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Timmins Gold Corp. (TSX-V:TMM - News) -
-- Provides 2.27 Timmins Gold shares for each Capital Gold share
-- Creates a mid-tier gold producer with production of approximately
180,000 ounces of gold per year and estimated reserves of approximately
2.2 million ounces(i) of gold
-- Delivers greater short-term and long-term value than Gammon offer
Timmins Gold Corp. ("Timmins
Gold") announces that yesterday it sent a letter to the Board of
Directors of Capital Gold Corporation (AMEX/TSX: CGC) ("Capital
Gold") with a final request that the Capital Gold Board reconsider
Timmins Gold's previously announced proposal for a merger of equals. Under
Timmins Gold's proposal, each share of Capital Gold common stock would be
exchanged for 2.27 common shares of Timmins Gold. Based on the average of the
respective closing share prices for the last 20 trading days, Timmins Gold's
proposal has a value of US$4.48 per Capital Gold share and exceeds the value
of the Gammon offer by US$0.22 per Capital Gold share.
Timmins Gold has also advised the
Capital Gold Board that it would be willing to enter into a merger agreement
with Capital Gold that imposes far less onerous terms on Capital Gold than
the terms contained in Capital Gold's agreement with Gammon, including
significantly reducing the termination fee, eliminating matching rights,
eliminating Gammon's $2.0 million unilateral and arbitrary termination right
and eliminating a number of highly unusual conditions that favor Gammon.
Bruce Bragagnolo, CEO of Timmins Gold,
stated: "The proposed transaction is strategically compelling and a
superb opportunity to create value for our respective shareholders. Combining
Capital Gold and Timmins Gold will create a solid mid-tier gold producer,
with production of approximately 180,000 ounces of gold per year and
estimated reserves of approximately 2.2 million ounces(i) of gold, which we
believe will generate a unique re-rating opportunity that will benefit
Capital Gold and Timmins Gold shareholders alike."
Mr. Bragagnolo added, "We believe
that our proposal clearly delivers both greater short-term and long-term
value to Capital Gold shareholders compared to the Gammon offer, as well as
providing greater certainty of closing to Capital Gold. We have observed that
Capital Gold's shares have consistently traded above the Gammon offer price,
which we believe is the market signaling its dissatisfaction with the Gammon
transaction and its preference for our proposal. We urge the Capital Gold
Board to review our proposal carefully. We are confident that when they do so
they will recognize that our proposal is superior to the Gammon offer. We remain
committed to cooperating with Capital Gold's Board to complete this mutually
beneficial transaction as soon as possible; however, this will be our final
request to their Board."
Below is the text of the letter that
Timmins Gold sent to Capital Gold's Board of Directors:
December 2, 2010
BY EMAIL AND COURIER
Board of Directors
Capital Gold Corporation
76 Beaver Street, 14th Floor
New York, NY 10005
Attention: Stephen M. Cooper, Chairman of the Board
Proposal for a Merger of Equals
Gentlemen:
We are resubmitting our final proposal
for a merger-of-equals of Capital Gold and Timmins Gold, in which each share
of Capital Gold common stock would be exchanged for 2.27 common shares of
Timmins Gold (the "Merger").
Based on the average of the respective
closing share prices for the last 20 trading days, our proposal has a value
of US$4.48 per Capital Gold share and exceeds the value of the Gammon offer
by US$0.22 per Capital Gold share.
By now you will have noted that Capital
Gold shares are trading at a premium to the Gammon offer price. On 20 of the
last 20 trading days, Capital Gold's shares have closed at a price that is
higher than the implied value of Gammon's offer. The market is clearly
expressing dissatisfaction with the Gammon transaction and its preference for
our proposal.
Although you have rejected our proposal
on two occasions, we remain committed to persuading you of the value of the
Merger. Combining our two companies will, we believe, provide immediate and
long-term benefits to Capital Gold shareholders, including:
1. Increased Production: We estimate that the combined company will have
2011 production of approximately 180,000 ounces of gold, making us a
solid mid-tier producer.
2. Re-Rating Opportunity: We expect that the combined company will be
recognized as a solid mid-tier producer, which should lead to a re-
rating of the combined company's share price. You are no doubt aware
that this can be a significant medium-term benefit to your shareholders
that is not available in connection with a sale of Capital Gold to
Gammon. In fact, your financial advisor advised you that "the long-term
valuation re-rating was potentially greater under a transaction with
Timmins Gold."
3. Low-Cost Producer: We estimate that the combined company will have a
cash production cost of between US$400 and US$425 per ounce of gold.
4. Strong Gold Reserves. We estimate that the combined company will have
approximately 2,200,000 ounces of proven and probable reserves, with
significant opportunities to further develop and add to such reserves.
5. Complementary Assets: Capital Gold's El Chanate Mine and Timmins Gold's
San Francisco Mine are located within 65 kms of one another in the
Sonora region of Mexico, making the combination of these assets ideal
from an operational and strategic perspective.
6. Experienced Management Team: Our combined teams will provide excellent
leadership from an operational perspective and have a strong track
record raising capital.
7. Supportive Shareholder Base: The combined company will benefit from a
supportive base of institutional shareholders that understand our
business and want to see us succeed. Currently, shareholders
representing more than 35% of Capital Gold's shares have advised us of
their support for the Merger, including some of Capital Gold's largest
institutional shareholders.
Our board has authorized us to proceed
expeditiously with the Merger and our proposal is NOT subject to due diligence
- we only seek to confirm the cost of any change of control payments that may
be payable in connection with the Merger.
To that end, we are prepared to enter
into a merger agreement with Capital Gold based on your agreement with Gammon
but which will impose far less onerous terms on Capital Gold. For example, we
would:
-- reduce the termination fee from approximately 3.6% to 1.0% of the equity
value of the transaction, which would enhance the likelihood that
another interested party may surface with a competing bid;
-- eliminate the onerous, circular five-day matching rights, which have a
decidedly chilling effect on another interested party surfacing with a
competing bid;
-- eliminate Gammon's $2 million unilateral and arbitrary termination
right, which is not only highly unusual, but essentially makes your
merger agreement an option for Gammon to acquire Capital Gold (and a
badly mispriced option at that); and
-- eliminate a number of highly unusual conditions imposed by Gammon which
individually and as a whole should raise serious concerns regarding
certainty of closing the Gammon transaction.
We are confident that once you have
reviewed our proposal you will agree that it delivers both greater short-term
and long-term value and provides greater certainty of closing than the Gammon
offer, and therefore constitutes a "Superior Proposal" as defined
in your agreement with Gammon. Your fiduciary duties compel you to immediately
commence discussion with Timmins Gold. To that end, we and our advisors are
ready to meet with you and your advisors any time, anywhere to discuss our
proposal and to answer any questions you may have.
We note that your proxy statement offers
four reasons why you rejected our proposal. For the sake of transparency, we
have set out below each of your reasons followed by the facts.
Reason 1: "the transaction proposed
by Timmins Gold would result in a merger of equals, with CGC receiving a
small upfront premium".
Fact: On October 1, 2010, when you
entered into the merger agreement with Gammon, the value of our proposal
exceeded the value of the Gammon offer by US$0.44 per Capital Gold share.
Today, based on the average of the respective closing share prices for the
last 20 trading days, the value of our proposal exceeds the value of the
Gammon offer by US$0.22 per Capital Gold share. In all cases, our proposal
delivers Capital Gold shareholders a greater premium than the Gammon offer.
Moreover, this rationale for rejecting our offer is ironic, as it was Capital
Gold that first approached Timmins Gold about a Merger in which Capital Gold
would pay a premium for Timmins shares.
Reason 2: "the Timmins Gold
proposal presented certain financial risks to CGC given Timmins Gold's
current cash balance, its going concern issue with respect to its financial
statements and its outstanding short term gold loan, which required repayment
of the cash equivalent value of a fixed number of gold ounces on a monthly
basis".
Fact: Timmins Gold is cash positive and
has been since its first quarter of production ending June 30, 2010. As such,
our liquidity is not constrained. Moreover, in connection with our original
offer on September 1, 2010, we provided you with letters from financial
advisors, each expressing a high degree of confidence in our ability to raise
any funds that the combined company may require. The concern expressed about
our gold loan is particularly odd in light of the fact that we are adding
cash every quarter and have not had and do not anticipate any difficulty
paying the gold loan. As of November 30, 2010, we have made the first four
payments on the gold loan when due and only have eight more payments to make,
which we expect to make from cash flows. Indeed, this reason appears absurd
in light of Gammon's announcement that it has had to seek a $100 million
credit facility in connection with its deal with Capital Gold.
Reason 3: "the obligation of
Timmins Gold to seek the approval of its shareholders, as a condition to
closing any transaction with CGC, was considered to increase overall
transaction risk".
Fact: It is true that our proposal will
require the approval of our shareholders, but you never raised this concern
with us so that we could explain why we are very confident that we will
obtain such approval. Given that your agreement with Gammon is itself
conditional on approval of Gammon shareholders, if required, we find this
reasoning odd. Your agreement with Gammon also includes a right for Gammon to
walk away from the transaction for a mere US$2.0 million, which essentially
makes your merger agreement an option for Gammon to acquire Capital Gold and
creates significant transaction risk for your shareholders. Likewise, it is
the inclusion of a number of highly unusual conditions to closing in your
agreement with Gammon that should raise concerns about certainty of closing,
as many of the conditions are in the hands of third parties. Finally, at the
time you entered into the agreement with Gammon, you were aware that a merger
of Capital Gold with Timmins was supported by a very significant percentage
of your shareholders, making it very uncertain whether a transaction with
Gammon would be approved by your shareholders.
Reason 4: "the combined company
would likely need to raise additional capital to fund CGC's growth
initiatives".
Fact: As stated above, Timmins Gold is
cash positive and, to the extent additional capital is required, you have
received letters from financial advisors expressing a high degree of confidence
regarding the combined company's ability to access the capital markets if
necessary. Further, given the expected re-rating of the combined company as a
mid-tier producer, the combined company's cost of capital should be reduced,
which would diminish concerns regarding dilution.
As stated above, we expect that Capital
Gold understands the benefits of the Merger as it was Capital Gold that first
approached Timmins Gold in July 2010 about a merger-of-equals of our two
companies. At that time, your representatives extolled the benefits of the
Merger, stating that it would create a larger, more diversified growing gold
producer. Your representatives also told us that Timmins Gold was an ideal
merger candidate, meeting all of Capital Gold's strategic criteria. We agreed
and pursued discussions with you in good faith, including arranging for your
management team to visit our San Francisco Mine in Sonora, Mexico, and for
your CEO and financial advisor to meet with our CEO.
On August 23, 2010, your financial advisor
notified us that Capital Gold had commenced a process to sell itself and
invited Timmins Gold to submit a proposal. We responded positively and again,
acting in good faith with the belief that the Capital Gold board would run a
fair, open process, we submitted a proposal to you on September 1, 2010.
Following submission of our proposal, we and our financial advisor tried on
numerous occasions to contact you in order to discuss the proposal. Despite
all of our efforts, Capital Gold appeared unwilling to engage in any
discussion with us. No explanation or rationale was offered and the lack of
response was alarming.
To further demonstrate our commitment to
the Merger, on September 3, 2010 we unilaterally revised our proposal to
increase the value of our offer by $0.50 per Capital Gold share, from $4.00
to $4.50, which also represented an increase in the exchange ratio from 2.02
to 2.27 common shares of Timmins Gold per Capital Gold share. As a result of
our efforts to communicate directly with the Capital Gold board, you finally
agreed to allow us to present our revised proposal by conference call. That
call took place on September 7, 2010 and lasted approximately forty-five
minutes. Having reaffirmed our revised proposal again in writing on September
17, 2010, we received written notice that you had rejected our revised
proposal on September 20, 2010. Confident that our proposal represented a
"superior proposal" under your agreement with Gammon, we reaffirmed
our proposal on October 12, 2010, but our proposal was once again rejected
without discussion or explanation.
Although you engaged in approximately
seven months of negotiation with Gammon, and had face to face meetings with
Gammon during the week of March 1, 2010 as well as on April 8, 2010, May 7,
2010, June 14, 2010, June 22, 2010 and August 3, 2010, and gave Gammon the
opportunity to send consultants to your mine and conduct full due diligence,
you spent less than an hour discussing our proposal with us and repeatedly
ignored our efforts to engage with you. The imbalance in your process is
brought into sharp relief in your proxy statement. In particular, we note
that you entered into a letter of intent with Gammon on September 9, 2010
that required the payment of a termination fee to Gammon if Capital Gold
sought another transaction with another party. Not only is such a provision
highly unusual in a non-binding letter of intent, it essentially cut every
other bidder, including Timmins Gold, out of the process. More recently, your
response to our efforts to open a dialogue with you has included veiled
threats from your legal counsel and complaints to regulators, which in the
circumstances appear to us to be a coordinated effort to intimidate and
silence Timmins Gold. Our suspicions that there was not a level playing field
seem to have been validated.
We believe that the market's reaction to
your deal with Gammon makes it impossible for you to ignore the superiority
of our proposal. In short, the higher price we are proposing, combined with
our more balanced merger terms, delivers greater short-term and long-term
value to Capital Gold shareholders and provides greater certainty of closing.
Our proposal, therefore, clearly constitutes a "superior proposal"
as defined in your agreement with Gammon. As such, you have the right under
the Gammon agreement and a fiduciary obligation under Delaware law, to
immediately begin discussions with Timmins Gold.
We are hopeful that the passage of time
will allow you to once again see the benefits of the Merger and we look forward
to moving forward with you to provide Capital Gold shareholders the
opportunity to realize the highest and best value.
Sincerely,
Bruce Bragagnolo, Chief Executive
Officer
(i) Mineral Reserve Estimates
See Timmins Gold's news release of
November 16, 2010 in which it announced that independent consulting firm
Micon International Inc. had estimated proven and probable mineral reserves
of 780,000 ounces of gold (34,932 ktonnes grading 0.695 g/t gold comprised of
proven reserves of 17,194 ktonnes grading 0.756 g/t gold (418,000 ounces) and
probable reserves of 17,738 ktonnes grading 0.635 g/t gold (362,000 ounces) )
and Capital Gold's news release of October 13, 2009 in which it announced
that independent consulting firm SRK Consulting Inc. had estimated proven and
probable mineral reserves of 1,504,000 ounces of gold (70,557 ktonnes grading
0.66 g/t gold comprised of proven reserves of 22,402 ktonnes grading 0.70 g/t
gold (503,000 ounces) and probable reserves of 48,155 ktonnes grading 0.65
g/t gold (1,001,000 ounces).
Timmins Gold is subject to reporting
requirements under applicable Canadian securities laws, and as a result it
reports mineral reserves in accordance with Canadian reporting requirements
for disclosure of mineral properties as set out in National Instrument 43-101
Standards of Disclosure for Mineral Projects ("NI 43-101"). The
definitions of NI 43-101 are adopted from those given by the Canadian
Institute of Mining, Metallurgy and Petroleum. In the United States,
companies generally report mineral reserves in accordance with Industry Guide
7, as promulgated by the Securities and Exchange Commission. As such, proven
and probable mineral reserve estimates contained in this press release may
not be comparable to similar information disclosed by U.S. companies.
Important Information
This press release does not constitute
an offer to sell or the solicitation of an offer to buy any securities or a
solicitation of any vote or approval. This press release relates to a
business combination transaction with Capital Gold proposed by Timmins Gold,
which may become the subject of a registration statement filed with the
Securities and Exchange Commission (the "SEC"). This material is
not a substitute for the prospectus/proxy statement Timmins Gold would file
with the SEC and Canadian securities regulators regarding the proposed
transaction if such a negotiated transaction with Capital Gold is reached or
for any other document which Timmins Gold may file with the SEC and Canadian
securities regulators and send to Timmins Gold or Capital Gold shareholders
in connection with the proposed transaction. INVESTORS AND SECURITY HOLDERS
OF TIMMINS GOLD AND CAPITAL GOLD ARE URGED TO READ ANY SUCH DOCUMENTS FILED
WITH THE SEC AND CANADIAN SECURITIES REGULATORS CAREFULLY IN THEIR ENTIRETY
IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE PROPOSED TRANSACTION. Such documents would be available
free of charge through the web site maintained by the SEC at www.sec.gov,
by calling the SEC at telephone number 800-SEC-0330, or at the web site
maintained by the Canadian securities regulators at www.sedar.com,
or by directing a request to Timmins Gold at Suite 520 - 609 Granville
Street, Vancouver, BC, Canada V7Y-1G5.
Timmins Gold and its directors and
executive officers and other persons may be deemed to be participants in any
solicitation of proxies from Capital Gold's shareholders in respect of the
proposed transaction with Capital Gold. Information regarding Timmins Gold's
directors and executive officers would be available in a prospectus/proxy
statement Timmins Gold would file with the SEC and Canadian securities
regulators regarding the proposed transaction if such a negotiated
transaction with Capital Gold is reached or in another document that Timmins
Gold may file with the SEC and Canadian securities regulators and send to
Timmins Gold or Capital Gold shareholders in connection with the proposed
transaction. Other information regarding potential participants in such proxy
solicitation and a description of their direct and indirect interests, by
security holdings or otherwise, will be contained in any proxy statement or
other documents filed with the SEC and Canadian securities regulators in
connection with the proposed transaction.
About Timmins Gold
Focused in Mexico, Timmins Gold Corp.
became a gold producer in April 2010 with the commencement of commercial
production at its wholly owned San Francisco Mine in Sonora, Mexico. In
addition, the Company has an extensive portfolio of gold projects in Mexico.
Caution Regarding Forward-Looking
Statements
This press release contains forward-looking
statements. Forward-looking statements are statements which relate to future
events. In some cases, you can identify forward-looking statements by
terminology such as "may," "should," "expect,"
"plan, "anticipate," believe," "estimate,"
"predict," "potential," "opportunity" or
"continue" or the negative of these terms or other comparable
terminology. These statements are predictions and involve known and unknown
risks, uncertainties and other factors that may cause our actual results,
production, reserves, level of activity, performance or achievements to be
materially different from any future results, production, reserves, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. Actual results could also differ materially
because of factors such as Timmins Gold's ability to promptly and effectively
integrate the businesses of Capital Gold and Timmins Gold, the timing to
consummate the proposed transaction and any necessary actions to obtain
required regulatory approvals, and the diversion of management time on
transaction-related issues. While these forward-looking statements, and any
assumptions upon which they are based, reflect our current judgment regarding
the direction of our business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections,
assumptions or other future performance suggestions herein. Except as
required by applicable law, Timmins Gold does not intend to update any
forward-looking statements to conform these statements to actual results.
This News Release contains
forward-looking statements. Forward-looking statements are statements which
relate to future events. In some cases, you can identify forward-looking
statements by terminology such as "may", "should",
"expects", "plans, "anticipates", believes",
"estimates", "predicts", "potential", or
"continue" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and
unknown risks, uncertainties and other factors that may cause our or our
industry's actual results, level of activity, performance or achievements to
be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by these forward-looking
statements.
While these forward-looking statements,
and any assumptions upon which they are based, are made in good faith and
reflect our current judgment regarding the direction of our business, actual
results will almost always vary, sometimes materially, from any estimates,
predictions, projections, assumptions or other future performance suggestions
herein. Except as required by applicable law, Timmins Gold does not intend to
update any forward-looking statements to conform these statements to actual
results.
Neither TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in the policies of the
TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of
this release.
Contact:
Contacts:
Timmins Gold Corp.
Bruce Bragagnolo
CEO and Director
604-638-8980
bruce@timminsgold.com
www.timminsgold.com
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