GOLDEN, Colo., Oct. 29, 2015 /PRNewswire/ -- Golden Minerals Company (NYSE MKT: AUMN; TSX: AUM) ("Golden Minerals" or "the Company") announces:
- In the first half of November 2015, Golden Minerals will suspend mining and processing activities at the Velardena mine and sulfide mill due to continued low precious metals prices and lower than planned mill feed grades at the sulfide plant
- On October 27, 2015, the Company received $5.0 million in a one-year secured convertible loan from its largest shareholder, The Sentient Group
MINING ACTIVITIES AT VELARDENA SUSPENDED
The Company has been unable to achieve profitability at the Velardena Properties due primarily to low silver and gold prices and lower average mill feed grades and gold recoveries than expected. The Company expects to improve net cash flow by approximately $1.5 million per year by shutting down mining activities compared to continuing to operate at a loss, excluding employee severance and other shutdown costs. Although the Company achieved mine tonnage, plant throughput and cost reduction objectives and reduced mine dilution, plant feed grades and gold recoveries have not achieved predicted levels. Therefore, the Company is suspending mining and processing activities at the Velardena mine and sulfide mill in the first half of November 2015 in order to conserve the assets until the Company is able to develop mining and processing plans that at then current prices of silver and gold indicate a sustainable positive operating margin (defined as revenues less costs of sales) or the Company is able to locate and acquire alternative sources of material that could be economically mined and transported to the sulfide mill for processing. The Company expects to incur approximately $1.5 to $2.0 million in related costs for employee severance, net working capital obligations, and other shutdown expenditures in the fourth quarter 2015. Going forward, the Company expects to incur approximately $0.3 million in quarterly holding costs while mining and processing remain suspended.
The Company plans to retain a core group of employees, most of which will be assigned to operate the oxide plant, which is leased to a third party and not affected by the shutdown. The Company expects the oxide plant to begin processing material in January 2016, and expects to receive net cash under the lease of between $4.0 and $5.0 million in 2016. The retained employees also include an exploration group and an operations and administrative group to continue to advance the Company's plans in Mexico, oversee corporate compliance activities, and to maintain and safeguard the longer term value of the Velardena assets.
The Company is focused on advancing near-term, high-grade silver and gold production opportunities in Mexico, particularly in close proximity to its Velardena processing plants. Golden Minerals plans to use a portion of the remaining proceeds of the financing to further its plans to acquire and advance alternate sources of higher grade mill feed located within trucking distance of the Velardena sulfide mill.
CONVERTIBLE LOAN AGREEMENT COMPLETED
On October 27, 2015, Golden Minerals received $5.0 million when it closed a secured convertible loan from The Sentient Group. Following approval by the Company's stockholders as required by NYSE MKT rules, the Sentient loan principal and accrued interest will be convertible in whole or in part into shares of the Company's common stock at a price equal to the lowest of: 1) 90 percent of the 15-day volume weighted average price of the Company's common stock ("VWAP") for the period immediately preceding the loan closing date, or $0.29 , 2) 90 percent of the 15-day VWAP for the period immediately preceding the loan conversion date, or 3) an anti-dilution adjusted price based on the lowest price for which the Company has sold its stock following the loan closing date (subject to certain exceptions). The Company plans to seek stockholder approval promptly, and is required to have obtained stockholder approval by January 31, 2016, subject to extension under certain circumstances. The loan bears interest at a rate of 14 percent per annum, compounded monthly, until the Company's shareholders approve the convertibility of the loan, at which time the interest rate decreases to 9 percent per annum, compounded monthly. The interest is due on the earlier of the loan conversion or at loan maturity one year from the closing date. The Loan Agreement contains customary representations, warranties, covenants and default provisions, is guaranteed by certain subsidiaries and secured by the stock of the Company's principal subsidiaries, including subsidiaries that are holding companies for or directly own the Velardena Properties and the El Quevar project.
The Company's transaction with Sentient is a "related party transaction" pursuant to Canada's Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"). The Sentient loan transaction is exempt from the formal valuation and minority stockholder approval requirements of MI 61-101, as the Company is relying on the "financial hardship" exemption. In this connection, the Company's Board of Directors and the seven directors of the Company who are independent in respect of the Sentient loan transaction, have determined, after considering among other things the Company's current financial difficulties and immediate capital requirements, that the Company is in serious financial difficulty, the Sentient loan transaction is designed to improve the financial position of the Company and the terms of the Sentient loan transaction are reasonable in the circumstances. As noted above, the Company plans to seek stockholder approval of the conversion provisions promptly.
LIQUIDITY UPDATE
At September 30, 2015, the Company's aggregate cash and cash equivalents totaled $0.9 million and the Company expects to have a cash balance of approximately $2.0 million at December 31, 2015, including $5.0 million from The Sentient Group. The oxide plant lease is expected to generate approximately $0.2 million in net cash flow during the fourth quarter of 2015 and between $4.0 and $5.0 million of net cash flow in 2016. The actual amount that the Company spends during the remainder of 2015 and the projected year-end cash balance may vary significantly from these amounts and will depend on a number of factors, including variations in anticipated costs incurred in the suspension of mining and processing activities at the Velardena Properties and in the cost of continued project acquisition and assessment work at our other exploration properties.
The Company does not currently expect it will generate sufficient funds internally to repay the Sentient loan in cash when it becomes due on October 27, 2016. The Company plans, and is required by the Loan Agreement, to seek external funding through the sale of equity or securities convertible into equity in order to raise sufficient funds to repay principal and pay interest on the Sentient loan. There can be no assurance that the Company will be successful in obtaining sufficient external funding on terms acceptable to the Company or at all. If the Sentient loan is converted in full, the Company's projected cash balance at the end of 2015 and the anticipated net cash flow from the leasing of the oxide plant should provide adequate funds to continue the Company's business plans through 2016.
IMPAIRMENT OF VELARDENA ASSET
Accounting guidelines require the Company to assess the recoverability of its long-lived assets whenever events or changes in circumstances indicate the carrying value of the assets may not be recoverable. The Velardena Properties' continued negative operating margin and the suspension of its mining and processing activities are events that require an assessment of the recoverability of the long-lived assets comprising the mineral property, sulfide plant, and equipment related to the mining and processing activities at the Velardena Properties. The assessment does not include the oxide plant that has been leased to a third party. Following the assessment, the Company is expecting to record an impairment charge ranging from $12.0 to $14.0 million for the period ending September 30, 2015.
About Golden Minerals
Golden Minerals is a Delaware corporation based in Golden, Colorado. The Company is primarily focused on acquiring and advancing mining properties near its Velardena processing plants and the exploration of properties in Mexico and Argentina.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and applicable Canadian securities legislation, including statements regarding the planned shutdown of the Velardena Properties mine and sulfide plant, forecast costs related to the shutdown and to maintaining the property on care and maintenance; planned retention of a core group of employees to operate the oxide plant and to perform the Company's exploration, operations and administrative activities in Mexico; the Company's plans to focus on acquiring and advancing silver and gold mining properties near the Velardena sulfide plant ; plan to seek external funding through the sale of equity or convertible securities in order to raise sufficient funds to repay and pay interest on the $5.0 million Sentient loan; projected year-end 2015 cash balance and anticipated net cash flow of the Company from the oxide plant lease; and the amount of anticipated impairment of the Velardena Properties mines and sulfide processing plant. These statements are subject to risks and uncertainties, including: higher than anticipated shutdown, severance and care and maintenance costs related to the shutdown of mining and processing activities at the Velardena properties; lower than anticipated net cash flow from the oxide plant lease that could result from termination of the lease, processing by the lessee of less material than anticipated, problems at the lessee's mining operations, or delays or failures in receiving government approvals or permits or suspensions of existing approvals and permits; whether the Company is able to locate, acquire and economically mine silver and gold properties near the Velardena Properties; the Company's incurrence of higher than anticipated expenditures and costs in the fourth quarter 2015 and in 2016; whether the Company will be able to obtain external funding for payment of principal and interest on the Sentient loan or at all; whether the Company will obtain stockholder approval of Sentient's conversion rights with respect to principal and interest on the Sentient note and the what consequences may occur if the Company fails to do so; the possibility of defaults under the Sentient loan agreement and the consequences of such, which could include foreclosure on the stock of the subsidiaries holding the Company's principal assets; whether the amount of the impairment charge that the Company expects to record related to the recoverability of the long-lived assets comprising the mineral property, sulfide plant, equipment and working capital related to the Velardena Properties mining and processing facilities will be within the range anticipated; increases in costs and declines in general economic conditions; and changes in political conditions, in tax, royalty, environmental and other laws in Mexico, and financial market conditions. Golden Minerals assumes no obligation to update this information. Additional risks relating to Golden Minerals may be found in the periodic and current reports filed with the Securities Exchange Commission by Golden Minerals, including the Company's Annual Report on Form 10-K for the year ended December 31, 2014.
For additional information please visit http://www.goldenminerals.com/ or contact:
Golden Minerals Company
Karen Winkler
Director of Investor Relations
(303) 839-5060
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SOURCE Golden Minerals Company
