Goldgroup Mining Inc 8-K, filed Oct 5, 2020
Goldgroup Mining Inc. (GORO)
About this 8-K
Goldgroup Mining Inc filed this 8-K on October 5, 2020.
Items reported
- Item 5.02: Director or officer change, or executive pay
- Item 7.01: Regulation FD disclosure
- Item 8.01: Other events
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On October 5, 2020, Gold Resource Corporation (the “Company”) announced it has authorized executive management to pursue a spin-off of its Nevada Mining Unit, as discussed below. In connection with the transaction, Jason Reid informed the board of directors that upon completion of the spin-off, he intends to step down as Chief Executive Officer, President and director of Gold Resource Corporation. The Company has commenced a formal search to identify suitable candidates for chief executive officer as well as an independent director to serve on the board of directors.
Item 7.01 Regulation FD Disclosure
On October 5, 2020, the Company issued a press release relating to the proposed spin-off and certain other matters. A copy of the press release is furnished herewith as Exhibit 99.1. The press release is furnished under this Item 7.01 and shall not be deemed filed with the U.S. Securities and Exchange Commission (“SEC”) for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. The information contained in the press release and investor presentation shall not be incorporated by reference into any filing of the Company regardless of general incorporation language in such filing, unless expressly incorporated by reference in such filing.
Item 8.01 Other Events
Spin-off
On October 5, 2020 the Company announced that its board of directors has authorized senior management to pursue the spin-off of its Nevada Mining Unit, creating two independent publicly-traded companies: Gold Resource Corp., an established junior mining company producing precious and base metals at its underground mining operation in Oaxaca, Mexico, and Spinco, an up-start gold producer and exploration company in Nevada, U.S.A. focused on gold extraction at its open pit heap-leach project and developing future precious metal projects along the Walker Lane Mineral Belt. The spin-off is expected to be completed during the fourth quarter of 2020, subject to the satisfaction of a number of conditions, including final approval of the Company’s board of directors, the effectiveness of a registration statement to be filed with the SEC, and other customary matters. There can be no assurance regarding the ultimate timing of the proposed spin-off or that it will be completed.
Upon completion of the spin-off, Mr. Reid, 47, is expected to assume the role of chief executive officer and president of Spinco and cease serving in those capacities for the company. Mr. Reid is presently serving as a director of both entities and will remain on the board of directors of Spinco following the closing of the transaction.
Bill Conrad, 64, Chairman of the Board , is presently serving as a director of both entities and will step down as Chairman of the company and serve as a Chairman od Spinco and will continue to serve as a director for both companies following the spin-off.
Alex Morrison, 57, will continue as a director of the Company and assume the role of Chairman of the Board.
As stated above, the Company has commenced a search for candidates to serve as chief executive officer of GRC as well as an additional independent director.
Risk Factors
The following risk factors are provided to update the Risk Factors previously disclosed in the Prospectus dated June 3, 2020 and the Form 10-K for the year ended December 31, 2019 filed with the SEC.
There could be significant liability if the distribution is determined to be a taxable transaction. There is no guarantee that the requirements for tax-free treatment under Section 355 of the Code will be satisfied with respect to the spin-off transaction. We have evaluated the requisite criteria, however, determination of taxability relies on certain facts, assumptions, representations and undertakings from the Company and Spinco regarding the past and future conduct of the companies’ respective businesses and other matters and the IRS may disagree with ours and our advisors’ assessments. If any of these facts, assumptions, representations or undertakings is determined to be incorrect or not satisfied, the Company and its shareholders could be subject to significant tax liabilities following the distribution.
There currently exists no public trading market for the common stock of Spinco and you will not be able to sell your shares of common stock if an active trading market does not develop. Although we expect that a public trading market will develop after the spin-off has been completed, there can be no assurance that a public trading market will develop at that time or be sustained in the future. Without an active public trading market, you may not be able to sell your shares without considerable delay, if at all. If a market does develop, the price for Spinco’s common stock may be highly volatile and may bear no relationship to its actual financial condition or results of operations. Unless Spinco’s common stock is listed on a national securities exchange or the NASDAQ, many brokerage firms may not be willing to sell its common stock on your behalf.
Safe Harbor for Forward-Looking Statements
Any statements contained in this communication that do not describe historical facts may constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements may include statements with respect to the Company’s potential separation of Spinco from the Company and the distribution of Spinco shares to the Company’s shareholders, the expected financial and operational results of the Company and Spinco after the separation and distribution, and changes to the Company’s management. Any forward-looking statements contained herein are based on Company management’s current beliefs and expectations, but are subject to a number of risks, uncertainties and changes in circumstances, which may cause actual results or company actions to differ materially from what is expressed or implied by these statements. Such risks, uncertainties and changes in circumstances include, but are not limited to: uncertainties as to the timing of the spin-off or whether it will be completed, the failure to satisfy any conditions to complete the spin-off, the expected tax treatment of the spin-off, and the impact of the spin-off on the businesses of the Company. Economic, competitive, governmental, technological and other factors and risks that may affect the Company’s operations or financial results are discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and in subsequent filings with the U.S. Securities and Exchange Commission. The Company disclaims any obligation to update these forward-looking statements other than as required by law.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The following materials are furnished as exhibits to this Current Report on Form 8-K.
| Exhibit No. | Description | ||
| 99.1 | Press Release dated October 5, 2020 | ||
| 104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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GOLD RESOURCE CORPORATION |
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| Date: October 5, 2020 | By: | /s/ Jason D. Reid |
| Name: | Jason D. Reid | |
| Title: | Chief Executive Officer and President | |
Exhibit 99.1
| FOR IMMEDIATE RELEASE | NEWS | |
| October 5, 2020 | NYSE American: GORO |
GOLD RESOURCE CORPORATION ANNOUNCES INTENT
TO CREATE TWO
INDEPENDENT, STRATEGICALLY-FOCUSED COMPANIES WITH NEVADA
MINING UNIT SPIN-OFF TO SHAREHOLDERS
Colorado Springs – October 5, 2020 – Gold Resource Corporation (NYSE American: GORO), a gold and silver producer, developer and explorer with operations in Oaxaca, Mexico and Nevada, USA, today announced its intent to spin-off its Nevada Mining Unit to shareholders as a separate, publicly-traded company (“Spinco”).
The transaction is expected to be structured as a pro-rata distribution of 100% of the Spinco shares to Gold Resource shareholders. Approximately 20 million shares of Spinco are expected to be distributed to the Company’s shareholders. Shareholder approval is not required for the spin-off, which is expected to be tax-free to Gold Resource shareholders for U.S. tax purposes.
The Spinco transaction is subject to certain customary conditions, including the approval of a Spinco registration statement to be filed with the Securities and Exchange Commission and final approval by the Company’s Board of Directors. The transaction is targeted to be completed by year-end 2020 or the first quarter of 2021.
Expected Benefits of the Transaction
| · | Permit each company to focus on its own unique strategic business plan |
| · | Allow each company flexibility to allocate resources and deploy capital in a manner consistent with its own business strategy |
| · | Unlock a value premium for the Nevada Mining Unit due to its location in one of the world’s premier mining jurisdictions |
| · | Allow each company to focus on streamlining each distinct operation – underground, hard rock operations in Mexico, and open-pit heap leach operations in Nevada, USA |
| · | Two separate companies have the potential to provide investors with greater value than a single combined company |
CEO Comment
“We are at an exciting juncture in the evolution of our Company,” stated Gold Resource Corporation’s CEO and President, Mr. Jason Reid. “Significant management effort places us at a point where both of our mining units are poised to experience meaningful increases in future free cash flow: our Oaxaca Mining Unit looks to benefit from the confluence of several recently completed capital projects that are expected to positively impact our future operations, cost structure and exploration potential; and our Nevada Mining Unit continues ramping up its gold production rate as it begins to benefit from the high-grade Pearl zone of the Isabella Pearl Mine and exploring our highly prospective properties. Both individual mining units include large exploration land packages that are expected to benefit from strong demand and metal prices for our products. We believe that this the right time to separate the businesses.”
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Mr. Reid continued, “By separating the mining units into two independent companies, each focused on its own unique business strategy, we believe we can provide our shareholders optionality of increased growth in Mexico and potential for a dividend yield-play in Nevada. Independent companies allow for far more effectiveness of these distinct business strategies. We believe far greater value can be created with two independent companies compared to the value that could be achieved by keeping the mining units together.”
Benefits of Stand-Alone Oaxaca Mining Unit
The Oaxaca Mining Unit celebrated a milestone earlier this year, completing ten years of commercial production with over $1 billion in revenue and $114 million in dividend distributions. Going forward, the Company’s business strategy for Mexico targets allocating more of its cash flow and capital back into operations to better facilitate growth. A stand-alone Oaxaca-focused company would be able to aggressively pursue expanding and discovering new vein systems. The Company is currently developing two dedicated exploration drifts at its Arista Mine to access and target extensions of known vein systems and discoveries of new veins in areas of the mine previously unexplored. Exploration goals following the separation would include increased exploration budgets for the Arista Mine expansion, and to identify and define additional resource potential in the highly-prospective but under-explored 55-kilometer fault corridor. To date, the Company has drilled approximately 2% of its 560 square kilometer land package in Oaxaca. The strategy going forward is to allocate more capital to exploration for growth potential, accelerating increased shareholder value.
The Company has recently completed a power grid project and a paste fill plant and is currently constructing a dry-stack tailings facility. A stand-alone Oaxaca Mining Unit would be in a strong position to further optimize the Arista underground mine’s infrastructure, including an underground ore pass and surface processing facilities including regrind circuits for increased gold recoveries. The Oaxaca Mining Unit could also target to utilize its free cash flow for new accretive regional acquisitions.
Benefits of Stand-Alone Nevada Mining Unit
Focusing on organic growth, Spinco would expect increased margins from its Isabella Pearl project and to use the expected cash flow to potentially return dividends to shareholders. Spinco would seek to replicate GORO’s legacy success in its early years as a yield-play with a tight capital structure.
Strong, expected near-term cash flow from Isabella Pearl operations could not only facilitate dividends, but also target exploration and development of the mining unit’s highly prospective property portfolio in the Walker Lane Mineral Belt. The Company currently controls over 25,000 acres in five high-grade gold properties in Nevada in various stages of production, delineation and exploration. In addition to the organic growth and targeted dividend strategy, the separation would also seek to unlock a value premium for the Nevada Mining Unit due to its location in one of the world’s premier mining jurisdictions.
Post Spin-off Companies and Operations
Gold Resource’s management team will develop detailed separation plans for consideration by the Board of Directors. Completion of the spin-off is subject to certain conditions, including the filing and approval of a registration statement with the SEC and receipt of final Board approval. The Company expects that the registration statement will be filed in the near future. There is no assurance regarding the ultimate timing of the transaction or that it will in fact be completed.
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Following the separation, it is expected that Gold Resource will continue to operate and focus on its Oaxaca Mining Unit and its shares will continue to trade on the NYSE American under the symbol “GORO”. Current operations include the Arista underground mine, as well as a large prospective land position of a consolidated 55-kilometer mineralized fault corridor.
Nevada Spinco would focus on Nevada Mining Unit operations and growth. Current operations include the Isabella Pearl open-pit mine, as well as four additional high-grade gold exploration properties. To provide operating capital, the Company expects to make a capital contribution of $10 million to Spinco at the time of the transaction. Given its expected capitalization and other financial metrics, the Company expects Spinco to initially trade in the over-the-counter (OTC) public markets. Spinco would consider up-listing to an exchange such as the New York Stock Exchange or Nasdaq at a future date, based on consistently meeting listing standards, market conditions and strategic timing.
Management and Governance
Upon completion of the transaction, it is expected that Jason Reid, current CEO, President and director of Gold Resource Corporation, would step down from all executive and director positions with the Company and be appointed CEO, President and director of Spinco. The Company has already undertaken efforts to identify a new chief executive officer for Gold Resource.
While formal announcement of a new Company CEO and Board appointments will be made at a later date, the following Board modifications are anticipated:
Bill Conrad, current Chairman of Gold Resource Corporation, is expected to remain on the Board of Directors of the Company but will step down as Chairman. Mr. Conrad is expected to be appointed as a director of Spinco and named Chairman of the Board.
Mr. Alex Morrison, current member of the Company’s Board of Directors and Audit Committee chair, is expected to be named Company Chairman of the Board.
To assist in a smooth transition, an arms-length management services agreement between the Company and Spinco will be developed. A small number of current executives, managers and employees of the Company will continue to provide management and technical support for Spinco’s operations to assist in the transition.
Post spin-off, both companies are expected to remain headquartered in Colorado.
Advisors
Polsinelli PC, SEC legal counsel for the Company.
Hart & Hart, SEC legal counsel for Spinco.
Capstone Headwaters, financial advisor to the Company.
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Cautionary Statements:
This press release contains forward-looking statements that involve risks and uncertainties. The statements contained in this press release that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. When used in this press release, the words “plan”, “target”, "anticipate," "believe," "estimate," "intend" and "expect" and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, without limitation, the statements regarding Gold Resource Corporation’s strategy, future plans for production, future expenses and costs, future liquidity and capital resources, and estimates of mineralized material. All forward-looking statements in this press release are based upon information available to Gold Resource Corporation on the date of this press release, and the company assumes no obligation to update any such forward-looking statements. Forward looking statements involve a number of risks and uncertainties, and there can be no assurance that such statements will prove to be accurate. The Company's actual results could differ materially from those discussed in this press release. In particular, the scope, duration, and impact of the COVID-19 pandemic on mining operations, Company employees, and supply chains as well as the scope, duration and impact of government action aimed at mitigating the pandemic may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking information. Also, there can be no assurance that production will continue at any specific rate. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the Company’s Annual Report on Form 10-K and other filings with the SEC.
Additional risks and uncertainties include the possibility that the proposed spin-off will not be consummated within the anticipated time period or at all, including as the result of regulatory, market or other factors, including the possibility that various closing conditions for the spin-off may not be satisfied; the potential disruption to our business in connection with the proposed spin-off; the potential that Gold Resource Corporation and the Spinco do not realize all of the expected benefits of the spin-off; that the spin-off may be more difficult, time consuming or costly than expected; the failure of the spin-off to qualify for the expected tax treatment; and other uncertainties or risks reported from time to time in our reports to the SEC. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this communication may not occur. We caution that undue reliance should not be placed on forward-looking statements, which speak only as of the date made. Gold Resource Corporation does not undertake, and expressly disclaims, any duty to update any forward-looking statement whether as a result of new information, future events or changes in expectations, except as required by law.
Contacts:
Corporate Development
Greg Patterson
303-320-7708
www.goldresourcecorp.com
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