Oct 31 2015
Golden Minerals 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.