Gran Colombia Gold (GCM-T) is looking to issue up to US$75 million worth of what executive co-chairman Serafino Iacono calls “a creative and innovative financial instrument.”
The Toronto-based gold-silver miner with operations in Colombia is offering up to 75,000 senior unsecured notes with a face value of $1,000 each, payable semi-annually over seven years while bearing interest at the rate of 5% per year. While that sounds standard enough, the notes come with a twist: the holders will also have the option to receive the financial equivalent of 66.7 oz. of silver per note based on a silver price of US$15 per oz., making the debt essentially double as a call option on silver.
According to Iacono, “This will be the first silver-linked note issued, which will offer investors a notional call on [silver] for the next seven years and a 5% coupon, offering a yield that is higher than any silver-related equity dividend yield. With silver currently at over US$35 per oz., this is a unique way to invest in silver at a substantial discount to current prices.”
The financing comes almost a year after the company raised $275 million through issuing equity to buy the Frontino underground gold-silver mines in Colombia out of receivership, and just one month after it merged with Colombia-focused gold junior Medoro Resources. Gran Colombia plans to use most of the latest money to advance Medoro’s Marmato gold project, situated around the small mining town of Marmato on the side of Marmato Mountain, in the mid-Cauca gold belt about 120 km south of Medellin.
Gran Colombia has earmarked roughly US$35 million toward relocating the town, should the project later receive environmental and mining permits. It plans to spend a further US$5 million on social programs relating to Marmato, US$6 million on permitting, US$5 million on a prefeasibility study and US$10 million completing more exploration.
After a challenging first year at its Frontino operations, Gran Colombia has also earmarked US$9.4 million of the recent debt financing for working capital, which will include improvements to its group of six underground mines. Though gold and silver production has increased over three successive quarters, operating costs at the mines have remained high. In the last reported quarter ending March 31, 2011, the company produced 14,947 oz. gold at an average cash cost of US$1,215 per oz. net of silver byproduct credits. It lost US$16.8 million over the quarter, though much of that stemmed from a US$12.6-million one-time charge related to a new equity tax levied on companies in Colombia.
The silver-linked note offering comes as Gran Colombia’s share price has tumbled from a high of $2.49 in December 2010 to a low of 75¢ last month, when it issued 172.8 million shares to Medoro shareholders. This left Gran Colombia with 389.6 million shares outstanding, 640 million if fully diluted. After the latest news on July 8, the stock rose 3¢ to 93¢ on 270,000 shares traded.
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