Harte Gold Announces Financing Package to Permit Mine Restart
Toronto – July 1, 2020 – HARTE GOLD CORP. (“Harte Gold” or the “Company”) (TSX: HRT / OTC: HRTFF / Frankfurt: H4O) is pleased to announce that it has entered into a binding term sheet with Appian Capital Advisory LLP (“Appian”) for up to US$30 million (~C$40,884,000) in financing (the “Proposed Transaction”), subject to receipt of approval from the Toronto Stock Exchange (the “Exchange”). Proceeds of the financing will be used to facilitate a restart of the Sugar Zone mining operation in July 2020.
The Proposed Transaction is comprised of:
- a private placement of 9,500,000 Series B special shares (the “Special Shares”) of the Company at a price of US$1.00 per Special Share (the “Offering Price”) for aggregate gross proceeds of US$9,500,000 (the “Private Placement”);
- a US$18.5 million non-revolving credit facility (the “Credit Facility”); and
- a grant of a 0.5% net smelter return royalty in consideration of US$2 million (the “5% NSR”).
The Proposed Transaction has been negotiated on an arm’s-length basis and represents the culmination of a review of financing and capital structure alternatives by a special committee (the “Special Committee”) of independent members of the board of directors (the “Board”) of the Company and, in the view of the Company, will provide the Company with a funded solution for mine restart, a return to 800 tpd capacity and a pathway to 1,200 tpd capacity as well as enhanced exploration efforts.
“This Proposed Transaction represents the completion of our review process. Given the Company’s current financial condition, the Proposed Transaction provides the best financing alternative available to the Company, limiting up-front dilution, providing sufficient funding to cover cash flow and capital requirements on start-up and allowing for immediate capital to accelerate the restart of operations,” said Joseph Conway, Chair of the Board of Harte Gold and Chair of the Special Committee.
The Company has applied to the Exchange to list the Common Shares to be issued pursuant to the Proposed Transaction for trading on the Exchange and closing of the Proposed Transaction is conditional upon receipt of such approval.
RESTART OF SUGAR ZONE MINE AND OTHER INITIATIVES
The Proposed Transaction will, subject to receipt of approval from the Exchange and other closing and drawdown conditions, provide the Company with the funds required to restart the Sugar Zone Mine operation in mid-July and allow Harte Gold to carry out several initiatives that are already well underway.
- Restart and Return to 800 tpd
A phased restart approach has been established and will start with backfill and select mining operations. Mill operations would resume in late July once a sufficient stockpile is developed.
The Company believes approximately C$35 million (~US$25.7 million) is required to return the mine to 800 tpd, the details of which are as follows:
o C$18 million significantly reduces accounts payable and provides enough liquidity for mine restart;
o C$10 million for mine development;
o C$5 million for capital projects and surface infrastructure; and
o C$2 million for additional exploration.
With detailed 18-month planning now complete, the Company is targeting the following production levels upon mine restart:
o 2020 production: 20,000 to 24,000 ounces Au
o 2021 production: 60,000 to 65,000 ounces Au
The Company’s previous guidance for 2020 of 42,000 to 48,000 ounces Au was placed under review following initiatives in response to COVID-19 (see press release dated March 30, 2020) and at this time the Company is withdrawing previous guidance provided to the market.
For 2021, the Company would expect to see significant production growth over 2019 and 2020 production levels, resulting from entering into higher grade zones, higher mine production and improving mine development rates.
The Company would expect to use paste backfill in 2021 to improve mining efficiency and increase overall flexibility. In 2021, 800 tpd throughput would be achieved from the Sugar Zone North and South zones only, indicating potential growth through the addition of the Middle Zone.
The Company is not providing Cash Cost and AISC guidance for 2020 as start-up costs and accelerated development incurred over this period are not indicative of continued operating performance.
For 2021, Cash Cost and AISC would be expected to decline as operations stabilize and higher-grade material is brought into the mining plan. The Company would target a Cash Cost of US$800 to US$900 per ounce and AISC of US$1,100 to US$1,300 per ounce.
- Transition to Owner-Operator Mining
A transition from contract mining to owner-operator has been arranged and depends upon the Company proceeding with the Proposed Transaction. The benefits to the Company include:
o Lower mining cost per tonne;
o Increased efficiencies in management of mining fleet;
o Day-to-day flexibility in mine scheduling and execution;
o Integration of underground workforce establishing one team focused on results; and
o Long-term sustainability of mine operations.
The transition to owner-operator would be executed over a three-month period that the Company anticipates, assuming the Proposed Transaction proceeds, would be completed by Q4 2020.
- 1,200 tpd Feasibility Study
Combined production from the Sugar and Middle Zones is expected to provide sufficient throughput to achieve 1,200 tpd. The Company intends to undertake the preparation of a feasibility study to focus on mine planning and scheduling to achieve 1,200 tpd, processing facility upgrades, paste backfill implementation, surface infrastructure and tailings management review.
Summer prospecting at TT8 Zone would commence on restart of operations. Based on drilling and geophysics work completed to-date, the Company has identified target areas for prospecting which depend upon the Proposed Transaction proceeding. The drilling of near-mine exploration targets would commence in Q4.
DETAILS OF THE PRIVATE PLACEMENT OF SPECIAL SHARES
Harte Gold proposes to issue, through the Private Placement, 9,500,000 Special Shares at the Offering Price, on or about July 9, 2020 (the “Initial Closing Date”) (and in any event no earlier than July 8, 2020), subject to, among other conditions, satisfactory approval of the Exchange, agreement on governance and reporting matters, satisfactory definitive documentation, and other customary closing conditions.
Appian as Subscriber
ANR Investments 2 B.V. (“ANR 2”) would be the sole subscriber under the Private Placement. ANR Investments B.V. (“ANR”), an insider of the Company, currently beneficially owns, directs or controls 206,716,334 Common Shares or approximately 24.4% of the issued and outstanding Common Shares of the Company. ANR and ANR 2 are owned by investment funds advised by Appian.
Key Terms of Special Share
The key terms of the Special Shares, which will be non-voting and transferrable, are set out below:
Conversion – The Special Shares are convertible into either (a) the Credit Facility or (b) Common Shares of the
- Convertible into Credit Facility – The Special Shares would automatically convert into an incremental US$9.5 million under the Credit Facility (“Automatic Conversion”) on satisfactory consent, security and intercreditor agreements with the Company’s secured lender, BNP Paribas (“BNP”), acting reasonably (the “BNP Consent”), and satisfaction of the closing conditions under the Credit Facility.
- Convertible into Common Shares – The Special Shares would entitle the holder thereof, at its election at any time and from time to time after the earlier of (i) August 30, 2020 if the Company does not obtain the BNP Consent on or before August 29, 2020, and (ii) an Event of Default (as defined in the Term Sheet), to convert, in whole or in part, the Special Shares into common shares of the Company (each, a “Common Share”) based on a ratio equal to 115% of the conversion amount of US$1.00 per Special Share (the
“Conversion Amount”) (plus any unpaid dividends) divided by the five-day volume-weighted average price (“VWAP”) of the Common Shares on the Exchange at the time of the election to convert.
Payment of Dividends – Each Special Share would also be entitled to dividends equal to 14% per annum, calculated and paid monthly, provided that (i) if the Company did not obtain the BNP Consent on or before August 29, 2020, such dividend would be increased by 5% per annum and (ii) if an Event of Default occurs, such dividend would be increased by an additional 5% per annum (“Dividends”). Dividends on Special Shares would be payable in the form of Common Shares issued at the five-day VWAP on the monthly dividend payment date or C$0.1173 (being the five-day VWAP as of the date hereof), whichever is lower, provided that the holders of Special Shares would be entitled, at their election at any time and from time to time, to capitalize, in whole or in part, Dividends on Special Shares.
Priority – Each Special Share would also be entitled to payment of the Conversion Amount (plus any unpaid Dividends) in priority to Common Shares in the event of the liquidation, dissolution or winding up of the Company and will be retractable, in whole or in part, for the Conversion Amount per Special Share if Harte does not obtain the BNP Consent on or before August 29, 2020.
Change of Control – The Special Shares would entitle the holder thereof, at its election at any time from time to time after the announcement of an offer or transaction for a change of control of the Company, to convert, in whole or in part, the Special Shares into Common Shares based on a ratio equal to 110% of the Conversion Amount (plus any unpaid dividends) per Special Share divided by the lower of the five-day or thirty-day VWAP on the trading day prior to such announcement.
Use of Proceeds
The proceeds from the Private Placement would be used to fund working capital needs, the restart of the Sugar Zone Mine, and general corporate purposes as well as to pay US$529,065 owing to Appian in respect of amounts outstanding under existing Appian NSR and historic unpaid Appian deal expenses.
Arrangement Fee and Warrants
In connection with the Proposed Transaction, on the Initial Closing Date, the Company would arrange for:
- the payment to ANR 2 of an upfront arrangement fee of US$600,000 (representing 2.0% of the full amount of the funding, US$30 million, to be provided by ANR 2 under the Proposed Transaction) payable in the form of Common Shares, priced at C$0.1173 (being the five-day VWAP as of the date hereof) (the “Arrangement Fee”); and
- the issuance to ANR 2 of 7,500,000 purchase warrants to acquire Common Share, exercisable at C$0.1349 (representing a 15% premium to the five-day VWAP of C$0.1173 as of the date hereof), to expire five-years from the date of their issuance (the “Warrants”).
Appian and Harte would also enter into an offtake agreement, on the Initial Closing Date, on the same terms and conditions as the original offtake agreement (as amended and except for the repurchase right) entered into between Appian and Harte, pursuant to which Appian would be granted an 18.5% offtake of total Refined Gold (as defined in the original offtake agreement (as amended)) produced from the Sugar Zone properties until 500,000 ounces of Refined Gold are delivered. Harte may repurchase 100% of the gold offtake (representing 30% of Harte’s total Refined Gold) at any time between January 1, 2021 and December 31, 2021 at a price per ounce of remaining gold to be produced equal to the average net realized price received by Appian (i.e. Appian sale price per ounce less purchase price per ounce paid to Harte) over the period from the Initial Closing Date to the exercise of the option.
Potential Dilution to Shareholders
The Company currently has 846,207,227 issued and outstanding Common Shares.
Assuming completion in full of the Private Placement (and assuming for illustrative purposes that the Automatic Conversion occurs on or before August 29, 2020), Appian would beneficially own, or exercise control or direction, over an additional approximately 17,046,184 Common Shares, representing 2.0% of the issued and outstanding Common Shares of the Company (assuming a VWAP of C$0.1173 and CAD/USD of 0.7338). As a result, Appian would beneficially own, or exercise control or direction, over approximately 223,762,518 Common Shares, representing 25.9% of the issued and outstanding Common Shares pro forma.
For illustrative purposes, assuming a VWAP of C$0.1173 and CAD/USD of 0.7338, up to 143,973,635 Common Shares of the Company could be issuable in connection with the Private Placement (including in respect of the Arrangement Fee and the Warrants), representing approximately 17.0% of the currently issued and outstanding Common Shares. The table below indicates the Common Shares issuable to ANR 2: (a) upon the full conversion of its Special Shares, (b) in respect of the payment of Dividends; (c) upon the payment of the Arrangement Fee, and (d) upon the full exercise of the Warrants, and, in each case, the approximate percentage that such number of Common Shares represents as a percentage of the issued and outstanding Common Shares:
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