Medoro Resources Ltd.
TSX VENTURE : MRS

Medoro Resources Ltd.

August 18, 2010 07:30 ET

Medoro Completes First Stage of the Series of Transactions Leading to Its Joint Venture Interest in the High Grade Frontino Gold Mines in Colombia

TORONTO, ONTARIO--(Marketwire - Aug. 18, 2010) - Medoro Resources Ltd. (TSX VENTURE:MRS) is pleased to announce that Zandor Capital, S.A. ("JVCo"), its wholly-owned subsidiary, has completed the first in a series of three related transactions which will ultimately result in Medoro having a 5% joint venture interest in the assets of Frontino Gold Mines Ltd. ("Frontino"), as previously announced. The remaining 95% interest will ultimately be held by Gran Colombia Gold, S.A. ("Gran Colombia"), which will acquire its interest through the related steps described below.

Background and Transaction Steps

Pursuant to the terms of the asset purchase agreement (the "Frontino Acquisition Agreement") in respect of the acquisition of the assets of Frontino (the "Frontino Acquisition"), the Frontino Acquisition purchase price is COP380,000,000,000 (approximately US$200,000,000) in cash, of which COP15,000,000,000 was paid on March 31, 2010 as a deposit. To complete the Frontino Acquisition, the following first in a series of three steps was taken after the market close on August 17, 2010, wherein JVCo entered into a convertible promissory note (the "Convertible Note") with Gran Colombia pursuant to which Gran Colombia lent COP365,000,000,000 to JVCo so that JVCo could close the Frontino Acquisition, which is scheduled to occur today, August 18, 2010. It is currently anticipated that the third step in this transaction, the conversion of the Convertible Note together with the concurrent entering into of the Joint Venture Agreement whereby Medoro's interest in JVCo becomes 5% and Gran Colombia's interest 95% (including, among other things, the Back-in Right pursuant to which Medoro has the right to increase to a 50% interest in the joint venture, all as described and defined below), will occur on August 19, 2010.

Convertible Note

Upon entering into the Convertible Note issued on August 17, 2010 by JVCo to Gran Colombia, Gran Colombia loaned COP372,500,000,000 (comprising the COP365,000,000,000 lent on August 17 and COP7,500,000,000 relating to half of the COP15,000,000,000 deposit already paid, together the "Principal Amount") to JVCo and advanced COP365,000,000,000 to JVCo, which amount will be held in escrow pending the completion of the Frontino Acquisition.

Under the terms of the Convertible Note, Gran Colombia has the right to convert the Principal Amount into such number of shares of JVCo that will result in Gran Colombia holding a 95% interest in JVCo with Medoro retaining a 5% interest in JVCo. Gran Colombia shall be deemed to have exercised its conversion right under the Convertible Note one day after the closing of the Frontino Acquisition. It is currently anticipated that the conversion of the Convertible Note will be completed on August 19, 2010.

Frontino Acquisition

Upon the completion of the Frontino Acquisition, JVCo will own Frontino, which is located in the Segovia gold belt in Colombia.

Pursuant to the terms of the Frontino Acquisition Agreement, the liquidator responsible for the sale of the Frontino assets is required to use the proceeds from the disposition of the Frontino assets to fund unpaid and accrued pension liabilities estimated to amount to approximately US$200 million, as well as pay severance obligations. The funding of the pension liabilities is expected to be accomplished through the assignment of these pension obligations to the Colombian Social Security Institute (the "ISS"), a governmental entity responsible for the administration and payment of the pension obligations. As of the date of the closing of the Frontino Acquisition, the ISS will not have completed the necessary calculations it will have been required to complete in order to formally accept the assignment of the pension obligations. Consequently, Gran Colombia has undertaken that JVCo will agree with the Frontino Gold Mines Ltd. liquidation advisory board that if, within twelve months from closing the Frontino Acquisition, the ISS does not accept the assignment of the pension obligations, JVCo will arrange for a private firm to accept these obligations. If required to do so, assigning the pension obligations could result in the payment of additional fees to the private provider, which fees have not yet been calculated but which have been estimated to cost up to US$35 million. While the amount required to fund the pension obligations (being approximately US$200 million) will be held in escrow until the obligations are assigned to the ISS or a private provider, if the private provide is required JVCo would have the obligation to pay the additional fees of up to US$35 million. While such an eventuality is possible, as of the date hereof Medoro has no reason to believe that the ISS will not assume the pension obligations (and that it will be necessary to engage the private provider).

Joint Venture Agreement among JVCo, Medoro and Gran Colombia

Concurrent with the conversion of the Convertible Note (the "Effective Date", currently anticipated to be August 19, 2010) Medoro, Gran Colombia and JVCo will enter into an Exploration, Development and Mine Operating Agreement and Shareholders' Venture Agreement (the "Joint Venture Agreement")Under the terms of the Joint Venture Agreement, Medoro and Gran Colombia will establish a joint venture through which JVCo will operate and develop the Frontino gold assets.

Key terms of the Joint Venture Agreement include the following:

  • Gran Colombia will initially own 95% of JVCo and Medoro will own a 5% interest in JVCo.

  • Gran Colombia will provide 100% of any capital required until the date that is one year after the Effective Date (the "Expiry Date") after which, if Medoro does not exercise the Back-in Right or the Put Right described below, Medoro's 5% interest in JVCo will convert to a 5% participating interest and Medoro will be required to make pro rata contributions to the capital and operating costs of JVCo.

  • Medoro has a right (the "Back-in Right") until the Expiry Date to acquire an additional 45% interest (but no less) in JVCo by paying 50% of all costs, including the acquisition costs (net of Medoro's share of the deposit and due diligence costs), capital costs and the success fee from the date of closing of the Frontino Acquisition up to the date of exercise of the Back-in Right (the "Exercise Date") plus a premium of 25%. From the Exercise Date forward, each of Medoro and Gran Colombia will be required to make pro rata contributions to the capital and operating costs of JVCo and the relative percentage of the participating interest of each of Medoro and Gran Colombia will be subject to adjustment to reflect, among other things, any failure by one of them to fund, or any election by one of them not to fund, all in accordance with the terms of the Joint Venture Agreement. After the Exercise Date, in the event that either Medoro or Gran Colombia's participating interest in JVCo is reduced to less than 10%, such participating interest will be relinquished for a 2% net smelter royalty.

  • If Medoro does not exercise the Back-in Right before the Expiry Date, Medoro will then have a 5% participating interest in JVCo, subject to Medoro's sole option and right (the "Put Right"), exercisable on the Expiry Date, to require Gran Colombia to purchase its 5% participating interest in JVCo for an amount equal to 50% of Medoro's costs related to the Frontino Acquisition (being Medoro's share of the deposit and due diligence costs), plus 25%. In the event that Medoro does not exercise the Back-in Right or the Put Right, Medoro's 5% participating interest will be as described above and subject to extinguishment of its interest upon dilution to 0.5% subject to the terms and conditions of the Joint Venture Agreement.

  • Gran Colombia will be the initial operator of the Frontino joint venture.

  • Medoro will nominate one representative out of four on the board of directors of JVCo, increasing to two out of four if it exercises the Back-in Right.

  • The parties have mutual rights of first refusal on their respective interests in JVCo.

"Frontino represents an excellent growth opportunity for the Company and the vehicle of a joint venture with Gran Colombia is the best method of securing Medoro's interest in Frontino while minimizing the dilutive effects of financing this acquisition at the current time," said John Hick, President and CEO of Medoro.

About Medoro Resources Ltd.

Medoro Resources Ltd. is a gold exploration, development and mining company with a primary emphasis on Colombia. The Company operates the producing Mineros Nacionales gold mine located in Zona Baja at Marmato and is conducting an exploration and infill drilling program at its Marmato Project to upgrade and expand its gold resources there in anticipation of developing a large tonnage open pit gold mine there.

Medoro also holds a 100% interest in the Lo Increible 4A and 4B concessions in Venezuela where it is continuing its efforts to obtain an exploitation permit to allow development of these gold properties when circumstances in Venezuela allow. Medoro owns interests in gold exploration properties in Mali in respect of which it is seeking possible joint venture partners to further explore these properties.

Additional information on Medoro Resources Ltd. can be found on the Company's website at www.medororesources.com and by reviewing the Company's profile on SEDAR at www.sedar.com.

This news release contains "forward-looking information", which may include, but is not limited to, statements with respect to the future financial or operating performance of Medoro and its projects, and transactions involving Medoro and JVCo (including the possibility of a future necessary payment of additional fees by JVCo in connection with the administration of the Frontino pension liabilities). Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", or "believes" or variations (including negative variations) of such words and phrases, or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Medoro to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements contained herein are made as of the date of this press release and Medoro disclaims, other than as required by law, any obligation to update any forward-looking statements whether as a result of new information, results, future events, circumstances, or if management's estimates or opinions should change, or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, the reader is cautioned not to place undue reliance on forward-looking statements.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Medoro Resources Ltd.
    John Hick
    President & CEO
    (416) 603-4653
    or
    Medoro Resources Ltd.
    Linda Dorrington
    Director, Investor Relations
    (416) 603-4653