Element 79 Capital Inc.

TSX VENTURE : EMS.P


December 31, 2013 13:35 ET

Element 79 Capital Inc. Enters Into Letter of Intent with Canadian Gold Resources Ltd. in Respect of a Proposed Qualifying Transaction

MONTREAL, QUEBEC--(Marketwired - Dec. 31, 2013) -

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Element 79 Capital Inc. (TSX VENTURE:EMS.P) ("Element 79") is pleased to announce that it has signed a non-binding letter of intent (the "LOI") with Canadian Gold Resources Ltd., a corporation existing under the laws of Canada ("Canadian Gold"), which outlines the general terms and conditions pursuant to which Element 79 and Canadian Gold would be willing to complete a transaction that will result in a reverse take-over of Element 79 by the shareholders of Canadian Gold (the "Transaction"). The LOI was negotiated at arm's length and is effective as of December 31, 2013.

The LOI is to be superseded by a definitive merger, amalgamation or share exchange agreement (the "Definitive Agreement") to be signed on or before February 28, 2014 (or such other date as may be mutually agreed in writing between Element 79 and Canadian Gold). The Transaction is subject to requisite regulatory approval, including the approval of the TSX Venture Exchange (the "TSXV") and standard closing conditions, the approval of the directors of each of Element 79 and Canadian Gold of the Definitive Agreement and completion of due diligence investigations to the satisfaction of each of Element 79 and Canadian Gold, as well as the conditions described below. The legal structure for the Transaction will be confirmed after the parties have considered all applicable tax, securities law and accounting efficiencies, however, it is currently contemplated that the transaction will be structured as an exchange of securities.

Element 79 is incorporated under the provisions of the Canada Business Corporations Act with its registered and head office in Montreal, Quebec. It is a capital pool company and intends for the Transaction to constitute its "Qualifying Transaction", as such term is defined in the policies of the TSXV. Element 79 is a "reporting issuer" in the provinces of British Columbia, Alberta, Ontario, Quebec, New Brunswick and Nova Scotia.

Since the Transaction is not a non-arm's length transaction, Element 79 is not required to obtain shareholder approval for the Transaction.

Trading in the common shares of Element 79 is halted at present. It is unlikely that the common shares of Element 79 will resume trading until the Transaction is completed and approved by the TSXV.

Subject to TSXV approval, Element 79 has also agreed to provide to Canadian Gold a secured loan in the principal amount of up to $150,000 as soon as possible following TSXV approval of same and agreement on standard loan and security documentation acceptable to Element 79 and Canadian Gold, each acting reasonably. Element 79 has advanced $25,000 to Canadian Gold concurrently with the signature of the LOI.

Conditions to Transaction

Prior to completion of the Transaction (and as conditions of closing):

  • The parties will prepare a filing statement in accordance with the rules of the TSXV, outlining the terms of the Transaction.

  • Canadian Gold and Element 79 will enter into a Definitive Agreement in respect to the Transaction on or before February 28, 2014.

  • Canadian Gold will obtain the requisite shareholder approvals for the Transaction and any ancillary matters contemplated in the Definitive Agreement, if necessary.

  • All requisite regulatory approvals relating to the Transaction, including, without limitation, TSXV approval, will have been obtained.

  • Element 79 will close a concurrent brokered financing (described below) for minimum gross proceeds of $1,200,000.

The Proposed Transaction

Pre-Closing Capitalization of Element 79

As of the date hereof, Element 79 has 6,012,066 common shares ("Element 79 Shares") issued and outstanding, and securities exercisable or exchangeable for, or convertible into, or other rights to acquire, an aggregate of 802,413 Element 79 Shares at an exercise price of $0.15 per Element 79 Share.

Pre-Closing Capitalization of Canadian Gold

As of the date hereof, Canadian Gold has one common share (the "Canadian Gold Share") issued and outstanding, and no securities exercisable or exchangeable for, or convertible into, or other rights to acquire, any Canadian Gold Shares.

Terms of the Transaction

Pursuant to the Transaction, an aggregate of 16,000,000 Element 79 Shares, at a deemed value of $0.20 per Element 79 Share, will be issued to the holders of Canadian Gold Shares in exchange for all of the Canadian Gold Shares issued and outstanding as at the effective date of the Transaction. As a result of the Transaction, any Canadian Gold Shares underlying Canadian Gold's outstanding securities exercisable or exchangeable for, or convertible into, or other rights to acquire Canadian Gold Shares will be exercisable into Element 79 Shares on the same terms and conditions as such original outstanding Canadian Gold securities. In addition, Element 79 shall allot and reserve for issuance an aggregate of up to 8,000,000 Element 79 Shares (the "Resource Milestone Shares") to the holders of Canadian Gold Shares, on a pro rata basis, as follows: (i) 4,000,000 Resource Milestone Shares if the Resulting Issuer is able to demonstrate that its mineral properties or concessions contain "inferred mineral resources and indicated mineral resources" (in accordance with the CIM Definition Standards on Mineral Resources and Mineral Reserves) of at least 100,000 ounces of gold within 36 months immediately following the closing of the Transaction, as supported by a NI 43-101 technical report; and (ii) an additional of 4,000,000 Resource Milestone Shares if the Resulting Issuer is able to demonstrate that its mineral properties or concessions contain "inferred mineral resources and indicated mineral resources" of at least 150,000 ounces of gold within 36 months immediately following the closing of the Transaction, as supported by a NI 43-101 technical report. The Resource Milestone Shares, if vested, would be issued promptly following the filing of the foregoing technical report(s).

As a result of the Transaction, the current shareholders of Element 79 are expected to hold 27.3% of the common shares of the combined entity (the "Resulting Issuer") and the former shareholders of Canadian Gold are expected to hold 72.7% of the common shares of the Resulting Issuer (immediately prior to giving effect to the Private Placement (as defined below) and the Resource Milestone Shares, if any).

It is expected that the Resulting Issuer will be classified as a Tier 2 Mining Issuer.

Concurrent Private Placement

Element 79 has engaged Jones, Gable & Company Ltd. (the "Agent") to act as agent, on a best efforts basis, in connection with a brokered private placement (the "Private Placement") of securities of Element 79 that will close concurrently with, and as a condition of, the Transaction. Pursuant to the Private Placement, Element 79 intends to issue a minimum of 6,000,000 Element 79 Shares and a maximum of 9,000,000 Element 79 Shares a at a price of $0.20 per Element 79 Share for minimum gross proceeds of $1,200,000 and maximum gross proceeds of $1,800,000.

In connection with the Private Placement, the Agent will receive (i) a cash commission of 10% of the total proceeds of the Private Placement, and (ii) compensation options (the "Agent's Options") to acquire such number of Element 79 Shares which is equal to 10% of the aggregate number of Element 79 Shares issued and sold pursuant to the Private Placement. Each Agent's Option shall entitle the Agent to acquire one additional Element 79 Share at an exercise price of $0.20 per Element 79 Share for a period of two years from the completion of the Transaction.

About Canadian Gold and the Pilar Gold Property

Canadian Gold was continued under the Canada Business Corporations Act in 2011.

Canadian Gold is a gold exploration company that has an option on, through its subsidiary, Minera Bestep S.A. de C.V. (a company incorporated pursuant to the federal laws of Mexico), all of the right title and interest in and to the mineral concessions comprising the Pilar Gold Property located near Suaqui Grande, Sonora, Mexico. Canadian Gold will earn its 100% undivided interest in the Pilar Gold Property by making the final option payment of $400,000 due in March 2014. The Pilar Gold Property is not subject to any royalty.

The Pilar Gold Property is located approximately 145 km east-southeast of Hermosillo, Sonora, Mexico. The 105 hectare property is situated around two old gold mines known as 'La Guadalupana' and 'El Telefono'. It has had extensive previous work done on it. The Pilar Gold is situated in a mineralised belt that includes Argonaut Gold's La Colorada Mine, and Alamos Gold's Mulatos Mine. Access is easy and the regional climate permits a year-round operation. The area is generally well-suited for an open pit, heap leach operation.

Over the next 12 months Canadian Gold intends to conduct two phases of drilling. The first phase of 3,000m, which has already begun with the completion of over 1,500m, will be to follow up historical higher grade intercepts, follow zone interpretations for continuity and expansion, and explore some early stage drill targets.

The second phase of drilling is contingent on the results of the first phase. Assuming a favourable indication of continuity and expansion potential, at an acceptable average grade, or with significant exploration potential based on exploration drilling, a further 7,000m of reverse circulation drilling will be done to delineate a resource, leading to a resource estimation, and preliminary, scoping level, project economics.

In connection with the Transaction, Canadian Gold will complete and file an updated NI 43-101 technical report on the property.

Consolidated Financial Information Concerning Canadian Gold

Canadian Gold is preparing its audited consolidated financial statements, which will be included in the filing statement that will be submitted to the TSXV and released in a subsequent press release.

Insiders, Officers and Board of Directors of the Resulting Issuer

Upon completion of the Transaction, it is anticipated that the board of directors of the Resulting Issuer shall be comprised of: Ronald Wade Goguen, James Cross, Camilla Cormier, Gordon Lahanky and a fifth independent director to be identified shortly. In addition, it is expected that the officers of the Resulting Issuer shall be James Cross (President and Chief Executive Officer) and Camilla Cormier, CA (Chief Financial Officer).

Following completion of the Transaction and the Private Placement (assuming gross proceeds of $1,200,000), but excluding the issuance of the Resource Milestone Shares, it is anticipated that no one shareholder will exercise control or direction over more than 10% of the issued and outstanding shares of the Resulting Issuer.

The following sets outs the names and backgrounds of all persons who are expected to be considered insiders of the Resulting Issuer.

James Cross, BSM, President and Chief Executive Officer, Director

James Cross has served as the President and CEO of Canadian Gold Resources, Ltd. since November 2012. He has been active in the natural resources space helping select companies raise capital, and has extensive experience in Europe and Asia. He was a director of Adroit Resources and the Vice President of Corporate Development. He holds a Bachelor of Science in Management from the A.B. Freeman School of Business, Tulane University.

Camilla Cormier, CA, Chief Financial Officer, Director

Camilla Cormier is a Chartered Accountant with over 25 years of experience having held positions with both Major Drilling Group International Inc. and Landdrill International Inc. Camilla was Director of Financial Reporting for Landdrill, a public company, for two years. In particular, Camilla was responsible for Landdrill's International Financial Reporting Standards (IFRS) conversion and was their Corporate Controller for 6 years.

Ronald Wade Goguen, Chairman of the Board

Ron Wade Goguen is a Certified Project Management Professional with several years' experience in operational, functional and project management throughout various industries. Ron has worked in the contract drilling industry for over 10 years with tenure at Major Drilling Group International Inc., where he was involved in sales and operations, and Landdrill International Inc., where he managed operations and restructuring projects. Ron also served as Director on the Landdrill board from 2006 to 2012.

Gordon Lahanky, Director

Gordon Lahanky currently serves as President and CEO of Atlantic Commercial Properties, Inc. (ACP), the largest provider of warehouse space in Greater Moncton, New Brunswick. ACP is a family business with a well-established portfolio of 1,250,000 square feet of commercial real estate including warehouse, office, industrial, retail and residential space.

Sponsorship

Sponsorship of a qualifying transaction of a capital pool company is required by the TSXV unless exempt in accordance with TSXV policies. Element 79 is currently reviewing the requirements for sponsorship and may apply for an exemption from the sponsorship requirements pursuant to the policies of the TSXV, however, there is no assurance that Element 79 will ultimately obtain this exemption. Element 79 intends to include any additional information regarding sponsorship in a subsequent press release.

Further Information

All information contained in this news release with respect to Element 79 and Canadian Gold was supplied by the parties respectively, for inclusion herein, and each party and its directors and officers have relied on the other party for any information concerning the other party.

Completion of the Transaction is subject to a number of conditions, including but not limited to, TSXV acceptance and, if applicable, pursuant to the requirements of the TSXV, majority of the minority shareholder approval. Where applicable, the Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the Transaction, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

NEITHER THE 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.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION: This news release includes certain "forward-looking statements" under applicable Canadian securities legislation. Forward-looking statements include, but are not limited to, statements with respect to: the terms and conditions of the proposed Transaction; the terms and conditions of the proposed Private Placement; use of funds; and the business and operations of the Resulting Issuer after the proposed Transaction. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general business, economic, competitive, political and social uncertainties; delay or failure to receive board, shareholder or regulatory approvals; and the ability of the Resulting Issuer to execute and achieve its business objectives. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Element 79 and Canadian Gold disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Contact Information

  • For further information regarding the Transaction,
    please contact: Element 79 Capital Ventures Inc.
    Edward Ierfino
    Chief Executive Officer
    514-562-1374
    eierfino@gmail.com

    Canadian Gold Resources Ltd.
    James Cross
    President and Chief Executive Officer
    506-383-4274
    jcross@canadiangoldresources.com