Feb. 13--Santa Fe Gold Corp. expects to receive a $3 million "bridge loan" from Tyhee Gold Corp. of Canada this week as a first step by the latter to acquire the Albuquerque company.
Santa Fe Gold owns the state's only commercial-scale gold and silver mining project in southern New Mexico. But the company suspended operations last November at its Summit mine in Grant County and its milling facility in Lordsburg because it lacked investment capital to bring the project up to full production.
"Our mine has not performed as expected, mainly because of undercapitalization," said Santa Fe Gold CEO Pierce Carson. "We've been trying to raise money for a year, but the markets are tough. Tyhee sees the potential of the Summit project, and they're providing capital to put the mine into full production."
Tyhee, which is publicly traded on the Toronto Stock Exchange, closed this week on a $5 million financing deal with RMB Australia, paving the way for its bridge loan to Santa Fe Gold. The loan will allow Santa Fe to pay pending vendor debts and then begin initial steps to get its southern New Mexico operations back online, Carson said.
The loan marks the first concrete financial transaction to merge the two companies in a deal announced by both firms in late January.
"Tyhee will be the surviving company after the merger," Carson said. "Santa Fe Gold will continue to exist as a U.S. subsidiary of the Canadian firm. We'll maintain our office here with all our people and continue to work as we have in the past."
The company laid off about 50 people at the mine and mill, but it continues to employ about 14 people in Albuquerque and southern New Mexico.
The two companies expect the merger to close in mid-May, after Santa Fe Gold -- a penny stock company traded on the over-the-counter bulletin board -- obtains approval from its shareholders and after all regulatory filings are completed.
The acquisition will occur through an all-stock transaction, with Santa Fe shareholders gaining about 22 percent of Tyhee stock. Once it's finalized, Tyhee expects to invest about $17 million in the Summit mine and Lordsburg mill to reach full production within 30 to 60 days, said Tyhee President and CEO Brian Briggs.
"We'll pay off all vendors, conduct a new delineation drilling program at the mine to improve ore production, and buy a lot of new equipment, such as drills and underground trucks, to bring everything up to snuff," Briggs told the Journal .
Santa Fe Gold's financial dif- ficulties are pretty typical for small firms in today's metal-mining industry. Many "junior" companies obtained significant investor backing for mining exploration and development as prices for gold and other metals climbed after the recession.
But metal prices have contracted since 2011, with gold falling from about $1,900 per ounce two years ago to about $1,250 today.
Hundreds of junior metal-mining companies are now severely undercapitalized and left holding significant debt. Santa Fe Gold's market capitalization, for example, fell from more than $100 million 18 months ago to about $10 million now, and the company is $23 million in debt.
The merger with Tyhee, which has about a $40 million market capitalization, has allowed Santa Fe to refinance its debt with creditors, providing time to ramp up to full production post-merger before repayments begin again.
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