Profitable silver junior Avino Silver & Gold Mines (TSXV: ASM; NYSE-MKT: ASM) has inked a letter of intent to acquire Bralorne Gold Mines (TSXV: BPM; US-OTC: BPMSF) for its Bralorne gold project in B.C. — a past-producing mine that is very familiar to Avino.
In effect, Avino will be buying back the project, which it acquired in the early nineties and later optioned to Bralorne Gold Mines. In 2002 Bralorne earned 100% of the property, where it operates a 100-ton-per-day mill.
Avino, which owns the producing Avino silver–gold property in Durango state, Mexico, will issue 0.14 of a share for Bralorne share held. Based on each company’s share price on June 27, the offer represents a 25.2% premium.
Bralorne shareholders will end up owning 7.6% of Avino.
A few days before its agreement with Bralorne Gold Mines was announced, Avino reported it had struck a deal to buy 9.5 million Bralorne shares for $2.7 million, or 28¢ per share, from a private vendor. The purchase, amounting to 33% of Bralorne’s outstanding share count, will give Avino a total of 34% of Bralorne shares going into the merger.
With the outline of a merger deal in hand, Avino is looking to raise $25 million, and is already pursuing an at-the-market share financing.
Bralorne produced 3,842 oz. gold in fiscal 2013, but the project is still considered to be in the exploration and evaluation phase.
A 2012 preliminary economic assessment pegged measured and indicated resources at the Bralorne project at 154,750 tonnes grading 9.11 grams gold per tonne for 45,375 oz. gold, with inferred resources adding 246,835 tonnes grading 8.78 grams gold for 69,654 oz.
“Avino intends to make the Bralorne gold mine our second production centre in North America,” Avino president and CEO David Wolfin said in a release. “Our team has a good technical understanding and knowledge base of the Bralorne gold mine, and we see an opportunity to finance the expansion of this mine and substantially increase its production profile over time.”
Wolfin added that the combination of Avino’s balance sheet and access to capital with both companies’ operational teams would realize the project’s potential.
The deal includes a $1.3-million bridge loan to Bralorne, of which $500,000 will be advanced immediately and $750,000 on execution of a definitive agreement. Advances will bear interest at 12% per year and mature on closing of the deal, or Sept. 30 at the latest.
In a release, Bralorne president and CEO William Kocken acknowledged that funding options for juniors have been limited since mid-2011, and that a merger with Avino would allow the Bralorne project to advance.
“It also offers Bralorne shareholders an attractive premium, minimizes near-term going concern risk by providing an immediate cash injection and protects our shareholders from a financing, which, if available at all, would be highly dilutive and in the board’s view, punitive to Bralorne shareholders,” Kocken said.
At the end of April, Bralorne had a working capital deficit of $683,800, while at the end of March, Avino had $17.6 million in working capital, including cash and equivalents of $15.2 million.
In the first quarter of 2014, Avino reported earnings of $1.3 million, or 5¢ per share, on revenues of $5.8 million.
The merger is a related-party transaction, as the companies have two directors in common — Avino CEO Wolfin and Gary Robertson.
The board of each company has appointed an independent special committee to review and negotiate terms of the agreement and make recommendations to their boards.
The deal is subject to both companies completing due diligence by Aug. 8, executing a formal definitive agreement based on the terms of the letter of intent, Bralorne shareholder approval and regulatory approvals.
The 25 sq. km Bralorne project hosts the historic Bralorne, Pioneer and King mines, which together produced almost 4 million oz.
Avino’s sole producing mine is Avino in Mexico, but the company also holds two past-producing projects in the Bralorne area in southwestern B.C.: Minto and Olympic.
After shutting down production at the Avino property in 2001 due to low silver prices, Avino restarted commercial production at the San Gonzalo mine on the property in October 2012. It’s working to expand the operation to 1,500 tonnes per day from 500 tonnes per day to bring the main Avino vein back online.
In 2013, the San Gonzalo mine produced 751,462 equivalent oz. silver at all-in sustaining cash costs of US$14.15 per oz.
On news of the merger, Bralorne shares climbed 31% over two days to 36¢ from 27.5¢, making a 52-week high of 45¢. The junior has 28.5 million shares outstanding, and has traded in a 52-week range of 20.5¢ to 45¢.
Avino shares rose 9¢ to $2.55. Avino has 32.2 million shares outstanding and traded in a 52-week window of 78¢ to $3.13.
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