Big mining opportunities draw attention from all corners. And General Metals Corporation (OTCQB: GNMT) appears to be sitting on a literal “gold mine”.
As such it is in the middle of developing a partnership with a Canadian company; a partnership motivated by a need for financing and pure profit potential.
The finalized deal will result in millions of new dollars for GNMT’s Independence Project in Nevada. The deal should prove beneficial for both companies. But it is complex and shareholders are wondering what it means for them.
Gold in Nevada
The crux of the deal is that GNMT needs money to move forward with its very promising Independence Project in Nevada.
The Independence Project is located in the “prolific Battle Mountain Mining District in Northern Nevada” according to a company press release. And it has demonstrated great promise.
You see, GNMT has been drilling to determine what’s below the surface and has unveiled an estimated resource of 1 million ounces of gold and 4 million ounces of silver. This estimate is NI-43-101 compliant.
And the estimate sounds more than reasonable given the success other companies have had in the surrounding area. Newmont Mining’s (NYSE: NEM) Phoenix project is right next door, flanking Independence on three sides. According to GNMT President and CEO Daniel Forbush, Phoenix has several million ounces of gold and hundreds of millions of ounces of copper.
GNMT has other neighbors drilling nearby as well. And only 4,000 feet northeast of Independence is the Fortitude Deposit. It is now depleted but is still considered one of the “most lucrative” mines ever operated in Nevada.
Mr. Forbush has called the area a very prolific region with a gigantic “multi-million ounce trend” that Independence is “right in the middle of”.
Open Gold Corporation (CVE: OPG) is a Canadian junior mining company listed on the TSX Venture Exchange. OPG can provide financing for Independence and wants a piece of the action.
As such, General Metals Corporation entered into a Letter of Intent with Open Gold Corp this past January in order to raise much needed capital for today and position itself for additional financing in the future.
In addition to raising “new capital for the Independence Project” Mr. Forbush has stated the company wants to “create a vehicle that enables us to access the Canadian capital markets”. Last but not least, the company is motivated to increase shareholder value.
When the deal is finalized “GNMT will receive 64% of the issued and outstanding shares of OPG and approximately “$2 million of new capital” which “will be allocated to The Independence Project”. Due diligence should be wrapped up by the end of April, 2013.
That $2 million will be used to “improve and increase the Independence Project’s resource base, complete additional drilling to increase the size and quality of the gold and silver resource in the initial pit area, position the Project to complete all permitting, identify, if possible, additional gold and silver mineralization on other areas of the property that are unexplored or underexplored and provide general working capital.”
There are some interesting stipulations in the agreement.
For one, after the exchange of shares, GNMT will have “two of five OPG director positions”. The new board of directors will include 2 General Metals Corporation appointees and two directors appointed by Open Gold Corporation. A fifth director will be chosen mutually.
Confusion for some GNMT shareholders comes from a potential waiting period before shares of OPG are transferred to GNMT shareholders. There’s no cause for concern, the potential holding period is simply a TSX-V requirement for that type of transaction. In the end all of the shares transferred from OPG to GNMT will be distributed to GNMT shareholders.
Another quirky TSX-V requirement is that although GNMT shareholders will have 64% ownership of OPG they will only have 14% voting privileges. This is also temporary. After all the shares of OPG have been distributed to GNMT shareholders they will enjoy full voting rights.
The official statement from General Metals Corporation assures GNMT shareholders that in the end there “will be no changes to the GNMT share structure”.
In the End it’s Golden
An additional benefit for GNMT shareholders is that by receiving shares of OPG they will gain exposure to an OPG project in Canada: the Mitchell Project.
The Mitchell Project is a 2,256 hectares gold exploration territory in the Red Lake mining district. The Eholt Project is a 3,000 hectares gold-copper exploration project in Southern British Columbia near the United States border. Both project show promise but are still in the exploration phase.
OPG has also committed to additional financing for the Independence Project in the future. The company “has asserted, and their previous experience with other junior gold mining companies lends credence to this, that they will be able to raise the required capital from existing or new shareholders”.
The bottom line is that GNMT needs the financing in order to advance the Independence Project and OPG can deliver. Given this arrangement shareholders should feel optimistic that the project will succeed. And if it does, then General Metals Corporation should succeed on all of its objectives, especially the third: “increase shareholder value”.