Cerrado Gold Signs Option and Loan Agreements With Subsidiary of Hochschild Mining PLC for the Sale of the Monte Do Carmo Gold Project for Total Consideration of US$60 Million (C$80 Million)
Cerrado Gold Signs Option and Loan Agreements
With Subsidiary of Hochschild Mining PLC for the
Sale of the Monte Do Carmo Gold Project for Total
Consideration of US$60 Million (C$80 Million)
• Proposed Transaction with Amarillo Mineração do Brasil Ltda. to strengthen balance
sheet and address lack of liquidity in the junior mining sector
• Company well-positioned to drive future growth via its operating Minera Don Nicolas
gold mine in Argentina and its Mont Sorcier development project in Quebec
TORONTO, ON / ACCESSWIRE / March 5, 2024 / Cerrado Gold Inc.
[TSX.V:CERT][OTCQX:CRDOF] ("Cerrado" or the "Company") announces that it has
entered into an option agreement with Amarillo Mineração do Brasil Ltda. ("Amarillo") a
wholly-owned subsidiary of Hochschild Mining PLC ("Hochschild"), whereby Cerrado has
granted to Amarillo the option ("Option") to purchase a 100% interest in the Company's Monte
Do Carmo project ("MDC Project") located in the State of Tocantins, Brazil (the "Proposed
Transaction"), for total consideration of US$60 million (approximately C$80 million) (the
"Purchase Price"), subject to the fulfilment of certain conditions.
The Purchase Price would be payable in the following stages:
1. US$15 million, initially advanced by way of a 10% interest-bearing secured loan (the
"Signing Loan"), of which US$7 million has been advanced as of the date of the grant of
the Option (March 4, 2024), US$1 million may be advanced within 60 days, and the
balance of US$7 million may be advanced two days following the mailing by Cerrado to
its shareholders of a notice of meeting and management information circular in
connection with a meeting to approve the Proposed Transaction to be held by June 30,
2024 (the "Cerrado Shareholder Approval"). Upon the Cerrado Shareholder Approval
being obtained, the Signing Loan, together with all accrued and unpaid interest thereon
and expenses relating thereto, shall be deemed to be repaid in full by Cerrado by the
concurrent set off of an amount equal to the Signing Loan due by Amarillo as part of the
Purchase Price. If Cerrado fails to secure the Cerrado Shareholder Approval on or before
June 30, 2024, the Signing Loan will mature on September 30, 2024.
2. An aggregate of US$45 million, payable in four installments over the next three years,
approximately, as further described below.
During the Option Period (as defined below) Amarillo will take operational control of the MDC
Project and has committed to spending a minimum of US$5m in qualifying expenditures.
Mark Brennan, CEO and Chairman commented: "The Proposed Transaction improves Cerrado's
immediate short-term capital position and addresses short-term working capital needs while
injecting development capital into the Minera Don Nicolas project. Going forward, Cerrado will
be well capitalized with a strong gold production profile and leaves the Company positioned to
pursue growth programs at our operating Minera Don Nicolas gold mine and our Mont Sorcier
high grade iron project."
He added, "In just five years at MDC, the Cerrado team has defined a proven mineral reserve of
approximately 1 million ounces of gold, has completed a robust Feasibility Study, is in the final
stages of permitting approval, and has attracted strong capital partners for the majority of a
potential project debt construction funding. Despite the achievement of these significant
milestones, the Company has been unable to raise the funds necessary to reach the final
investment decision for construction. The lack of liquidity and capital available to junior mining
companies over the last six to nine months has been unprecedented. It is important to thank the
dedicated team at the MDC Project for having done such a tremendous job bringing the MDC
Project to its current state of readiness in such an expedited timeframe."
Transaction Summary and Details
Amarillo has agreed to advance the Signing Loan to Cerrado in cash as follows:
• US$7 million has been advanced by Amarillo (the "First Advance") on the date of the
grant of the Option (March 4, 2024);
• US$1 million to be advanced 60 days after the date of the First Advance; and
• US$7 million to be advanced within two days following the mailing to Cerrado
shareholders of the management information circular to be prepared in connection with
the meeting of Cerrado shareholders at which management would seek the Cerrado
Shareholder Approval on or before June 30, 2024.
Upon obtaining the Cerrado Shareholder Approval, the Signing Loan, together with all accrued
and unpaid interest thereon and expenses relating thereto, shall be deemed to be repaid in full by
Cerrado by the concurrent set off of an amount equal to the Signing Loan due by Amarillo as
part of the Purchase Price. If Cerrado fails to secure the Cerrado Shareholder Approval on or
before June 30, 2024, the Signing Loan will mature on September 30, 2024, at which time
Cerrado will be obliged to: (i) repay the Signing Loan and other expenses (and any interest
accrued thereon) no later than September 30, 2024; (ii) reimburse Amarillo for any costs
incurred on the MDC Project between the date of signing of the Option Agreement (as defined
below) and the date of termination of the Option Agreement; and (iii) pay to Amarillo a break
fee in the amount of US$2.5 million.
Amarillo may exercise the Option at its sole discretion at any time during the Option Period by
providing an exercise notice to Cerrado, following which an aggregate amount of US$30 million
would be payable to Cerrado prior to the closing of the Proposed Transaction in cash as follows:
• US$10 million (the "Second Payment") in cash, payable within 5 days of the date on
which Amarillo gives written notice of its exercise of the Option to Cerrado, which
option expires on March 19, 2025.
• US$20 million (the "Third Payment", and, together with the Signing Loan and the
Second Payment, the "Consideration") in cash payable upon either: (i) if necessary, the
approval of the Proposed Transaction by Hochschild shareholders, which is to occur no
later than June 30, 2025; or (ii) if Hochschild shareholder approval is not required, by no
later than March 30, 2025.
In addition, Amarillo will make the following additional payments following the closing of the
Proposed Transaction:
• US$10 million in cash payable within 14 days of the second anniversary of the date of the
Cerrado Shareholder Approval (the "Second Anniversary Payment"); and
• US$5 million in cash payable within 14 days of the earlier of: (i) the commencement of
commercial production from the MDC Project; and (ii) March 31, 2027 (the "Production
Payment").
The option agreement ("Option Agreement") was entered into among Cerrado, Serra Alta
Mineração Ltda., the Company's subsidiary in Brazil which holds the MDC Project, Amarillo,
and Hochschild, in its capacity as guarantor of Amarillo's obligations under the Option and Loan
Agreements. A loan agreement (the "Loan Agreement") was entered into by Cerrado and
Amarillo, pursuant to which Amarillo has made certain credit facilities in the aggregate principal
amount of US$15 million available to Cerrado in connection with the Signing Loan.
The closing of the Proposed Transaction is subject to a number of conditions, including: (i) the
exercise of the Option by Amarillo; (ii) the payment by Amarillo of the full Consideration; (iii)
the approval of the TSX Venture Exchange; (iv) the approval of the shareholders of Cerrado; and
(v) satisfaction of other closing conditions customary in a transaction of this nature.
All amounts owing by Cerrado to, or advanced to Cerrado by, the Company or Amarillo, are
secured by (i) a first lien on all of the outstanding equity interests (quotas) in Serra Alto, and (ii)
a second lien on the assets relating to the MDC Project (the "Security"), until termination of the
Option Period (defined below). The security is subject to a security sharing agreement with
another secured creditor.
The Option will expire upon the earlier of (the period starting on the date of the Option
Agreement and ending upon such expiry being the "Option Period") (i) March 19, 2025, (ii) the
exercise of the Option and completion of the Proposed Transaction, and (iii) the termination of
the Option Agreement. The Option may be exercised at Amarillo's sole discretion at any time
during the Option Period, provided that all required payments have been paid by Amarillo.
Pursuant to the terms of the Option Agreement, Amarillo is intended to assume operational
control of the MDC Project from the date of the Option Agreement until the expiry of the Option
Period, and Amarillo has agreed to incur exploration and other qualified expenditures on the
MDC Project totaling no less than US$5 million during the Option Period.
The Proposed Transaction has been unanimously approved by the Board of Directors of Cerrado.
The Company's Board of Directors, senior officers and principal shareholder, collectively
owning approximately 23.6% of the outstanding common shares of the Company have entered
into voting and support agreements to support the Proposed Transaction.
Background to the Proposed Transaction
The Proposed Transaction is the culmination of a prolonged capital-raising process initiated by
management in the summer of 2023 in order to explore all possible funding alternatives to
address the working-capital needs of the Company and fund the development of the MDC
Project. During the second half of 2023, Cerrado undertook several formal attempts to raise
equity capital with independent investment banks, and has pursued debt, alternative debt, private
equity and strategic partnership alternatives to provide capital for the development of the MDC
Project.
Despite the Company filing an extremely robust Feasibility Study positioning the MDC Project
as potentially one of the world's lowest-cost producers of gold, with a strong after-tax NPV and
IRR, low initial capital requirement, and the sponsorship of strong project debt finance partners,
the Company has been unable to attract sufficient capital to meet both the obligations or continue
development of the MDC Project, as well as funding the change in working capital position in its
Argentinian operations (described below) due to the lack of global liquidity for junior mining
companies and development stage projects.
With regards to the Company's Argentina operations, fiscal policy changes implemented in the
country following the November 2023 general election, have imposed a significant financial
burden to the Minera Don Nicolás ("MDN") operation, adding further strain to Cerrado's
working capital position. The material devaluation in the Argentinian peso in December 2023
resulted in hyper-inflation that, in turn, has led suppliers at MDN to increase costs and
significantly restrict typical creditors operating terms. These changes occurred during the final
stages of a substantial capital investment program at the Company's MDN mine in Santa Cruz
province, Argentina. Combined, these events have had a severe impact on Cerrado's overall
financial sustainability and led to the decision to enter into the Option Agreement with Amarillo.
The immediate cash consideration received by Cerrado pursuant to the Proposed Transaction
combined with anticipated production growth at MDN should address the short-term working
capital requirements at MDN, and significantly enhance Cerrado's financial position and ability
to progress operations moving forward. The MDN project has now completed a major capital
investment program and the Company expects the operation to generate a period of strong
cashflows supporting a reduction in debt levels at MDN over the next year.
In addition, recent announcements by the Argentinian government that currency controls may be
removed during the second half of 2024, would be a strong catalyst for the fiscal environment for
MDN to improve. Management expects that operating cashflow from MDN combined with the
immediate proceeds from the Proposed Transaction, and, ultimately the possible exercise of the
Option, will put Cerrado in a robust financial position with a strong balance sheet from which it
can organically grow and increase shareholder value at the Company's operations.
Subsequent to the recent capital investment program at MDN, the mine is now positioned to start
to generate meaningful cash flows to address the balance sheet. In 2023, the construction of a
new heap leaching operation at the Las Calandrias South deposit, capable of supporting annual
production in the 25-30K oz range once at full capacity, was completed. The mine also
undertook the pre stripping required to open up the Calandrias North deposit to send to the CIL
plant. The operations are on target to sustain historical production rates of between 50-60K ozs
per annum going forward at reduced cash costs relative to previous years. In addition, the
Company is evaluating the potential to develop a second smaller heap leach operation near the
current Martinetas CIL plant to process known stockpiles and low grade resources as well as to
expand the current heap leach capabilities. Exploration activities remain ongoing to develop both
new high grade (open pit or underground) and low grade resources for heap leaching as can be
seen at the various nearby operating mines in the region.
In addition to the MDN producing gold mine, Cerrado also owns 100% of the Mont Sorcier Iron
Ore project located just outside of Chibougamau, Quebec held by its fully owned subsidiary,
Voyager Metals. A Preliminary Economic Assessment completed in 2022, outlined a project
producing 5 million tonnes of 65% grade iron concentrates over a 21-year mine life with an
initial NPV of US$1.6 billion. The project benefits from significant rail and port facilities already
being in place, reducing substantially customary capital requirements. Historical results assumed
the production of iron concentrates grading 65%, however, recent test work has demonstrated the
ability to produce high purity, DRI grade material grading 67% iron, capable of being used in the
Direct Reduction Injection steel production process. DRI grade iron receives a material premium
in the market due to the significant environmental benefits of reducing green house gas
emissions in the steel making process and are taking market share from conventional lower grade
iron ore materials. Cerrado is currently working towards completing a bankable feasibility study
to move the project forward based on the improved metallurgical test results. The robust nature
of this project has resulted in the Company already being able to mandate TD Bank as lead
arranger for a UK Export Credit Agency supported project financing for up to US$598 million to
cover 70% of required upfront capital (see Cerrado press release dated November 21, 2023).
Amendment to Sellers Agreement at MDN
Additionally, the Company has signed on March 3, 2024 an amendment to the purchase
greement for the Minera Don Nicolas Project with Compañía Inversora en Minas S.A. and
Compañía Inversora Argentina Para La Exportación S.A. (together, the "Sellers"). The
amendment allows for the balance of funds presently due to be paid from the escrow account to
the Sellers by March 16, 2024 (corresponding to the Third Installment), being approximately
$2.686 million, will instead be paid to the Sellers by June 7, 2024. Regarding the Final
Installment, the monthly instalments due under Section 4.1 in respect of April 2024 through
March 2025, will be reduced by 50%.
The balance of payments due in respect of April 2024 through March 2025 will be paid by as a
lump sum payment of $5.0M by no later than March 28, 2025.
About Hochschild Mining PLC
Hochschild Mining PLC is a leading precious metals company listed on the London Stock
Exchange (HOCM.L / HOC LN) and crosstrades on the OTCQX Best Market in the U.S.
(HCHDF), with a primary focus on the exploration, mining, processing and sale of silver and
gold. Hochschild has over fifty years' experience in the mining of precious metal epithermal vein
deposits and operates two underground epithermal vein mines: Inmaculada, located in southern
Peru; and San Jose in southern Argentina, and an open pit gold mine, Mara Rosa, located in the
state of Goiás, Brazil. Hochschild also has numerous long-term projects throughout the
Americas.
About Cerrado
Cerrado Gold is a Toronto-based gold production, development, and exploration company
focused on gold projects in South America. The Company is the 100% owner of both the
producing MDN and Las Calandrias mine in Santa Cruz province, Argentina, and the MDC
Project, located in Tocantins State, Brazil. In Canada, Cerrado Gold is developing it's 100%
owned Mont Sorcier Iron Ore and Vanadium project located outside of Chibougamou, Quebec.
In Argentina, Cerrado is maximizing asset value at its MDN operation through continued
operational optimization and is growing production through its operations at the Las Calandrias
Heap Leach project. An extensive campaign of exploration is ongoing to further unlock potential
resources in our highly prospective land package in the heart of the Deseado Masiff.
In Brazil, Cerrado has rapidly advanced the Serra Alta deposit at its MDC Project, through
feasibility and into production. Serra Alta is expected to be a high-margin and high-return project
with significant exploration potential on an extensive and highly prospective 82,542 hectare land
package.
In Canada, Cerrado holds a 100% interest in the Mont Sorcier Iron Ore and Vanadium project,
which has the potential to produce a premium iron ore concentrate over a long mine life at low
operating costs and low capital intensity. Furthermore, its high grade and high purity product
facilitates the migration of steel producers from blast furnaces to electric arc furnaces
contributing to the decarbonisation of the industry and the achievement of SDG goals.
For more information about Cerrado please visit our website at: www.cerradogold.com.
Mark Brennan
CEO and Chairman
Mike McAllister
Vice President, Investor Relations
Tel: +1-647-805-5662
Disclaimer
NEITHER TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER
(AS THAT TERM IS DEFINED IN POLICIES OF THE TSX VENTURE EXCHANGE)
ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS
RELEASE.
This press release contains statements that constitute "forward-looking information"
(collectively, "forward-looking statements") within the meaning of the applicable Canadian
securities legislation. All statements, other than statements of historical fact, are forward-
looking statements and are based on expectations, estimates and projections as at the date of this
news release. Any statement that discusses predictions, expectations, beliefs, plans, projections,
objectives, assumptions, future events or performance (often but not always using phrases such
as "expects", or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans",
"budget", "scheduled", "forecasts", "estimates", "believes" or "intends" or variations of such
words and phrases or stating that certain actions, events or results "may" or "could", "would",
"might" or "will" be taken to occur or be achieved) are not statements of historical fact and may
be forward-looking statements.
Forward-looking statements contained in this press release include, without limitation,
statements regarding the business and operations of Cerrado, the completion of the Proposed
Transaction including receipt by Cerrado of the Consideration, the Second Anniversary Payment
and the Third Anniversary Payment, anticipated production growth at the MDN, the Company's
short term working capital requirements, and the completion of a feasibility study for the
Company's Mont Sorcier Iron Ore project. In making the forward- looking statements contained
in this press release, Cerrado has made certain assumptions, including, but not limited to the
satisfactory completion of due diligence by Amarillo and the exercise of the Option by Amarillo,
the satisfaction of all conditions to closing of the Proposed Transaction, including the receipt of
all required approvals (including regulatory and shareholder approval), cash flow generated
from MDN and changes in economic and monetary policies and regulations in jurisdictions in
which Cerrado and its subsidiaries operate. Although Cerrado believes that the expectations
reflected in forward-looking statements are reasonable, it can give no assurance that the
expectations of any forward-looking statements will prove to be correct. Known and unknown
risks, uncertainties, and other factors which may cause the actual results and future events to
differ materially from those expressed or implied by such forward-looking statements. Such
factors include, but are not limited to general business, economic, competitive, political and
social uncertainties. Accordingly, readers should not place undue reliance on the forward-
looking statements and information contained in this press release. Except as required by law,
Cerrado disclaims any intention and assumes no obligation to update or revise any forward-
looking statements to reflect actual results, whether as a result of new information, future events,
changes in assumptions, changes in factors affecting such forward-looking statements or
otherwise.
SOURCE: Cerrado Gold Inc.