LONDON (Alliance News) - Arian Silver Corp on Friday said it will need to raise additional funds for its projects in Mexico and for general working capital purposes, with talks already underway.
The silver mining company, which has a focus on projects in the silver belt of Zacatecas in Mexico, said it has signed an acknowledgement of the default notice announced earlier this month and entered a settlement deed with Quintana AGQ Holding Co LLC.
"Despite this setback we must first take stock, and then look ahead to the future. As a management team we are focussed on a return to growth with the raising of funds, acquisition of additional mining concessions, and continuing of exploration activity," Chief Executive Jim Williams said in a statement.
On November 3, Arian received a default notice under its agreements with Quintana San Jose Streaming Co LLC and Quintana ACQ Holding Co LLC.
Under the terms of the settlement disclosed on Friday, Quintana is entitled to exercise its foreclosure rights under previous senior secured financing arrangements. Quintana has exercised its security and taken ownership of Arian Silver de Mexico SA de CV and its assets, including the San José project, Arian said.
Through a new subsidiary, Arian will retain the San Celso, Calicanto and Los Campos projects along with all other mining concessions held at the time when it went public on the AIM and TSXV in 2006.
Arian's accrued debt under the senior secured financing arrangement with Quintana amounted to about USD17.8 million on October 31, with initial repayments due to begin in April 2016. In addition, the outstanding balance under a base metal purchase agreement amounted to USD15.2 million.
"Given the current metal prices, in particular the silver price, together with the mechanical issues and resulting delays suffered during commissioning of the La Tesorera processing plant, the San José operation will require a further significant cash injection to make the project viable," Arian said.
"In light of the aforementioned security arrangements and financial difficulties, together with Quintana's unwillingness to waive the timing of any default under the agreements, the board in conjunction with its legal advisors, has concluded that an orderly foreclosure process under the terms of the settlement deed was the only viable option available to the company, that it was in the best interests of both shareholders and creditors, and that otherwise, the company would not be able to meet its financial commitments as they fall due," Arian said.
The settlement deed means that Quintana will release Arian from its obligations under the senior secured loan arrangement as well as the base metal purchase agreement and investment agreement in October 2014.
In return for receiving "certain indemnities and releases", Quintana has paid USD650,000 to Arian, giving a positive net working capital position of
USD478,000. In addition, Quintana will pay to Arian a further USD50,000 upon closing of the settlement deed.
In the event closing has not completed on or before December 31, Quintana will have the right to demand reimbursement of the USD650,000 payment, Arian said.
"The funds paid by Quintana are not tied to a specific use of proceeds and may be expended before closing, but together with existing
cash, are currently expected to sustain the company to February 2016," Arian said.
"Upon completion of the foreclosure process and closing of the transaction, Arian will be debt-free and have no liability for the outstanding creditor balances in Mexico of approximately USD1.9 million," Arian added.
Shares in Arian are currently suspended.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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