On November 29, 2021, Amarillo Gold Corporation entered into an agreement with Hochschild Mining PLC, whereby Hochschild will acquire all outstanding shares of Amarillo by way of a plan of arrangement under the Business Corporations Act (British Columbia).
Pursuant to the Arrangement, each share of Amarillo will be exchanged for cash consideration of C$0.40 and one share of a new Brazil-focused exploration company, Lavras Gold Corp. (Lavras SpinCo), based in Toronto, Ontario. Lavras SpinCo will be capitalized with C$10 million cash and will hold all assets and rights with respect the Lavras do Sul gold project located in southern Brazil in the state of Rio Grande do Sul.
“This acquisition delivers an immediate and compelling opportunity for our shareholders to monetize their investment in Amarillo at an attractive valuation and significant premium to the current and historical trading price of Amarillo’s shares,” said Mike Mutchler, President and CEO. “The transaction also provides our shareholders with additional value through their continued participation in the future exploration and advancement of the prospective Lavras Project through Lavras SpinCo.”
The cash consideration (not including the value of the Lavras SpinCo shares) represents a premium of 66% over the 20-trading day volume weighted average trading price of the Amarillo shares on the TSX Venture Exchange of C$0.24. The total transaction value is approximately C$164.5 million, excluding Lavras SpinCo’s asset value and C$10 million of cash. It is anticipated that Lavras SpinCo will complete a share consolidation immediately following the completion of the Arrangement.
Highlights of the proposed transactions:
- Cash consideration of C$0.40 per Amarillo share
- Amarillo shareholders also receive one share of Lavras SpinCo for every Amarillo share held
- Lavras SpinCo will have C$10 million cash and hold a stake of the Lavras Project assets
- Lavras SpinCo will have a 2% net smelter return royalty over certain of Amarillo’s exploration properties located outside of the current Posse resource and mine plan at Amarillo’s Mara Rosa property.
RECEIPT OF INTERIM COURT ORDER
On January 27, 2022, Amarillo obtained an interim order from the Supreme Court of British Columbia authorizing the holding of a shareholder meeting
At the Meeting, Shareholders will be asked to consider and, if deemed advisable, pass a special resolution to approve an arrangement, in accordance with the terms of an arrangement agreement entered into by the Company and Hochschild on November 29, 2021, pursuant to which Hochschild, through its subsidiary 1334940 B.C. Ltd., agreed to acquire all of the issued and outstanding Amarillo common shares that it does not already own by way of a statutory plan of arrangement under section 288 of the Business Corporations Act (British Columbia).
Shareholders will also be asked to approve an omnibus equity incentive plan for Lavras SpinCo.
REASONS FOR THE ARRANGEMENT
In evaluating and unanimously approving the Arrangement, the Board consulted its legal and financial advisors and the Special Committee.
The Special Committee and the Board carefully considered a number of factors and reasons, including, among others, the following:
- significant premium to unaffected market price – the Special Committee was of the view that the opportunity for shareholders to realize this premium outweighed Amarillo maintaining the status quo
- continued Exposure to other Amarillo assets
- significant shareholder support
- fairness opinion
- no Financing or due diligence condition.
- credibility of, and guarantee by, Hochschild.
- alternatives to the arrangement.
ALTERNATIVES TO THE ARRANGEMENT
The Arrangement Agreement contemplates a reciprocal expense reimbursement/non-completion fee of C$2.5 million payable if the required shareholder approval is not obtained or on the occurrence of certain other circumstances. In addition, the Arrangement Agreement provides for a termination fee of C$5 million payable by Amarillo to Hochschild if the Arrangement is not completed or is terminated by Amarillo or Hochschild in certain circumstances, including if Amarillo enters into an agreement with respect to a superior proposal or if the Board, in certain circumstances, withdraws or modifies its recommendation with respect to the Arrangement.
The Arrangement Agreement also provides for customary non-solicitation covenants, subject to customary “fiduciary out” provisions entitling Amarillo to consider and accept a superior proposal and a right in favor of Hochschild to match any superior proposal.
BOARD RECOMMENDATION
The Board unanimously recommends that the Shareholders vote FOR the Arrangement Resolution and FOR the approval of the Omnibus Plan.