Shares of cash-strapped Dynasty Metals & Mining (TSX: DMM; US-OTC: DMMIF) have shot up after the company announced a US$4-million private placement with three directors of Goldgroup Mining (TSX: GGA; OTC: GGAZF).
Dynasty signed a binding letter of intent with Javier Reyes, Gregg Sedun and Keith Piggott, who is also Goldgroup’s chairman, president and CEO. The directors have agreed to use their own money to buy Dynasty shares for 15¢ apiece for gross proceeds of US$4 million.
The news pushed Dynasty shares up 57%, or 9.5¢, to close Aug. 16 at 26¢ per share.
Dynasty intends to use the proceeds to settle some of the payments owed to the Ecuadorian government, creditors and employees, as well as for working capital.
At the end of the first quarter ended March 31, the miner had US$200,000 in cash resources and a US$13.4-million working capital deficit. This deficit has likely grown since.
A two-and-a-half-month work stoppage started in April at the Zaruma gold mine in Ecuador, its sole producing asset.
In June Dynasty let employees extract ore from Zaruma for 10 days to finance a partial payment of their outstanding wages.
A month later, it received a default notice from Vertex One, which gave Dynasty US$4 million in notes last April.
In an interview, Piggott says Dynasty has $20 million in debt, which was why Goldgroup itself wasn’t part of the financing. “We don’t consider that a smart move to put Goldgroup in there. It’s too high risk for Goldgroup at this point in time.”
Once the financing closes, Dynasty will shuffle its management and five-member board. Piggott will take on the role of CEO from Robert Washer, who will remain Dynasty’s chairman and board member, with director Leonard Clough. Meanwhile, Piggott, Reyes and Sedun will replace Dynasty’s three other directors.
Piggott notes his more than 30 years of mining experience makes him a good fit for leading Dynasty. “I have a track record of reorganizing things and making them work. We believe Dynasty Metals has good assets, but is in serious financial difficulties. So it needs a real reorganization. We have expertise to do that.”
As of late, Piggot has focused on gold mining in Mexico with Goldgroup, which recently declared commercial production at the Cerro Prieto heap-leach mine. Sedun is a financier and lawyer. He was involved with three juniors, including Robert Friedland’s Diamond Fields Resources, which Inco acquired for $4.3 billion in 1996. Reyes manages three hedge funds. In 2001, he founded a financial consultancy firm.
While a private placement that materially affects control of a company requires shareholder approval, Dynasty will apply for an exemption due to its “serious financial difficulty.”
Dynasty’s special committee, comprised of independent directors to evaluate alternatives to keep the company in business, approved the terms of the private placement.
The company didn’t immediately return requests for comment.
Although none of the Goldgroup directors owned a single share of Dynasty before their proposed investment, they will collectively become the company’s largest shareholder.
The expected US$4 million ($5.1 million) private placement at 15¢ per share would see 34 million shares issued, expanding Dynasty’s 46.7 million shares outstanding.
Piggott says the deal could close shortly. “We have a strong plan to put the company back on its feet,” he adds.
Commenting on working in Ecuador, Piggott notes that “we have seen Lukas Lundin go in there, and Ross Beaty and people like that. We are confident that Ecuador is a really good place to be.”
The executive says that Goldgroup has potential projects in Ecuador and sees “possible synergies in the future.”