Golden Queen Sells 50% of California Gold Project to Insiders for $110M

POSTED ON June 09, 2014 BY Travis McPherson
CATEGORY Stories,

Historic photo of the Golden Queen Mine and Mill (Photo: BLM)

The developer of the Soledad heap leach gold project in California, Golden Queen Mining (GQM:TSX) announced this morning that they have agreed to sell 50% of the project to an insider group for $110 million in cash. The insider group includes long-time shareholders from the Clay family (East Hill Management LLC) as well as the Leucadia National Corp. (NYSE holding company with major holdings in mining, banking etc., including Fortescue Metals and Jefferies). The investor group and Golden Queen will set up a 50-50 joint venture on the project upon closing.

Leucadia will own 67.5% of the 50% joint venture and the Clay group will own the other 32.5%.

Golden Queen investors have been waiting for clarity on the financing plans for the Soledad project which sits just 90 miles northeast of Los Angeles. According to the company's 2012 Feasibility Study, the Soledad project would cost $120 million in initial capex (assuming owner-operated mining).

The company had $13 million cash and $20 million debt prior to this transaction with Leucadia and the Clay family. Permits have been granted and the project is now construction ready, with commissioning of the processing facilities planned for 2015.

Based on the 2P mineral reserves hosted on the Soledad project, the insiders are paying approximately $175 per proven and probable ounce in the ground which puts it inline with the average.

To secure all of the funding necessary, Golden Queen is also undergoing a rights offering which is being backstopped by Leucadia and the Clay family for $45 million (at $1.10 per share). As part of the deal, the investor group has also agreed to spending up to an additional $40 million.

Lutz Klingmann, president of Golden Queen, commented: "We believe that this transaction allows the Soledad Mountain project to enter full construction after decades of patient effort. The company is delighted to enter into a joint venture with Leucadia, whose well-known, disciplined capital allocation procedures fit well with what we hope to achieve at Soledad Mountain. We believe that a low-risk, equity-based capital structure is the prudent approach to managing the risks of the construction stage. If and when in production, we look forward to re-examining the capital structure to determine whether or not returns to equity investors can be enhanced through leverage."

The Soledad project's risk profile increased recently, when a petition was put together which would see the Mojave Shoulderband Snail become an endangered species which could dramatically impact the operations of Soledad (should the snail be granted endangered status).

The project is an extremely economic one with a 15 year mine-life producing 77,000 ounces of gold per year at sub $600/ounce all-in sustaining cash costs. The after-tax NPV(5%) is $427 and an IRR over 44% (based on $1300/oz Au) which puts it in the top quartile for project returns.

Read: Golden Queen Announces Joint Venture to Develop and Operate the Soledad Mountain Project

Travis McPherson

trav@ceo.ca

Travis McPherson

trav@ceo.ca

Disclaimer:

Readers are advised that the material contained herein is solely for information purposes. Readers are encouraged to conduct their own research and due diligence, and/or obtain professional advice. Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities. The information contained herein is based on sources which the publisher believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available data. Any opinions expressed are subject to change without notice. The owner, editor, writer and publisher and their associates are not responsible for errors or omissions. They may from time to time have a position in the securities of the companies mentioned herein, and may change their positions without notice. (Any significant positions will be disclosed explicitly. This article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be — either implied or otherwise — investment advice. Thomas Humphreys, Pacific Website Company Inc., and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. We reserve the right to buy and sell such securities or commodities without notice to readers. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Neither Thomas Humphreys, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in these publications or web site.

Forward-Looking Statements: This article may include certain "forward-looking information" within the meaning of Canadian securities legislation. Forward-looking statements include predictions, projections and forecasts and are often, but not always, identified by the use of words such as "seek", "anticipate", "believe", "plan", "estimate", "forecast", "expect", "potential", "project", "target", "schedule", budget" and "intend" and statements that an event or result "may", "will", "should", "could" or "might" occur or be achieved and other similar expressions and includes the negatives thereof. All statements other than statements of historical fact included in this release, including, without limitation, statements regarding the potential of the Company's properties are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are based on a number of material factors and assumptions. Important factors that could cause actual results to differ materially from Company's expectations include actual exploration results, changes in project parameters as plans continue to be refined, future metal prices, availability of capital and financing on acceptable terms, general economic, market or business conditions, uninsured risks, regulatory changes, delays or inability to receive required approvals, and other exploration or other risks detailed herein and from time to time in the filings made by the Company with securities regulators. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ from those described in forward-looking statements, there may be other factors that cause such actions, events or results to differ materially from those anticipated. There can be no assurance that forward-looking statements will prove to be accurate and accordingly readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the date of this article. The Company disclaims any intention or obligation, except to the extent required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Always do your own due diligence. We seek safe harbor.