Newmex Mining and Santa Cruz announce Mexican merger proposal

Affiliated juniors Newmex Mining (MEX-T) and Santa Cruz Gold (SCG-T) have begun discussing a “business combination.”

Newmex is a wholly owned subsidiary of Great Lakes Minerals (GLK-T) created to control that company’s interest in the Lluvia de Oro gold mine and the Palmarito silver-gold project, both of which are in Mexico.

Santa Cruz, which operates the Magistral, Escobal and Quitovac gold projects in Mexico, shares management with Great Lakes.

Both Santa Cruz and Newmex intend to form committees of their respective boards of directors for the purpose of negotiating the business combination.

Each of the committees will hire financial advisors.

Santa Cruz was to have merged with Great Lakes Minerals and Manhattan Minerals (MAN-T) under the latter company’s name last summer, but the deal was aborted following due diligence reviews.

In a separate transaction, Repadre International, a wholly owned subsidiary of Repadre Capital (RPD-T), will spend $6.8 million to explore and develop Santa Cruz’s Magistral gold project.

Repadre will purchase from Santa Cruz a sliding-scale net smelter return royalty on gold recovered from Magistral, which is situated in Sinaloa state.

The royalty will be calculated at a rate of 1% of net smelter returns on the initial 30,000 oz. of gold production from the project, at a rate of 3.5% of net smelter returns on the next 350,000 oz., and then at a rate of 1% of net smelter returns on all gold recovered thereafter. In conjunction with the sale of the royalty to Repadre, Santa Cruz will also issue warrants to Repadre for the right to buy up to 2 million Santa Cruz shares at an exercise price of $1.30 per share for a period of 31/2 years. Repadre will invest a total of $3.4 million in consideration for the royalty and the warrants.

In a separate transaction, Repadre has agreed to purchase 3.4 million Santa Cruz shares at $1 per share by way of a private placement.