Patagonia Gold Corp. (“Patagonia” or the “Company”) (TSXV: PGDC) is pleased to announce that it has entered into an investment agreement (the “Investment Agreement”) with Black River Mine Inc. (the “Investor”) through its wholly-owned subsidiary, Patagonia Gold Canada Inc. (“PG Canada”), pursuant to which the Investor has agreed to invest up to US$40 million (the “Financing”) to support the development of Patagonia’s flagship Calcatreu Project (the “Project”) in Rio Negro, Argentina.
Under the terms of the Investment Agreement, the Investor will acquire up to 40 million preferred shares (“Preferred Shares”) of PG Canada, which holds the Project through Minera Calcatreu SAU (the “Operator”). The Preferred Shares will be issued at a price of US$1.00 per share, resulting in total gross proceeds of US$40 million.
Investment Structure and Governance
The Investor is a newly formed corporation comprised of a consortium of investors and controlled by Carlos J. Miguens (the “Lead Investor”). A copy of the Investment Agreement, including the form of shareholders’ agreement that will be entered into on closing of the Financing and govern the affairs of PG Canada (the “Shareholders’ Agreement” and together with the Investment Agreement, the “Agreements”), will be filed under the Company’s issuer profile on SEDAR+ at www.sedarplus.ca.
The Agreements provide the Investor with certain rights, so long as it retains ownership of all of the Preferred Shares. These rights include:
Board Representation: The ability to nominate one of the three directors of PG Canada.
Future Investment Rights: The right to participate in new issuances of preferred shares or other equity securities by PG Canada, subject to the Agreements’ terms.
Preferred Share Ownership: The Investor will receive Preferred Shares representing 40% of the PG Canada share structure. As a result, Patagonia will continue to control the Project through its resulting 60% interest in PG Canada.
In addition, the Investor will be entitled to receive distributions on the Preferred Shares in the following order of priority (the “Distribution Policy”), which Distribution Policy will be set out in the Shareholders’ Agreement:
Preferred Distributions: The Investor will receive 80% of the “Available Cash” (as defined below) until it has received an amount equal to US$40 million (the “Preferred Distribution Amount”), with the Company receiving the remaining 20%.
Catch-Up Distributions: After the Investor has received the Preferred Distribution Amount, the Company will receive 100% of the Available Cash until it has received an amount equal to US$60 million (the “Catch-Up Distribution Amount”), with the Investor not receiving any of the Available Cash.
Pro Rata Distributions: After the Company has received the Catch-Up Distribution Amount, the Company will receive 60% of the Available Cash and the Investor will receive the remaining 40% of the Available Cash.
Accordingly, the resulting interest held by each of the Company and the Investor in the Project’s revenues, respectively, will follow the Pro Rata Distribution percentages above.
For purposes of the Distribution Policy, “Available Cash” is the Distributable Cash (as defined below) that is available for distribution to the shareholders of PG Canada in accordance with the Distribution Policy, after payment of all expenses of PG Canada. The Operator will distribute to PG Canada all of the Operator’s cash that is available for distribution after payment of all expenses of the Operator, including the servicing and repayment of the loan that the Operator expects to receive in order to fund the development of the Project (with the proceeds of the Financing being used as security for such loan), less limited reserves for sustaining capital (the “Distributable Cash”).
Proceeds from the Financing will be used solely for funding the development of the Project and to pay fees and expenses incurred by the Company in connection with the Financing.
Completion of the Financing remains subject to customary conditions including but not limited to: (i) shareholder approval pursuant to MI 61-101 (as defined below); and (ii) final approval of the TSX Venture Exchange (the “TSXV”).
The Lead Investor is a related party of the Company (as he has ownership and control over 200,717,161 common shares, representing 43.2% of the 465,051,490 common shares of the Company currently outstanding) and he is expected to be the controlling shareholder of the Investor. Accordingly, the Financing will be a “related party transaction” under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”). Since the Lead Investor’s participation in the Financing will exceed 25% of the Company’s market capitalization (calculated in accordance with MI 61-101), the Company will seek shareholder approval in accordance with MI 61-101 at a special meeting of shareholders (the “Meeting”) to be held on May 20, 2025. The Company will be exempt from the requirement to obtain a formal valuation in connection with the Lead Investor’s participation in the Financing in reliance of Section 5.5(b) of MI 61-101. Further details regarding the Financing will be provided in the management information circular (the “Circular”) being prepared in connection with the Meeting. The Circular, once mailed to the Company’s shareholders, will be filed under the Company’s profile on SEDAR+ at www.sedarplus.ca.
Details of the Project
The Project is the Company’s flagship project located near the southern border of Rio Negro, approximately 85 kilometres south of the town of Ing Jacobacci.
The Company acquired the Project from Pan American Silver in 2018 and since then has been dedicated to obtaining the permits to advance the Project to production. In November 2024, the Company was notified by the local Provincial authorities that the final permit to proceed with construction and development of the Project had been granted.
The Project has approximately 746,000 contained AuEq (gold equivalent) ounces of measured and indicated mineral resource category and 390,000 contained AuEq ounces of Inferred Mineral Resources as disclosed in the Technical Report.
