Arian Silver’s Chief Executive Officer, Jim Williams, commented today, "We are at a truly exciting phase of Arian Silver’s development as we enter the final stages of the installation of our refurbished processing plant. We expect commissioning to commence in the coming weeks as we prepare for commercial silver production.

The necessary mine development is ahead of schedule, and with our recently agreed financing package with Quintana coupled with the new board appointments, we have a solid foundation from which operations will commence."

THE STRATEGY

The Company’s strategy is to:

  • establish a silver mining business capable of sustaining more than two million ounces per annum, and
  • build shareholder value by expanding silver resources on the Company’s mining concessions in Zacatecas, Mexico.

OVERVIEW OF THIRD QUARTER 2014

The Company continued to progress the transportation, reassembly and installation of the Plant during the third quarter of 2014, and moved towards the final stages of negotiations to strengthen its financial position for the future.

Highlights

  • Plant commissioning remains on track for commissioning by the end of 2014;
  • Foundations laid for the crushing, milling, flotation and conveyor circuits;
  • Crushing, milling and lead flotation circuits mounted;
  • Installation of conveyor circuit commenced; and
  • Financing activities progressed to final stages.

Overview of financial performance

Total assets have increased since 31 December 2013 as a result of the continued investment in the mine and Plant and the capitalisation of interest for the period. The movement in the Company’s cash balance reflects the continued investment in the mine and Plant together with general corporate and administrative expenditure.

The increased net loss is primarily due to the fair value adjustment relating to the derivative liability (this is explained further in note 7 to the Q3 Financial Statements).

In September 2014, the Company made a £107,000 draw down under its Standby Equity Distribution Agreement ("SEDA") with YA Global Master SPV Ltd ("YA").

On 30 September 2014, the Company extended its US$15,585,000 principal amount senior secured note held by Platinum Long Term Growth VIII, LLC ("Platinum"), which was convertible into Common shares at C$1.10 per share (the "Platinum Note") until 15 October 2014.

Overview of operational performance

The Plant’s refurbishment programme ran between Q4 2013 and Q2 2014 during which time, in addition to the refurbishment of the Plant components, a new dedicated power line was installed, site buildings were refurbished, earthworks were completed, and transportation of the Plant commenced. Furthermore, during Q2 2014, a new decline into the Soledad section of the San José mine intersected the vein.

During Q3 2014, the Company’s operational focusses were completing the transportation of the Plant and its installation and reassembly, all of which remains on target to allow commissioning to commence by the end of 2014.

Comparison of quarter year-on-year

SUBSEQUENT EVENTS

Quintana financing

Following the extension of the Platinum Note on 30 September 2014, the Group announced on 15 October 2014, the execution of a $32 million joint financing package with Quintana and Quintana Streaming as part of which, Quintana purchased and cancelled the Platinum Note, subscribed for a US$16,452,343, 8% coupon, senior secured convertible note (the "New Note"), entered into a $15,635,750 base metals purchase agreement ("BMPA"), and received warrants over 12,151,926 Common shares in the Company, exercisable at C$1.00 per Common share, until 29 October 2017.

Under the terms of the BMPA, 78.2% of lead and zinc produced at the San José project will be delivered to Quintana Streaming as finished metal until the delivery hurdles of 37,783,112 pounds, in the case of lead, and 32,057,308 pounds in the case of zinc, have been met; thereafter 27.4% of production of each base metal will be delivered to Quintana Streaming. Quintana Streaming will pay the lesser of market price or $0.25 per pound of lead or zinc (as applicable) until the delivery hurdles have been met, and $0.375 per pound thereafter.

Upon reimbursement of the upfront payment through the delivery and sale of finished metals, Quintana Streaming will pay an additional 45% of the amount, if any, by which the market price of lead or zinc exceeds $1.10 per pound of commodity purchased.

The BMPA has a 50 year term, which can be extended for 10 years at a time, at the discretion of Quintana. The Group has the right to buy-back 50% of Quintana Streaming’s rights to the San José base metal production within a 3 year period for $10.6 million.

The principal amount of the New Note is convertible at any time at the option of Quintana for Common shares at a price equal to C$0.7567 per share (converted into US$ on the business day prior to the time of such conversion) and matures on 29 October 2017.

Under the terms of the BMPA, funds will be advanced to the Company upon the achievement of certain operational milestones. Should the Company fail to meet one or more of the milestones, it would not receive the full amount of funds that would otherwise be expected from Quintana.

The Company entered into an investment agreement with Quintana, under which to Quintana was granted certain anti-dilution rights, scalable rights to nominate directors to Arian Silver’s board of directors, the right to receive certain information based upon the percentage of the total number of outstanding Common shares and securities convertible into Common shares on an as-converted basis held by Quintana and its affiliates, and certain registration rights. It also requires the passing of a shareholders resolution by 31 March 2015 to authorise the creation of Quintana as a Control Person under the rules of the Toronto Venture Stock Exchange and a general meeting has been called for that purpose on 9 December 2014. In the event the resolution is not passed by 31 March 2015, the Company will be in default of the agreement with Quintana and the principal amount of the Note remaining unpaid together with accrued but unpaid interest thereon would become immediately due and payable upon demand.

Appointment of non-executive directors

Under the terms of the financing package, Quintana were granted scalable rights to nominated directors to Arian Silver’s board of directors and on 17 November 2014, Oliver Rodz and David Laing were appointed as non-executive directors of the Company.