Fortuna Silver Mines Inc. (FVI.T) and Goldrock Mines Corp. ( GRM.V) have entered into a definitive agreement, pursuant to which Fortuna has agreed to acquire all of the issued and outstanding common shares of Goldrock. Goldrock’s principal asset is the 100-per-cent-owned Lindero project located in Salta province, Argentina. The Lindero project is an open-pit, heap-leach gold project with a completed 2016 feasibility study, which has been granted the environmental permit necessary for development of the project.

Transaction highlights:

  • Acquisition provides for continued expansion of low-cost production;
  • Fortuna will be focused on bringing the Lindero project into production by 2018;
  • Potential production of approximately 26.5 million ounces of silver equivalent (or approximately 346,000 ounces of gold equivalent) annually by 2018 (1);
  • Pro forma all-in sustaining cost (AISC) of less than $10 (U.S.) per ounce silver equivalent (or approximately $765 (U.S.) per ounce gold equivalent) (2);
  • Combined company with two operating mines and a development project in three top mining jurisdictions in the Americas;
  • Development of the Lindero project benefits from Fortuna’s financial flexibility through a strong balance sheet, zero net debt and strong free cash flow generation;
  • Shareholders representing approximately 26 per cent of Goldrock shares have agreed to support the transaction.

The combination of Fortuna and Goldrock is expected to expand Fortuna’s already low-cost silver-equivalent production, and will add an asset with over 10 years of reserve mine life, the ability to add significant free cash flow once constructed, and property- and district-scale exploration opportunities.

Under the terms of the arrangement agreement, each common share of Goldrock will be exchanged for 0.1331 of a Fortuna common share.

Based on the closing prices of Fortuna shares and Goldrock shares on the Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSX-V), respectively, on June 6, 2016, the consideration to be received by the Goldrock shareholders pursuant to the arrangement represents the equivalent of $1.08 per Goldrock share. The consideration to be received by holders of Goldrock shares represents premiums of 58.2 per cent based on the June 6, 2016, closing price of Goldrock shares on TSX-V and 84.6 per cent based on the 20-day volume-weighted average trading price of Goldrock shares on the TSX-V as of June 6, 2016. The exchange ratio implies a total equity value for the arrangement of approximately $129-million on a fully diluted in-the-money basis. Following completion of the transaction, each warrant to purchase a Goldrock share will instead represent a right to receive 0.1331 of a Fortuna share. All options to purchase a Goldrock share are in the money and will be exercised on or prior to completion of the arrangement.