12:57:18 EDT Thu 28 Mar 2024
Enter Symbol
or Name
USA
CA



Aquila Resources Inc
Symbol AQA
Shares Issued 340,928,918
Close 2021-09-07 C$ 0.08
Market Cap C$ 27,274,313
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Aquila enters acquisition by Gold Resource

2021-09-07 16:54 ET - News Release

Mr. Guy Le Bel reports

AQUILA RESOURCES TO BE ACQUIRED BY GOLD RESOURCE CORPORATION TO FORM DIVERSIFIED NORTH AMERICAN PRECIOUS AND BASE METALS PRODUCER

Aquila Resources Inc. has entered into a binding letter agreement with Gold Resource Corp., 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).

Pursuant to the transaction, which is subject to the entering into of a definitive arrangement agreement, GORO will acquire all the issued and outstanding Aquila shares for 0.0399 of a GORO share per Aquila share. Based upon the 20-day volume-weighted average price (VWAP) of GORO's shares on the NYSE American stock exchange on Sept. 3, 2021, being the last trading day prior to the date of the letter agreement, the exchange ratio represents a 29-per-cent 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 nine cents per Aquila share, reflecting a premium of 12.5 per cent, based upon the closing prices of the Aquila shares and the GORO shares on Sept. 3, 2021. The per-share price implies an aggregate acquisition price for 100 per cent of the outstanding Aquila shares of approximately $30.9-million.

Upon closing of the transaction, the existing GORO and Aquila shareholders will own approximately 85.1 per cent and 14.9 per cent, 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 derisks 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 and chief executive officer, added, "We share Allen's vision for the combined company, which, as a growth-oriented, multijurisdictional, 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 per cent.
  • Enhanced market presence and rerating potential: GORO currently benefits from inclusion in the VanEck Junior Gold Miners ETF (the GDXJ) and from an average daily trading volume of approximately one 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, financed 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 market 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 rerating 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 continuing growth of a multijurisdictional, 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 $30.2-million (U.S.) 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, from improved concentrate sales and marketing, and from supply chain efficiencies.
  • Materially derisks the financing and development of the Back Forty project for Aquila shareholders: Benefiting 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 toward 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 finance the Back Forty project's construction capital expenditures.
  • All-stock transaction enables Aquila shareholders to maintain upside exposure: Through its 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 toward 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 rerating 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: Posttransaction, 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 10 years.

Support for the transaction from key Aquila stakeholders

Aquila's largest shareholder, Orion Mine Finance, which holds 28.6 per cent 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 favour 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).

Osisko Bermuda Ltd., a wholly owned subsidiary of Osisko Gold Royalties and 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 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 per cent 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 continuing 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 66-2/3rds per cent 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.

Advisers

Goodmans LLP is Aquila's Canadian legal adviser, and Scotiabank is Aquila's financial adviser.

Conference call and live webcast

Management of GORO will host a conference call and live webcast at 10 a.m. Toronto time/8 a.m. Denver time on Sept. 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:

  • By webcast;
  • To join the call, by telephone please use the 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 Resources Inc.

Aquila Resources is a development-stage company focused on high-grade polymetallic projects in the upper Midwest, United States. Aquila's experienced management team is currently advancing preconstruction activities for its flagship 100-per-cent-owned gold- and zinc-rich Back Forty project in Michigan.

The Back Forty project is a volcanogenic massive sulphide 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 and indicated mineral resource classifications, with additional exploration upside. An optimized feasibility study for the project is under way.

About Gold Resource Corp.

Gold Resource is a gold and silver producer, developer and explorer with its operations centred on the Don David gold mine in Oaxaca, Mexico. Under the direction of a new board and senior leadership, the company has a focus of unlocking the significant upside potential of its existing infrastructure and large land position surrounding the mine.

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