Golden Queen Mining Co. Ltd. is pleased to announce that it has entered into an agreement with entities controlled by Leucadia National Corporation and certain members of the Clay family, a shareholder group which collectively owns approximately 27% of the issued and outstanding shares of Golden Queen, to invest US$110 million in cash in exchange for a 50% joint venture interest in the Soledad Mountain Project, subject to approval by Golden Queen's shareholders and certain other conditions.
The Project is a fully-permitted, open pit, heap leach gold and silver project located just outside the town of Mojave in Kern County, California. The Project will use conventional open pit mining methods and the cyanide heap leach and Merrill-Crowe processes to recover gold and silver from crushed, agglomerated ore. Construction has started on site and commissioning is planned for 2015.
Transaction Benefits
Management of Golden Queen believes that the transaction will have the following benefits for the Company and its shareholders:
- Involvement of Leucadia National Corporation, a well-respected and credible long-term partner with a strong balance sheet and a history of successful investments in the mining sector;
- Support by members of the Clay group, long-term shareholders who have supported Golden Queen for over 20 years;
- US$110 million cash contributed to the joint venture on closing;
- Commitment from Leucadia and the Clay group to fund up to an additional US$40 million in the aggregate to the joint venture, which will be used to fund the Project; and
- Low-risk, equity-based capital structure with no hedging and no financial covenants.
Lutz Klingmann, President of Golden Queen commented, "We believe that this transaction allows the Soledad Mountain Project to enter full construction after decades of patient effort. The Company is delighted to enter into a joint venture with Leucadia, whose well-known, disciplined capital allocation procedures fit well with what we hope to achieve at Soledad Mountain. We believe that a low-risk, equity-based capital structure is the prudent approach to managing the risks of the construction stage. If and when in production, we look forward to reexamining the capital structure to determine whether or not returns to equity investors can be enhanced through leverage."
The Company will be hosting a conference call today at 11:00 a.m. EDT to discuss the transaction.
Terms of the Transaction
Pursuant to the terms of the Transaction Agreement, Golden Queen will convert its wholly-owned subsidiary that is developing the Soledad Mountain Project, Golden Queen Mining Company, Inc., into a California limited liability company ("GQ California"). Gauss LLC, a joint venture to be owned 67.5% by Leucadia and 32.5% by the Clay group ("Gauss"), will acquire 50% of the membership interests of GQ California for US$110 million payable in cash to GQ California. On closing of the joint venture transaction, Golden Queen, through a wholly-owned subsidiary ("GQ Holdco"), and Gauss will each own 50% of GQ California and will enter into a joint venture agreement (the "JV Agreement") that will govern the management of the Project, the obligations of the parties in connection with further funding requirements and ownership of GQ California. GQ California will be managed by a board of managers comprising an equal number of representatives of each of Gauss and GQ Holdco.
GQ California will apply most of the purchase price received from Gauss to the continued development of the Project. Golden Queen currently anticipates conducting a Rights Offering (described below) and to use a portion of the proceeds from the Rights Offering to make an additional investment in GQ California to fund development of the Project (the "Top-Up Contribution"). Pursuant to the JV Agreement, if Golden Queen (through GQ Holdco) makes the Top-Up Contribution, Gauss is committed to fund an amount equal to the Top-Up Contribution to GQ California, and the aggregate amount of such contributions are anticipated to provide GQ California with sufficient funding to fully develop the Project. If GQ Holdco does not make the Top-Up Contribution, Gauss will be obligated to make up to a US$40 million capital contribution to GQ California, in which case GQ Holdco's ownership interest in GQ California will be diluted and GQ Holdco will surrender one of its board seats at GQ California.
Pursuant to the terms of the Transaction Agreement, Golden Queen is subject to customary no-shop covenants and the payment of a US$2.5 million termination fee, payable to the members of Gauss on a pro-rata basis under certain circumstances. Golden Queen also agreed to reimburse the members of Gauss for expenses in an aggregate amount of US$2.275 million incurred by them in connection with the transaction, provided however that the aggregate amount of the termination fee and the expense reimbursement shall not exceed US$2.5 million.
Prior to closing of the joint venture transaction, Golden Queen will incorporate GQ Holdco and cause the transfer of the current liabilities of GQ California, consisting primarily of intercompany loans, to GQ Holdco.
On closing of the joint venture transaction, Golden Queen's CEO, Lutz Klingmann, and CFO, Andrée St-Germain, will become the CEO and CFO, respectively, of GQ California.
The transaction is subject to customary closing conditions, including approval by the Toronto Stock Exchange and the shareholders of Golden Queen. Golden Queen will call a special meeting of its shareholders, which is expected to be held in August.
Source: http://www.goldenqueen.com