leach, precious metals mine operating experience;
  • Delivers a strong and committed shareholder base that significantly improves capital structure;
  • Improves market presence.

Benefits of the transaction for Commonwealth Silver shareholders:

  • Private shareholdings become public, providing shareholders with market liquidity in an exchange-listed entity;
  • Provides Commonwealth Silver with the cash necessary to advance the Commonwealth project through the permitting and prefeasibility stage, and increases the resulting issuer's ability to raise capital necessary to advance the current business initiatives and growth strategy;
  • Adds another significant gold development project in the United States to its project portfolio;
  • Enhances the shareholder base with the addition of the Delta Gold shareholders and improves market presence.

Financing plan

In connection with the transaction and prior to the closing thereof, Commonwealth Silver intends to complete the financing so as to raise gross proceeds of between $3-million and $10-million. These funds would be used for working capital, property-acquisition-related costs and project development costs. The financing is expected to consist of non-brokered and brokered private placement offerings of units and/or subscription receipts, ultimately entitling purchasers to receive common shares and warrants of the resulting issuer upon completion of the transaction. It is anticipated that the Delta Gold securities issued in exchange for the Commonwealth Silver securities issued in connection with the financing will be issued pursuant to the business combination prospectus exemption under Section 2.11 of National Instrument 45-106 -- Prospectus and Registration Exemptions and as such will not be subject to any hold period under applicable Canadian securities laws. Additional information on the financing will be provided in a subsequent news release once available.

Other transaction details

In connection with signing the agreement, and upon obtaining approval of the TSX Venture Exchange and execution of loan documentation, Delta Gold shall advance $1-million to Commonwealth Silver, which amount shall initially be non-interest bearing and which shall be secured by a pledge of the outstanding shares of Commonwealth Silver's wholly owned subsidiary.

The agreement also provides that Delta Gold and Commonwealth Silver will negotiate and enter into a definitive agreement to supersede the agreement. Further details regarding the transaction shall be provided in a joint information circular, which will be mailed to shareholders of Delta Gold and Commonwealth Silver in connection with their respective shareholders meetings to approve the transaction.

Closing of the transaction is subject to a number of conditions and approvals, which include completion of the financing on acceptable terms; the execution of a definitive agreement; approval of the respective shareholders of Delta Gold and Commonwealth Silver; court approval (if the transaction is effected by way of plan of arrangement); and the approval of all relevant regulatory authorities and third parties including the Toronto Stock Exchange or the TSX-V, as the case may be. There can be no assurance that the transaction or the financing will be completed as proposed or at all. The agreement provides for termination rights, including in the event the transaction is not completed by July 31, 2014.

The resulting issuer is expected to be named Commonwealth Silver and Gold Mining Inc., and will be headquartered in Toronto. Every commercially reasonable effort will be made to qualify the common shares of the resulting issuer for trading on the TSX or, if it is determined that the combined company does not meet TSX listing requirements, tier 1 on the TSX-V. On a posttransaction, prefinancing basis, the resulting issuer will have approximately 48.6 million shares outstanding.

Timing

The parties expect to complete and mail the circular by the end of May, 2014, and plan to hold their respective special meetings in June, 2014. The transaction is expected to close shortly thereafter.

Financial advisers and counsel

Delta Gold's legal counsel is McMillan LLP while Commonwealth Silver's legal counsel is Peterson Law Professional Corp. Neither company has retained a financial adviser in connection with the transaction.

Board of directors recommendations

The directors of each of Delta Gold and Commonwealth Silver have unanimously determined to recommend the approval of the transaction. Pursuant to the agreement, directors and officers of both companies will enter into agreements to vote their respective shareholdings in favour of the transaction. Goldcorp USA, Delta Gold's largest arm's-length shareholder owning 11.5 per cent of Delta Gold, and shareholders holding greater than 5 per cent of the outstanding Commonwealth shares will also be required to enter into agreements to vote their respective shareholdings in favour of the transaction.

The agreement includes a commitment by each of Delta Gold and Commonwealth Silver not to actively solicit alternative transactions to the proposed transaction. In certain circumstances, if a party terminates the agreement or definitive agreement to enter into an agreement to effect a business combination other than the transaction or pursuant to a superior proposal, then such party is obligated to pay to the other party as a termination payment an aggregate amount equal to the greater of costs associated with the transaction or $100,000. Each party has also been provided with certain other rights, representations, and warranties and covenants customary for a transaction of this nature, and each party has the right to match competing offers made to the other party.

Pro forma selected financial information and shareholdings

Assuming that the financing raises gross proceeds of $3-million to $10-million and after satisfying existing obligations of Commonwealth Silver, the resulting issuer is expected to have approximately $6-million to $13-million in cash and no debt. Notable shareholders of the resulting issuer will include leading institutional funds and a number of prominent companies in the mining industry, including Goldcorp USA and Coeur Mining Inc.

Additional financial information with respect to Commonwealth Silver and pro forma information on the combined company will be provided at a later date.

Pro forma measured and indicated (M&I), and inferred resources

The following mineral resource estimates for the Commonwealth project are effective as at June 10, 2013, were prepared as part of the National Instrument 43-101 technical report dated Sept. 5, 2013, and titled, "National Instrument 43-101 Technical Report on Resources, Commonwealth Silver and Gold Project, Cochise County, Arizona, USA," as prepared by Zachary J. Black, SME-RM; Jennifer J. Brown, PG, SME-RM; and Jeffery W. Choquette, PE, all of Hard Rock Consulting LLC (HRC), and all of whom are consultants and independent qualified persons as defined under NI 43-101, A copy of the Commonwealth technical report will be available under Delta Gold's SEDAR profile.

The attached mineral resource estimates for the Imperial project are effective as at Oct. 26, 2012, were prepared as part of the NI 43-101 PEA technical report dated May 29, 2012, and updated with an effective date of Oct. 26, 2012, and titled, "Preliminary Economic Assessment Technical Report for the Imperial Project, California, USA," as prepared by Gordon Doerksen, PEng, vice-president, technical services, JDS Energy and Mining Inc., Glen Cole, PGeo, Dino Pilotto, PEng, and Adrian Dance, PEng, each a principal consultant with SRK Consulting (Canada) Inc., and Lois Boxill, PEng, senior consultant with SRK Consulting (Canada), all of whom are independent qualified persons as defined under NI 43-101. The Imperial technical report is available under Delta Gold's SEDAR profile.

                                                             Gold (Au)
                   Cut-off grade         Tonnes    Grade (g/t         Ounces
Measured                    (g/t)         (000s)           Au)           (Au)

Commonwealth          0.40 (AuEq)         4,069          0.57         74,800
Indicated                                                                   
Commonwealth          0.40 (AuEq)        21,934          0.45        314,500
Imperial                0.17 (Au)        45,763          0.60        879,000
Total M&I                                                          1,268,300
Inferred                                                                    
Commonwealth          0.40 (AuEq)         7,380          0.29         67,900
Imperial                0.17 (Au)        76,334          0.53      1,298,000
Total inferred                                                     1,365,900
                                                                            
Measured                       Silver (Ag)             Gold equivalent (AuEq)
                       Grade (g/t        Ounces         Grade         Ounces
                               Ag)          (Ag)    (g/t AuEq)         (AuEq)

Commonwealth                 48.6     6,358,000          1.38        180,800
Indicated                                                                   
Commonwealth                 36.8    25,951,000          1.06        746,100
Imperial                        -             -          0.60        879,000
Total M&I                            32,309,000                    1,805,900
Inferred                                                                    
Commonwealth                 17.2     4,075,000          0.58        136,700
Imperial                        -             -          0.53      1,298,000
Total inferred                        4,075,000                    1,434,700

Notes:
1. The resource categories used here and the preparation of these resource
   estimates are in accordance with the requirements of the Canadian
   Institute of Mining, Metallurgy and Petroleum's CIM Standards on
   Mineral Resources and Reserves, Definition and Guidelines, as per
   National Instrument 43-101 -- Standards of Disclosure for Mineral
   Projects. 
2. Mineral resources are not mineral reserves and do not have demonstrated
   economic viability. There is no certainty that all or any part of the
   mineral resources estimated will be converted into mineral reserves. 
3. Measured and indicated mineral resources captured within the pit shell
   meet the test of reasonable prospect for economic extraction and can be
   declared a mineral resource. 
4. Inferred mineral resources are that part of the mineral resource for
   which the quantity and grade or quality are estimated on the basis of
   geological evidence and limited sampling, and reasonably assumed, but not
   verified, geological and grade continuity. 
5. For the Commonwealth project, all the mineral resources are stated above
   a 0.4-gram-per-tonne gold-equivalent cut-off, and pit optimization is 
   based on assumed gold and silver prices of $1,350 (U.S.)/ounce and $22.50
   (U.S.)/ounce, respectively. Metallurgical recoveries were assigned by
   lithologic unit.
6. For the Imperial project, all the mineral resources are stated above a
   0.17-gram-per-tonne Au cut-off, and pit optimization is based on an 
   assumed gold price of $1,300 (U.S.)/ounce. 
7. Mineral resources on undeveloped properties assumes successful
   permitting, allowing mining operations to be conducted. 
8. Mineral resource tonnage and contained metal have been rounded to
   reflect the accuracy of the estimate, and numbers may not add due to
   rounding. 
9. AuEq is stated using a ratio of 60 to 1, and ounces are calculated using
   the following conversion rate: one troy ounce equals 31.1035 grams. 
   Metallurgical recoveries are not accounted for in the AuEq calculation.

Assaying and QA/QC (quality assurance/quality control)

For the Commonwealth project, after project geologists logged and marked the core, technicians cut the individual lengths with a diamond saw, then bagged the samples, tagged the bags and secured them with security clips. The samples were then shipped by United Parcel Service (UPS) to ALS Minerals in Reno, Nev. Samples were analyzed for gold by fire assay with atomic absorption (AA) finish. Silver analysis was included in a 30-element inductivity coupled plasma (ICP) analysis (using a four-acid digest) conducted on all samples. Gold and silver overlimit assays were analyzed by fire assay with a gravimetric finish. All drilling by Commonwealth Silver has included a rigorous QA/QC program monitoring sample quality. Commonwealth Silver inserts assay standards, blanks and duplicate samples into the sample stream, and performs statistical review of the results.

Overview of assets of the resulting issuer

Development-stage gold projects

Commonwealth project, Cochise county, Arizona

In February, 2011, Commonwealth Silver entered into an option agreement to acquire an 88-per-cent interest in eight patented mining claims comprising the past-producing Commonwealth mine in Cochise county, Arizona, approximately 75 miles southeast of Tucson, Ariz. In June, 2011, Commonwealth Silver purchased an additional 10-per-cent interest in these claims for $152,000 (U.S.), increasing its interest to 98 per cent. From 1895 to the late 1920s, the Commonwealth mine produced approximately 12 million ounces of silver and 138,000 ounces of gold. This vein system with significant stockwork veining has been mapped over 1.3 kilometres of strike length with drilling having tested approximately 1,000 metres of this strike length to a maximum depth of just over 200 metres. All the known veins in the district have a combined strike length of over seven km.

An initial mineral resource estimate in compliance with National Instrument 43-101 was calculated on the Commonwealth project in October, 2011, by SRK Consulting (U.S.) Inc., which included assays from 171 drill holes (155 historical and 16 new core holes) covering 17,675 metres of drilling. After completing an additional 37 core holes covering approximately 5,500 metres, the mineral resource estimate was updated by HRC and presented in the Commonwealth technical report. Subsequently, HRC completed a PEA for Commonwealth Silver to be presented in an NI 43-101 technical report and filed under Delta Gold's SEDAR profile within 45 days of the date of this new release. Highlights from the base case study at $1,350 (U.S.) per ounce of gold and $22.50 (U.S.) per ounce of silver, based solely on estimated measured and indicated mineral resources, include an after-tax net present value (NPV) of $101.3-million (U.S.) at a 5-per-cent discount rate and an after-tax internal rate of return (IRR) of 58 per cent with an after-tax payback period of 1.6 years based on a preproduction capital cost of approximately $27-million (U.S.) including a 20-per-cent contingency. Average annual production is projected at 35,800 ounces of gold and 1.3 million ounces of silver (57,000 ounces of gold-equivalent production at a 60-to-1 gold-to-silver ratio) at a processing rate of 10,000 tonnes per day (tpd) with average recovery rates of 79 per cent for gold and 34 per cent for silver over an 8.7-year mine life. Average cash operating costs over the mine life are expected to be approximately $831 (U.S.) per ounce of gold equivalent with a life-of-mine strip ratio of 0.97 to 1. The HRC PEA has been constrained to the mineral resource estimate contained with an open pit located entirely on the patented mining claims, and does not take into account the potential for additional mineralization on the adjoining unpatented mining claims or the potential for mineralization at the nearby Blue Jeep and San Ignacio exploration projects discussed below. It is expected that with the existing cash balances of Delta Gold and the financing, the resulting issuer will work toward significantly advancing the environmental permitting on the Commonwealth project during 2014 in addition to completing a prefeasibility study advancing the Commonwealth project to a construction decision. The resulting issuer will look to secure project financing, complete permitting and substantially complete construction during 2015 with a view to achieving commercial production in 2016.

Imperial project, Imperial county, California

In June, 2012, Delta Gold entered into an option agreement with Goldcorp USA that grants Delta Gold the option to acquire 100 per cent of the Imperial project, currently at the PEA and permitting stage, located in Imperial county, California. The option agreement was amended and restated in September, 2013, to require work commitments totalling $10.0-million over a four-year period to begin only once all permits for the feasibility study drilling program are received but, in any event, no later than June, 2021. In addition, required share-based payments under the option agreement are now tied to project milestones including receipt of all permits for the feasibility study drilling program, a positive construction decision and upon the project reaching commercial production. Further contingent payments could be due following commercial production at gold prices in excess of $1,300 (U.S.) per ounce.

Based on the Imperial technical report, highlights from the base-case mine plan at $1,300 (U.S.) per ounce of gold comprised indicated (53 per cent) and inferred (47 per cent) estimated mineral resources, and included an after-tax NPV of $136-million (U.S.) at a 5-per-cent discount rate, an after-tax IRR of 19 per cent and an after-tax payback period of 3.5 years on initial capital spending of $202-million (U.S.). The PEA on the Imperial project contained within the Imperial technical report is preliminary in nature and includes 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, and there is no certainty that the PEA on the Imperial project will be realized. Annual production at the Imperial project is projected at 119,000 ounces of gold at a processing rate of 25,000 tpd over a 10-year mine life at cash operating costs of $599 (U.S.) per ounce and all-in costs of $965 (U.S.) per ounce over the life of the mine. The PEA anticipates a strip ratio of 2.68 with favourable cost conditions resulting from weakly cemented gravel overburden, excellent metallurgy and low reagent consumption. While there exists the potential for modest expansion of estimated mineral resources, which could extend the projected mine life, the single biggest risk factor continues to be Delta Gold's ability to successfully permit the remaining phases of mine development and operation.

The resulting issuer plans to focus its efforts over the next year on building community support for the Imperial project in the hopes that this may foster a more favourable permitting environment. It is expected that Mr. Romero will continue to lead these efforts following completion of the transaction.

Exploration-stage gold and silver projects of the resulting issuer

Blue Jeep, San Ignacio and Six Mile Hill, Cochise county, Arizona

Commonwealth Silver has a lease with an option to purchase a 100-per-cent interest in 34 unpatented mining claims comprising the Blue Jeep, San Ignacio and Six Mile Hill exploration projects, which surround the Commonwealth project. The Blue Jeep project is located approximately two miles east of the Commonwealth project and consists of 10 contiguous mining claims known as Blue Jeep 1 through 9 and the Brindle Steer. The San Ignacio project is located approximately one mile east of the Commonwealth project and consists of 18 mining claims known as San Ignacio 1 through 18. The Six Mile Hill project is located approximately one mile west of the Commonwealth project and consists of six mining claims known as San Ramon 1 through 6. From 1983 to 1984, the properties were explored by Santa Fe Mining Inc., which drilled 49 holes at Blue Jeep and 14 at San Ignacio. Commonwealth Silver has targeted these areas for near-term exploration drilling with a goal of establishing mineral resources on these properties. It is ultimately the hope that these properties will contribute to the overall growth profile alongside the Commonwealth project as a district-scale operation.

About Commonwealth Silver

For further information on Commonwealth Silver, please visit Commonwealth Silver's website.

The Delta Gold and Commonwealth Silver transaction presentation will be made available on both companies' websites in due course.

Hall Stewart, CPG, RG, vice-president, exploration, of Commonwealth Silver, is a qualified person for the purposes of National Instrument 43-101, and has reviewed and approved the technical information in this news release relating to Commonwealth Silver.

John Purkis, PEng (British Columbia), senior vice-president, operations, and chief operating officer of Delta Gold, is a qualified person for the purposes of NI 43-101, and has reviewed and approved the technical information in this news release relating to Delta Gold.

Completion of the transaction is subject to a number of conditions, including TSX-V acceptance and disinterested shareholder approval. The transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the joint management information circular to be prepared in connection with the transaction, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Delta Gold should be considered highly speculative.

We seek Safe Harbor.

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