Telson Mining Corporation (CVE:TSN) (OTCMKTS:SOHFF) (FRA:TSGN) announced a new US$25 million funding agreement on Tuesday that will see the company complete the construction of its Tahuehueto gold operation in Mexico.
The agreement is with Accendo Banco SA de CV, Empress Royalty Corp. and Endeavour Financial (collectively referred to as the Accendo Syndicate), and will help the company meet debt service obligations, Telson said in a statement.
In addition, Telson, Accendo Syndicate and Trafigura Mexico SA de CV have entered into a memorandum of understanding to negotiate a potential definitive agreement to restructure the gold miner’s debt obligations to Trafigura and Nyrstar Canada (Holdings) Ltd.
According to Telson, the remaining amount needed to complete mine construction and commissioning at Tahuehueto is around US$15.4 million, including $12.6 million for equipment and a 15% contingency, plus $2.8 million of working capital to support operations until it reaches positive cash flow.
Accendo Syndicate members are investing, by way of debt, a silver stream and equity by way of:
- A US$12 million loan facility from Accendo Banco expected to close March 2021. US$500,000 was advanced to date;
- A US$5 million Silver Stream from Empress Royalty Corp. Telson is to deliver 100% the payable silver production from the mine for the first 1,250,000 payable ounces; thereafter, the Silver Stream Percentage delivery will step-down to 20% of the payable silver production. All Streaming obligations fully terminate after 10 years. The signing of the Stream agreement and the initial deposit of US$2 million is expected to be paid first week of March, subject to standard conditions precedent, with the balance paid upon closing of formal agreements, including the Accendo Banco Loan;
- The US$5 million Silver Stream will be fully secured with a third-place ranking over Tahuehueto assets; and
- A US$8 million Equity Private Placement from Endeavour Financial and affiliates, Accendo Banco and affiliates, and third parties, which is expected to close the first week of March. Under the term sheet, Telson will issue up to 50.4 million units, where each unit is priced at C$0.20 per unit with half a warrant at C$0.30 per share exercise price for total proceeds of up to C$10.08 million.
The funding package allows Telson to negotiate a potential restructuring of its loan debt with Trafigura and Nyrstar. As part of this debt restructuring, Telson and Nyrstar have agreed to exercise the US$4million option to purchase the Campo Morado royalty in exchange for 14.6 million Telson shares. The exercise price at current exchange rates is equivalent to about C$0.345 per share, around a 64% premium to current trading prices.
Additionally, Telson will make payment in cash of US$838,935.85 of past due royalty.
New chairman and COO
As part of the agreement, Accendo Syndicate will appoint three new directors to Telson’s board of directors, as well as a chief operating officer to the executive team. The firm said that David Rhodes, managing director at Endeavour Financial, will be appointed director and chairman, while veteran mining engineer Armando Alexandri will join Telson as COO.
“After many months of extensive hard work and negotiation, I am delighted on behalf of the Telson Team to deliver to Telson shareholders and investors this excellent news,” Telson CEO Ralph Shearing told shareholders.
“This funding package now allows Telson to immediately re-initiate construction at the Tahuehueto mine site after which we expect to rapidly advance construction targeting to commence initial pre-production within 10 to 12 months and full-scale production 12 to 14 months after funding. I welcome the appointment of Mr Rhodes to our Board of Directors which will further strengthen our Board and am excited to gain the vast mill building and operating experience of Mr Alexandri as the Company’s new COO.”
Shearling added that the firm appreciated the support and confidence of funding partner Accendo Syndicate.
Speaking on behalf of the Syndicate, Accendo CEO Javier Reyes commented: “Over the past several months, we have partnered with Telson and been able to witness and validate first-hand that Tahuehueto is one of the premier gold assets in Mexico, with an excellent exploration upside. We are excited to be able to provide this full package of growth capital to Telson and look forward to supporting the team as the business grows.”
Tahuehueto is located in north western Durango State, Mexico.
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