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Capital
Gold Corporation (AMEX: CGC; TSX: CGC) today sent a letter to its
stockholders urging them to vote FOR the merger with Gammon Gold.
Highlights
of the letter include a number of compelling reasons that the Capital Gold
board of directors considered in their unanimous recommendation supporting
the Gammon Gold merger:
-- The Gammon merger consideration
provides a significant premium to
market with a cash component
-- The superior trading liquidity of
Gammon Gold stock
-- Balance sheet strength
-- Opportunity for operating synergies
-- Strong management team with operating
track record
-- Visibility as a Mid-Tier producer
The
letter goes on to urge stockholders to reject the self-serving attempt by
Timmins Gold to block the Gammon Gold merger and take control of the Capital
Gold board. The letter details the reasons that Capital Gold's board has
unanimously rejected the Timmins offer on four separate occasions. Highlights
of the reasons outlined in the letter include the following:
-- Timmins does not have enough cash and
will need to raise additional
cash to complete the proposed transaction.
-- Timmins will need to raise an
estimated $100 million this year to
complete the transaction and deliver on capital requirements which
will
be dilutive to stockholders.
-- Capital Gold's belief that Timmins'
management does not have
substantial operating
experience and lacks sufficient depth to execute
a
transformational merger and to operate the combined companies going
forward.
-- Timmins' stock is illiquid.
-- The risk and potential for delay as
the Timmins offer is contingent on
a
number of conditions being met, including the approval of Timmins'
own shareholders, due diligence and Timmins' approval of its shares
trading on a higher exchange.
-- Since there is no cash component to
the Timmins offer, this may
require
that CGC's taxable US investors sell Timmins shares to cover tax
liabilities arising out of a Timmins/CGC merger.
The
letter to stockholders is available at the SEC's website at http://www.sec.gov and will also
be available at www.capitalgoldcorp.com
Stockholders
with questions should contact Capital Gold's proxy solicitors, MacKenzie Partners, toll-free at 1-800-322-2885, or Laurel Hill Advisory Group, toll-free at
1-800-385-3006.
The text of the letter
follows below:
March 1, 2011
Dear Stockholders of Capital
Gold Corporation:
You
should have previously received our proxy materials regarding the March 18, 2011 special meeting, at
which you will be asked to consider and vote upon a proposed merger (the
"Merger") in which Capital Gold Corporation ("CGC") will
become a wholly-owned subsidiary of Gammon Gold. If the Merger is completed,
you will receive 0.5209 common shares of Gammon Gold and a cash payment in
the amount of $0.79 for each share of CGC
common stock you own immediately prior to the Merger.
The
CGC Board of Directors unanimously recommends that stockholders VOTE THE
WHITE PROXY CARD FOR the Gammon Gold Merger
-- Significant premium to market with
cash component -As of March 1, 2011
the consideration provided in the Merger represents an implied premium
of
approximately 42% to the trading price of CGC's common stock on
September 24, 2010 and approximately 54% premium to the 20-day volume
weighted average price on the NYSE Amex ending on that
date. We
believe
there is a significant risk that CGC shares could lose substantial
value if CGC shareholders do not approve the Gammon
transaction.
-- Superior Trading Liquidity - The
Gammon Gold common shares trade with
significantly higher
liquidity than CGC's common stock, which will
allow CGC stockholders, should they choose, to more rapidly monetize
value achieved through a transaction.
-- Balance sheet strength - Gammon Gold's
strong cash position will
enable
the combined company to execute strategic growth plans without
necessarily diluting stockholders.
-- Opportunity for Operating Synergies -
Redeployment of excess surface
mining equipment from Gammon Gold's operations to CGC's El Chanate
mine
will allow for substantial capital savings in transition to
owner-mining, while the transportation of idle mill equipment to the
Orion project could reduce development capital costs and timeline.
-- Strong Management Team with Operating
Track Record - Gammon Gold's
management team is experienced in mine development, exploration and
capital markets. Gammon Gold's high-lift heap leach
processing and
underground mining experience can be leveraged at El Chanate and
Orion.
-- Visibility as a Mid-Tier Producer -
The combined company will be well
established as a mid-tier gold producer in Mexico, and well positioned
to execute on further growth opportunities.
-- Exposure to Large Resource and Reserve
base at Ocampo and El Cubo
-
The
large land position at the Ocampo mine has
significant exploration
potential within a very productive district. The improving
underground
mine and mill performance should yield steady production and a long
mine life.
You
may have also received materials from Timmins Gold Corp.
("Timmins") which is seeking your support to block the Merger with
Gammon Gold and attempting to take control of your Board in its self- serving
effort to acquire your company. Please discard any gold proxy card or blue
consent card you may receive. Vote only the WHITE proxy card FOR the Merger
with Gammon Gold.
Your Board has REJECTED
the Timmins proposal on 4 Different Occasions
-- Financial Concerns -Timmins had
approximately $4 million in available
cash on hand as of December 31, 2010, with current liabilities
exceeding current assets.
-- Timmins does not have
enough cash and will need to raise cash to
complete the transaction.
-- Timmins will not have
sufficient cash to even pay the costs
associated with the transaction, including the termination fee
required by Gammon Gold pursuant to our
merger agreement.
-- Timmins will need to
raise an estimated $100 million this year to
complete the transaction and deliver on capital requirements which
will be dilutive to shareholders.
-- Operational Concerns - Timmins'
principal asset, the San Francisco
Mine
in
Mexico, is in its initial start-up phase and has yet to reach the
operating goals set forth in the November 2010 Micon Technical Report.
Our concerns include:
-- Short mine life;
-- Variance in the life of
mine grade disclosed and the actual grade
that has been mined to date and what impact that has on the mine
life;
-- Variance in projected
life of mine cash costs and the costs that
have been published to date and what impact this will have on
future cash flows and valuations;
-- Ultimate leach recovery
not reaching the life of mine expectation
of 70%.
-- Management Concerns-We believe that
Timmins' management does not have
substantial operating experience and lacks sufficient depth to execute
a
transformational merger and to operate the combined companies going
forward
-- Lack of a full time chief financial
officer and apparent lack of
appropriate internal financial controls raises significant
concerns
-- Market Concerns-Timmins' stock is
illiquid and we believe provides
very
limited re-rating potential. Timmins' shares are already
trading at
~3.0x P/NAV based on Timmins's own numbers taken at face value. We
believe that those operational numbers have yet to be achieved
-- Transaction Risk (Timeline Risk) - The
Timmins offer is contingent on
a
number of conditions being met, including the approval of Timmins' own
shareholders, due diligence and Timmins' approval of its shares
trading
on a higher exchange. Many of these conditions are
subjective and in
Timmins' sole discretion.
-- If these conditions are
not met then Timmins will not be able to
consummate its offer.
-- There is no guarantee
that if the Gammon Gold offer is not
successful that the Timmins offer will be completed AND because of
the need for Timmins shareholder approval, there is no way of
knowing when Timmins will be able to complete
its offer.
-- Tax Concerns - Timmins has instructed
US investors to assume that the
Timmins offer is fully taxable. Since there is no cash component to
the
Timmins offer, this may require that CGC's taxable US investors sell
Timmins shares to cover tax liabilities arising out of a Timmins/CGC
merger.
-- Lockup/Support Agreement -
Conflicting Interests? - Timmins announced
it
has a lockup agreement with one stockholder, and support agreements
with two other stockholders. Timmins has refused to
provide us with
copies
of these agreements or to make them publicly available.
However,
we
believe that these agreements may be "soft" and one of such
agreements may be cancelled at anytime. We also note that
some of
these
stockholders may have conflicting motivations in supporting the
Timmins
transaction.
Your Board has
determined that the Merger with Gammon Gold represents
a
significant growth opportunity for CGC stockholders at much lower
risk.
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VOTE
NOW FOR THE MERGER WITH GAMMON GOLD.
The CGC
Board believes that the Merger with Gammon Gold is clearly
the SUPERIOR Transaction for CGC Stockholders
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Gammon Gold
has a market capitalization of approximately 3x Timmins'
market cap.
--------------------------------------------------------------------
We
believe Gammon Gold has much greater upside and is trading at a
lower
valuation than Timmins; Therefore Gammon Gold provides better
re-rating potential.
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Gammon Gold has approximately 6x Timmins' resources.
----------------------------------------------------
Gammon
Gold has significant exposure to silver and exceptional
leverage to silver prices; Timmins has no
exposure to silver.
--------------------------------------------------------------
Gammon Gold has the lowest cash costs of its peer group.
--------------------------------------------------------
Gammon Gold has significant net cash; Timmins has net debt.
-----------------------------------------------------------
The Merger with Gammon Gold presents the least amount of
transactional risk.
--------------------------------------------------------
Your
Vote is Important
Please
vote and return the WHITE proxy card
It is
very important that you return ONLY the WHITE proxy card and
NOT the GOLD proxy card or BLUE consent card.
Even if
you have already voted the gold proxy card or blue consent
card, you can vote FOR the Gammon merger using the enclosed WHITE
proxy card.
If
you have any questions or require assistance please contact our proxy
solicitors, MacKenzie Partners at 1-800-322-2885,
or Laurel Hill Advisory Group,
toll-free at 1-800-385-3006.
Sincerely,
John Cutler,
M&A Committee Chair
Important Additional
Information
Capital
Gold Corporation ("CGC" or the "Company") filed a
definitive proxy statement with the Securities and Exchange Commission (the
"SEC") on February 18, 2011
in connection with the Special Meeting of Stockholders to be held on March 18, 2011 and mailed the
definitive proxy statement and a WHITE proxy card to stockholders and
additional soliciting materials. CGC and its directors and executive officers
may be deemed to be participants in the solicitation of proxies in connection
with such meeting. The Company's stockholders are strongly advised to read
CGC's proxy statement as it contains important information. Stockholders may
obtain an additional copy of CGC's definitive proxy statement and any other
documents filed by the Company with the SEC for free at the SEC's website at http://www.sec.gov. Copies of
the definitive proxy statement are available for free at www.capitalgoldcorp.com. In
addition, copies of the Company's proxy materials may be requested at no
charge by contacting MacKenzie Partners, Inc. at
1-800-322-2885 or via email at proxy@mackenziepartners.com.
Detailed information regarding the names, affiliations and interests of
individuals who are participants in the solicitation of proxies of CGC's
stockholders is available in CGC's definitive proxy statement filed with SEC
on February 11, 2011.
About Capital Gold
Capital
Gold Corporation (AMEX:CGC) is a gold production and
exploration company. Through its Mexican subsidiaries and affiliates, it owns
100% of the "El Chanate" gold mine
located near the town of Caborca in Sonora, Mexico. On August
2, 2010,
Capital Gold acquired Nayarit Gold Inc. Capital Gold is focused on optimizing
the El Chanate operations and advancing the Del
Norte deposit in the Orion District in the state of Nayarit, Mexico. Capital Gold also owns and leases
mineral concessions near the town of Saric, also
located in Sonora, that are undergoing exploration for gold and silver
mineralization. Additional information about Capital Gold and the El Chanate Gold Mine is available on the Company's website, www.capitalgoldcorp.com.
Forward Looking Statements
This
press release contains forward-looking statements and forward-looking
information within the meaning of applicable securities laws. The use of any
of the words "plans", "expects", or "does not
expect", "is expected", "budget",
"scheduled", "anticipates", or "does not
anticipate", "continue", "estimates",
"forecasts", "objective", "ongoing",
"may", "will", "project", "should",
"believe", "intends" or variations of such words and
phrases or statements are intended to identify forward-looking information or
statements. Forward-looking information is based on the opinions and
estimates of management at the date the information is made, and is based on
a number of assumptions and subject to a variety of risks and uncertainties
and other factors that could cause actual events or results to differ
materially from those projected in the forward-looking information. More
particularly and without limitation, this press release contains
forward-looking statements and information concerning the Acquisition and
Agreement. The forward-looking statements and information are based on
certain key expectations and assumptions made by Gammon Gold and Capital
Gold. Although Gammon Gold and Capital Gold believe that the expectations and
assumptions on which such forward-looking statements and information are
based are reasonable, undue reliance should not be placed on the
forward-looking statements and information because neither of them can give
any assurance that it will prove to be correct. Since forward-looking
statements and information address future events and conditions, by their
very nature they involve inherent risks and uncertainties. There are risks
also inherent in the nature of the Acquisition, including whether the
completion of the Acquisition will ultimately occur, whether the anticipated
synergies of the acquisition will occur, incorrect assessment of the value of
the respective properties of each of Gammon Gold and Capital Gold, and
failure to obtain the required security holder, regulatory, third party and
other approvals. Readers are cautioned that the foregoing list of factors is
not exhaustive. There may be other factors that cause actions, events or
results not to be anticipated, estimated or intended. The forward-looking
statements and information contained in this press release are made as of the
date hereof. There can be no assurance that forward-looking information will
prove to be accurate, as actual results and future events could differ
materially from those anticipated in such information. Neither Gammon Gold
nor Capital Gold undertake any obligation to update publicly or revise any forward-looking
statements or information, whether as a result of new information, future
events or otherwise, except in accordance with applicable securities laws.
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