Rio Silver (RYO-V) to option 51% of Minera Rio Plata
April 5, 2013 - News Release
Rio Silver Inc. has entered into a non-binding letter of intent with a public mining company, whereby, subject to regulatory approval, the optionee may initially earn a 51-per-cent interest in Rio Silver's Peruvian subsidiary Minera Rio Plata SAC, which holds title to the Ninobamba silver-and-gold property by completing exploration expenditures and financial commitments totalling $25-million (U.S.) over a five-year period. The letter of intent is further subject to due diligence by the parties, and, upon completion of due diligence review, the parties intend to enter into a definitive agreement containing standard industry terms. The Ninobamba property covers 2,100 hectares and is 100 per cent owned with no underlying royalties. It is located approximately 330 kilometres southeast of Lima, in the department of Ayacucho, Peru. The company views the project as a bulk-minable disseminated silver-gold target. In total, 17 trenches were excavated by the local community during the 2012 exploration campaign and the results were summarized in a news release issued Jan. 14, 2013.
Under the terms of the letter of intent, the optionee has the option to acquire a 51-per-cent interest in Minera by completing an exploration program with eligible expenditures amounting to $25-million (U.S.), including certain payments listed as follows. Eligible exploration expenditures include, but are not limited to, community relations, environmental studies, geological mapping and trenching, successive drilling, and metallurgical programs, with the purpose of defining a mineral resource to justify an economic assessment. The terms of the letter of intent also include the requirement to complete a minimum of 4,000 metres of diamond drilling within one year of receiving the initial drilling permit and an additional 6,000 metres of diamond drilling by the end of the second year, subject to receipt of the necessary permits.
In addition, the terms of the letter of intent obligate the optionee to make the following payments to Rio Silver, in order to maintain the optionee's option:
- $100,000 (U.S.) upon the signing of the letter of intent;
- $250,000 (U.S.) upon the signing the definitive agreement;
- Subscribe for units of the company in the amount of $500,000 under the company's offering;
- $500,000 payment or exercise of Series A warrants to be issued under the offering;
- $500,000 minimum payment or exercise of Series B warrants to be issued under the offering.
Total payments to the company during the first 24-month option period are approximately $1.85-million (including the proceeds from the offering). In addition to these payments, a final payment to Rio Silver of $500,000 (U.S.) is required to complete the 51-per-cent option.
The letter of intent contemplates that the optionee will invest in the offering within 10 business days following regulatory approval of the definitive agreement. The offering will consist of five million units at 10 cents per unit for gross proceeds of $500,000. Each unit will consist of one common share and one-half Series A share purchase warrant and one-half Series B warrant. Each full Series A warrant will entitle the holder to acquire one common share of the company at a price of 20 cents per share for a period of one year from closing. Each full Series B warrant will entitle the holder to acquire one common share of the company at a price of 25 cents for a period of two years from closing.
As the optionee may be precluded from exercising the Series A or Series B warrants due to restrictions imposed pursuant to applicable securities laws, the optionee will have an option to pay Rio Silver $500,000 in lieu of exercising each series of warrants for an additional cash consideration of $1-million over two years from closing as a condition of the letter of intent. All of the securities issued herein will be subject to a four-month statutory hold period. The closing of the offering is subject to the approval of the TSX Venture Exchange.
Provided that the optionee earns not less than 51 per cent, the optionee may earn an additional 14-per-cent interest in Minera within the subsequent three-year period by completing a best-efforts undertaking to complete all required actions to prepare the property for a production decision, including obtaining all required permits from the applicable Peruvian government ministry or agency, and preparing a study that will form the basis upon which Rio Silver and the optionee will be obliged to contribute their pro rata share of capital expenditures to achieve commercial production. A final payment to Rio Silver of $500,000 (U.S.) is required to complete the additional earn-in.
The net proceeds of the private placement will be used for exploration expenses and general corporate purposes. The letter of intent includes a 45-day exclusive due diligence period to be completed by May 19, 2013. The company will pay certain finders' fees in connection with this proposed letter of intent and offering subject to the policies of the TSX-V.
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