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Gold Resource Corp: Will Creating Two Independent Companies Unlock Value For Shareholders?

The Mexico and Nevada gold and silver producer announced its intention to separate each business unit; Oaxaca Mining Unit (OMU) and Nevada Mining Unit (NMU) into two independent, strategically focused companies. Technically, the OMU will continue to trade under Gold Resource Corp and the NMU will be spun-off (SpinCo). 

The transaction is expected to be structured as a pro-rata distribution of 100% of the Spinco shares to Gold Resource shareholders. Approximately 20 million shares of (SpinCo) are expected to be distributed to the Company’s shareholders. Shareholder approval is not required for the spin-off, which is expected to be tax-free to Gold Resource shareholders for U.S. tax purposes. The transaction is targeted to be completed by year-end 2020 or the first quarter of 2021.     

Potential Benefits:

  • Narrow each company's focus on its own unique strategic business plan.  
  • Allow each company flexibility to allocate resources and deploy capital in a manner consistent with its own business strategy 
  • Allow each company to focus on streamlining each distinct operation – underground, hard rock operations in Mexico, and open-pit heap leach operations in Nevada, USA  
  • Potential to provide investors with greater value than a single combined company. Given the jurisdictions, it is possible the shares of SpinCo (NMU), obtain a premium valuation.  

 Going forward, the Company’s business strategy for Mexico targets allocating more of its cash flow and capital back into operations to better facilitate growth.  A stand-alone Oaxaca-focused company would be able to aggressively pursue expanding and discovering new vein systems.  The Company is currently developing two dedicated exploration drifts at its Arista Mine to access and target extensions of known vein systems and discoveries of new veins in areas of the mine previously unexplored.  

Focusing 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. Strong, expected near-term cash flow from Isabella Pearl operations could not only facilitate dividends but also target exploration and development of the mining unit’s highly prospective property portfolio in the Walker Lane Mineral Belt.  It is worth noting that in 2021, operations at the NMU will move into the higher-grade, higher-margin Pearl zone. 

 

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