13th May 2014 09:46
LONDON (Alliance News) - Red Rock Resources PLC said Tuesday it has executed a binding letter of intent to sell its Colombian interests to Nicaragua Milling Company Limited for up to USD5 million.
Red Rock said that it executed the LOI with the Nicaragua Milling Company May 12, 2014.
Under the terms of the letter, Red Rock will sell its 100% stake in American Gold Mines Ltd, which owns a 50.002% interest in Four Points Mining SAS, the owner of the El Limon mine, as well as its loans to Four Points Mining, for a total consideration of USD5 million.
Nicaragua is a private company registered in Belize, represented by James Randall Martin. Nartin served as CEO of Colombia Goldfields Ltd and is the founder and Chairman of Nicaraguan gold producer Hemco.
The El Limon mine is situated in Antioquia province in Colombia, and has been in operation for periods of the last 60 years. Red Rock provided the funding to re-open the mine under a Funding and Co-Operation Agreement announced on June 10, 2010, which saw operations recommence December 21, 2010.
On March 8, 2011, Red Rock announced the exercise of an option to buy 50.002% of Four Points Mining SAS and became, through its 100% owned subsidiary American Gold Mines Limited, the majority owner of the mine.
Under the latest agreement, Nicaragua has agreed to pay a non-refundable fee of USD50,000, for an exclusivity period of 60 days in order for it to carry out due diligence, and has the option to pay a further USD50,000 to extend this exclusivity period by an additional 30 days in the event it needs extra time to conduct due diligence on the El Limon mine.
Payment of the USD5 million will take place in three tranches with the first USD2.5 million payable on the completion of satisfactory due diligence on the mine and subsequent closing of the transaction, expected to be August 11, 2014, should the exclusivity period not be extended, said Red Rock.
The second tranche of USD1.5 million will be satisfied by the issuance by NMC to Red Rock of a non-interest bearing promissory note, due and payable on or before the date that is one year from the closing. Security for the PN will be held in the form of a charge over 100% of the shares in AGM.
The third tranche of up to USD1 million will be paid in the form of a 3% royalty on annual net gold sales, said the firm, though noted that in the event that gold production at any stage ceases at El Limon, the total paid under the third tranche may fall short of this amount.
Red Rock also said that a 7% commission is payable to Ariel Partners, a corporate advisory firm, on the transaction.
"Under Red Rock's operational control, the El Limon mine has become profitable. We now look to realise the value of our Colombian assets, that have proved resilient in the downturn. We believe this is an attractive transaction for Red Rock as, should it go ahead, the proceeds will enable Red Rock to continue its strategy of asset development and disposal, and reduce the need for fundraising via share issuance," said Red Rock Chairman, Andrew Bell.
Shares in Red Rock were trading 5.66% at 0.28 pence per share Tuesday morning, one of the biggest gainers on the AIM All-Share market.
By Alice Attwood; [email protected]; @AliceAtAlliance
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