Back to News Proactive   Giles Gwinnett

Oct 20, 2020

   

Industry News

Gold Resource unveils plans to create two separate mining firms, one in Nevada and the other in Mexico

2  MIN READ

Reid said he reckoned the move could provide “shareholders optionality of increased growth in Mexico and potential for a dividend yield-play in Nevada”

The aim is to spin out the Nevada business to shareholders, not least to unlock its premium value as the US state is one of the world’s top mining jurisdictions

Gold Resource Corporation (NYSEAMERICAN:GORO) has unveiled plans to create two separate mining companies – one in Mexico and one in Nevada – to allow them to focus on their own operations and strategic plans.

The aim is to spin out the Nevada business to shareholders, not least to unlock its premium value, as the US state is one of the world’s top mining jurisdiction. Target completion is by the end of this year or the first quarter of next.

“Significant management effort places us at a point where both of our mining units are poised to experience meaningful increases in future free cash flow,” said Jason Reid, the firm’s CEO in a statement.

“Our Oaxaca Mining Unit looks to benefit from the confluence of several recently completed capital projects that are expected to positively impact our future operations, cost structure and exploration potential; and our Nevada Mining Unit continues ramping up its gold production rate as it begins to benefit from the high-grade Pearl zone of the Isabella Pearl Mine and exploring our highly prospective properties.”

The company boss said he reckoned the move could provide “shareholders optionality of increased growth in Mexico and potential for a dividend yield-play in Nevada”.

“Independent companies allow for far more effectiveness of these distinct business strategies. We believe far greater value can be created with two independent companies compared to the value that could be achieved by keeping the mining units together.”

Mexico is distinct by its underground, hard rock operations, while in Nevada, the gold and silver are mined from open-pit heap leach methods.

The transaction is expected to be a pro-rata distribution of all the Spinco shares to Gold Resource shareholders, with around 20 million shares of Spinco expected to be distributed.

Benefits of stand-alone Mexico unit

This would be in a strong position to further optimize the Arista underground mine’s infrastructure, the firm noted.  Earlier this year, it completed ten years of commercial production with over $1 billion in revenue and $114 million in dividend distributions.

Going forward, the strategy would be to allocate more of its cash flow and capital back into operations to better facilitate growth.

Benefits of stand-alone Nevada unit

Focused on organic growth, Spinco would expect increased margins from its Isabella Pearl project and to use the expected cash flow to potentially return dividends to shareholders and target exploration and development of the property portfolio in the famous Walker Lane mineral belt.

GORO currently controls over 25,000 acres in five high-grade gold properties in Nevada in various stages of production, delineation, and exploration.

Upon completion of the transaction, it is expected that Reid would step down from all executive and director positions with the company and be appointed CEO, President and director of Spinco.

The company has kicked started its search for a new chief executive officer for Gold Resource. Shareholder approval is not required for the spin-off, which is expected to be tax-free to Gold Resource shareholders for US tax purposes.

Shares in New York eased around 6% to US$3.38.

—Updates for share price–

Contact the author at giles@proactiveinvestors.com