Cerro Grande Mining Corporation Announces Issuance of Convertible
Unsecured Debentures and a Secured Non-Convertible Loan
TORONTO, July 30, 2013 /PRNewswire/ - Cerro Grande Mining
Corporation
(the "Company" or "CEG") (TSX: CEG) (OTCQX: CEGMF)
announced today that it has issued
unsecured convertible debentures totalling US $1,010,211.40 (the "Debentures"). The
issuance of the Debentures has been conditionally approved by
the TSX.
Mario Hernandez,
("Hernandez") and David
Thomson, ("Thomson") both directors and officers of
the Company, through their respective
companies Compañia Minera Chanar Blanco S.A. ("Chanar
Blanco"), and Compania Minera Auromin Ltda ("Auromin")
have each acquired one Debenture convertible into common shares
of
the Company (each, a "Common Share"). Each of
Hernandez and Thomson acquired a Debenture in the aggregate
principal amount of US$505,105.70
which is convertible into Common
Shares at a rate of CDN$0.10 per
Common Share (the "Conversion Price"), on the basis of an
exchange rate of US$1.00 to CDN$1.00.
On this
basis, each of Chanar Blanco and Auromin may convert the Debentures
on
the basis of 1,000 Common Shares for each US$100 of outstanding
principal up to an aggregate of 10,102,114 Common Shares (or up
to
5,051,057 Common Shares for Chanar Blanco and 5,051,057 for
Auromin).
However, under the terms of the Debentures, the maximum amount
convertible into Common Shares is such that each of Hernandez
and
Thomson do not hold, directly or indirectly, more than 19.99% of
the
issued and outstanding Common Shares of the Company as at the date
of
conversion.
The Debentures have been issued in payment of cash advances by each
of
Hernandez and Thomson to the Company in the aggregate amount of
US$1,010,211.40. The cash advances
were used for working capital and to
fund capital expenditures on the Pimenton Mine. The Debentures
mature
on July 30, 2018. The Debentures do
not bear interest. The Company may
also, at its option, accelerate the conversion (the
"Acceleration Right") of all or part of the outstanding
principal at the Conversion Price,
at any time if the closing price of the Common Shares on the
Toronto
Stock Exchange, equals or exceeds CDN$0.15 per Common Share for a
period of 20 consecutive trading days (the "Acceleration
Period"), provided that the Acceleration Right is exercised by
the Company
within 20 business days after the end of the Acceleration Period.
The
Acceleration Period Right is subject to the 19.99% conversion
threshold
noted above.
Concurrent with the issuance of the Debentures, a wholly owned
subsidiary of the Company, Compania Minera Pimenton
("Pimenton"), has today entered into agreements (the
"Loan Agreements") with Chanar Blanco and Auromin pursuant
to which Pimenton may draw
down up to an aggregate of US$3,000,000 to cover operating expenses at
the Pimenton Mine. Amounts drawn down under the Loan Agreements
bear
interest at a rate of 5% per annum, payable quarterly following
an
initial grace period of 15 months. In order to guarantee the
payment
obligations of Pimenton under the Loan Agreements, Pimenton has
granted
a first security interest in the mining concessions it holds in
favour
of Chanar Blanco and Auromin. All amounts outstanding under the
Loan
Agreements are to be repaid by Pimenton to Chanar Blanco and
Auromin on
or before July 25, 2016.
The participation of Hernandez and Thomson in the private placement
of
Debentures and entry into the Loan Agreement constitute a
"related
party transaction" under Multilateral Instrument 61-101-
Protection of Minority Security Holders in Special
Transactions ("MI 61-101"), but the Company was exempt
from both the formal valuation and
minority shareholder approval requirements of MI 61-101 in
connection
with the private placement on the basis of the financial hardship
of
the Company.
Entry into the Debentures and Loan Agreements by the Company have
become
necessary as a result of the Company experiencing cash flow
problems
since March, 2013 at the Pimenton Mine. The causes of the shortages
of
cash flow at the Pimenton Mine is three fold, namely
operational
problems due to delays in a main drive to reach known ore shoots
below
the existing levels, a drop in the price of gold, and a reduction
in
plant operational days.
In addition to entering into the Loan Agreements and Debentures
which
allow the Company to sustain its operational costs, pay wages and
keep
its obligations to outside creditors up to date, the Company has
taken
significant steps to reduce costs at the Pimenton Mine and to
reduce
overhead costs, including salary reductions for all officers of
the
Company. The Company expects the recent difficulties it has faced
to be
reflected in the financial results for the third fiscal quarter
ended
June 30, 2013.
Cerro Grande Mining Corporation is a minerals producing,
exploration and
development company with properties and activities currently
focused in
Chile.
Forward-Looking Information
This press release may contain forward-looking statements based
on
assumptions, uncertainties and management's best estimates of
future
events. All statements that address future activities, events
or
developments that the Company believes, expects or anticipates will
or
may occur are forward-looking information. Forward-looking
information
is based upon assumptions by management that are subject to known
and
unknown risks and uncertainties and other factors that may cause
actual
results to differ materially from those expressed or implied by
the
forward-looking information. Factors that may cause actual results
to
vary materially include, but are not limited to changes in
general
economic conditions or conditions in the financial markets.
Such
forward-looking information is based on a number of
assumptions,
including but not limited to, there being no significant decline
in
existing general business and economic conditions. Accordingly,
readers
should not place undue reliance on forward-looking information.
The
Company undertakes no obligations to update publicly or
otherwise
revise any forward-looking information, except as may be required
by
law. For a more detailed discussion of such risks and other
factors
that could cause actual results to differ materially from those
expressed or implied by such forward-looking statements, refer to
the
Company's filings with the Canadian securities regulators available
on www.sedar.com.
SOURCE Cerro Grande Mining Corporation