TORONTO, ON–(Marketwired – March 06, 2017) – Gran Colombia Gold Corp. (TSX: GCM) announced today its outlook for 2017 along with two proposals aimed at improving its capital structure following the comprehensive debt restructuring completed last year.
As previously announced, Gran Colombia produced a total of 149,687 ounces of gold in 2016 driven by growth at its Segovia Operations. The Company started off 2017 with a total of 24,585 ounces of gold production in the first two months and expects to produce a total of 150,000 to 160,000 ounces of gold for the full year.
The Company’s total cash cost and all-in sustaining cost (“AISC”) averaged $699 and $832 per ounce sold, respectively, during the first nine months of 2016. Gran Colombia will be reporting its financial results for its 2016 fiscal year at the end of March and expects that its full year 2016 total cash cost and AISC will remain within guidance below $720 and about $850 per ounce sold, respectively. In 2017, the Company expects that its total cash cost will remain below $720 per ounce sold. The Company also expects that with an increased level of exploration spending at Segovia and the continuation of capital investment at its Segovia Operations, its AISC for the full year will remain below $900 per ounce.
In early February 2017, Gran Colombia completed the 10,000 meters drilling campaign it commenced at Segovia in May of last year. In the second half of 2016, the Company also completed a small underground drilling program to explore the extension of the current mineralization in the upper level of the existing Marmato mine. The Company expects to announce results of these drilling campaigns shortly. In 2017, Gran Colombia plans to execute a 20,000 meters drilling campaign to further its efforts to upgrade and extend its mineral resources at its Segovia Operations. Capital investment in 2017 at the Segovia Operations will continue to focus on ongoing mine development at its Providencia and El Silencio mines along with additional investments in mine infrastructure upgrades, ventilation, health, safety and environmental initiatives, mine equipment and expansion of tailings storage facilities.
In 2016, the Company repurchased and cancelled a total of $3.0 million aggregate principal amount of its 2018 and 2020 Debentures at a discount under the normal course issuer bids launched in July 2016. These transactions were funded by excess cash flow generated in the first nine months of 2016 and deposited into the sinking funds. The Company also used the increased cash flow generated by its operations in 2016 to honor its supplier payment programs, successfully restoring the aging of its accounts payable to normal terms by the end of 2016, and fully settled its overdue equity and wealth taxes which carried very high interest rates on the amounts in arrears. In 2017, provided gold prices remain at least at the current levels, the Company intends to generate excess cash flow equivalent to approximately 10% of the aggregate principal amount of its 2018 and 2020 Debentures currently issued and outstanding for deposit into the sinking funds in accordance with their respective indentures. Sinking fund balances may be used to fund open market repurchases of debentures for cancellation, redemptions at par or repayment at maturity.
Capital Structure Improvements
In September 2016, Gran Colombia announced it had engaged GMP Securities L.P. (“GMP”) as its exclusive financial advisor to conduct a broad strategic review process to explore opportunities to enhance stakeholder value. During the course of this process, it became evident that even though Gran Colombia has strengthened operationally since the debt restructuring was completed in early 2016, the common shares have not performed at the same pace as its peers due to the extent of leverage within the Company’s capital structure and the impact of the potential debt conversions on the total number of common shares outstanding on a fully diluted basis. In addition, at prevailing gold prices, the Company’s future growth may be stalled while trying to balance ongoing capital investment needs with the requirement to set aside excess cash flow toward the repayment of the 2020 Debentures at maturity. As such, after consultation by Gran Colombia and GMP with several of its large stakeholders, the Company is announcing a proposal to extend the maturity, on a voluntary basis, of its 2020 Debentures and that it will seek shareholder approval in connection with such maturity extension and to consolidate its common shares in an effort to improve its future liquidity and capital structure to enhance shareholder value.
Extension of 2020 Debentures
Gran Colombia currently has an aggregate principal amount of US$101,160,085 of 2020 Debentures issued and outstanding pursuant to an Amended and Restated Indenture dated as of January 20, 2016 (the “Indenture”). Maturing on January 2, 2020, these debentures receive interest, paid on a monthly basis, at an annual rate of 6%.
Gran Colombia believes that by extending the maturity of some or all of its 2020 Debentures, the Company can strike a better balance in the next couple of years between capital investment and cash generation for senior debt retirement to enhance stakeholder value while at the same time using its excess cash flow to systematically reduce the issued and outstanding senior secured debt. The Company is seeking approval from holders of the 2020 Debentures to amend the Indenture through a consent solicitation process (the “Consent Solicitation”) to provide an option for holders to extend the maturity date of the debentures to January 2, 2024 (the “Proposed Indenture Amendments”). The extended 2020 Debentures will carry largely the same terms and conditions as the other 2020 Debentures except that the maturity date will be extended and interest will be paid monthly over the remaining term of the extended 2020 Debentures at an annual rate of 8%.
The Company expects materials regarding the Consent Solicitation will be distributed to all holders of the 2020 Debentures on or about March 24, 2017. Holders will be asked to provide their consent to amend the Indenture through the Consent Solicitation process. The Company will also be seeking shareholder approval of the Proposed Indenture Amendments pursuant to Multilateral Instrument 61-101 — Protection of Minority Security Holders in Special Transactions (“MI 61-101”). In order for the Company to proceed with the Proposed Indenture Amendments, the following are required: (i) consent from a simple majority of the aggregate principal amount of the issued and outstanding 2020 Debentures and (ii) approval by a simple majority of the votes validly cast by “minority” shareholders, present in person or by proxy at the shareholder meeting, being the shareholders of the Company other than any “related parties” in respect of the Proposed Indenture Amendments (as determined in accordance with MI 61-101) who hold 2020 Debentures and such other shareholders as are required to be excluded in determining such “minority” approval pursuant to MI 61-101. The Consent Solicitation is expected to remain open until April 24, 2017, following which the Company will announce the results. Holders of 2020 Debentures will also have the opportunity during the Consent Solicitation process to elect to extend some or all of their 2020 Debentures, conditional upon the requisite consent from holders of 2020 Debentures, Shareholder approval being obtained and the Proposed Indenture Amendments being effected. The Consent Solicitation and the Proposed Indenture Amendments are subject to certain conditions and approvals including, but not limited to, the receipt of all necessary regulatory and stock exchange approvals. Terms outlined herein may be amended as required to receive such approvals.
Gran Colombia has an authorized capital consisting of an unlimited number of common shares without par value and an unlimited number of Preferred Shares without par value, of which 306,755,502 common shares are currently issued and outstanding. In addition, a further approximately 1.1 billion common shares are issuable through the potential future exercise of the issued and outstanding convertible debentures due 2018, 2020 Debentures, stock options and warrants. This potentially large number of issued and outstanding common shares acts as a damper on the Company’s stock price and could restrict the ability of the Company to raise equity in the future to fund its business activities. Accordingly, the Company is proposing to consolidate its issued and outstanding common shares on a ten-for-one basis (10:1) (the “Consolidation”), subject to the approval of the TSX and approval of Shareholders by way of special resolution. The Company believes that the benefits of the Consolidation include, among other things, that the anticipated higher share price resulting from the Consolidation may meet investing guidelines for certain institutional investors and investment funds that are prevented under such guidelines from investing in the common shares at current price levels. Also, a smaller number of common shares trading at a higher price makes the Company more attractive to potential investors, and could further enhance the value of the common shares held by current shareholders.
Information related to the Special Meeting of Shareholders expected to be held on April 24, 2017 will be available on or about March 24, 2017.
About Gran Colombia Gold Corp.
Gran Colombia is a Canadian-based gold and silver exploration, development and production company with its primary focus in Colombia. Gran Colombia is currently the largest underground gold and silver producer in Colombia with several underground mines in operation at its Segovia and Marmato Operations. Gran Colombia is in the midst of an expansion and modernization project at its Segovia Operations.
Cautionary Statement on Forward-Looking Information:
This news release contains “forward-looking information”, which may include, but is not limited to, statements with respect to anticipated business plans or strategies, expectations regarding gold production, cash cost, AISC and excess cash flow for 2017, the anticipated effects of the extension of the maturity of the 2020 Debentures and the Consolidation and the anticipated timing in respect of the Consent Solicitation and Special Meeting of Shareholders. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “believes” or variations (including negative variations) of such words and phrases, or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Gran Colombia to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause actual results to differ materially from those anticipated in these forward-looking statements are described under the caption “Risk Factors” in the Company’s Annual Information Form dated as of March 30, 2016, which is available for view on SEDAR at www.sedar.com. Forward-looking statements contained herein are made as of the date of this press release and Gran Colombia disclaims, other than as required by law, any obligation to update any forward-looking statements whether as a result of new information, results, future events, circumstances, or if management’s estimates or opinions should change, or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, the reader is cautioned not to place undue reliance on forward-looking statements.
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Chief Financial Officer