A merger arrangement that could see American Bonanza (
TSX:T.BZA,
Stock Forum) dilute its already loose share base by an additional 44% has seen shares in that company drop 16% in Thursday trading.
Under the terms of deal, which is subject to adjustment,
each American Bonanza shareholder will receive 0.53 of a common share in Kerr Mines (
TSX:T.KER,
Stock Forum) (formerly Armistice Resources) for every BZA common share.
Kerr Mines has approximately 392 million shares outstanding.
American Bonanza has approximately 234 million shares out but, according to the deal, may issue up to an additional 337 million American Bonanza Shares prior to closing of the transaction to settle outstanding unsecured debts.
Two American Bonanza board nominees will join five members or the Kerr board in a newly constituted group.
To help BZA pay debts, Kerr has loaned the company $1 million at prime plus 1% interest.
The merger follows a
suspension of operation at American Bonanza’s 100%-owned Copperstone gold mine in Arizona on October 11 of last year.
The company closed the mine as it was unable to generate sufficient revenue to meet its on-going operational costs. This resulted from “the need to maintain a consistent flow of ore to the mill on an on-going basis and the need to implement better mining methods to consistently improve dilution, backfilling, and development requirements to achieve the expected grade as per the Feasibility Study.”
The company had been seeking additional capital to move the mine forward.
Kerr Mines changed names from Armistice Resources in early January, and is a Canadian-based exploration and development company that owns the McGarry gold mine in Ontario's Kirkland Lake area. It
completed a $5.35 million private placement round on December 30, 2013.
Shares in Kerr were unchanged on the news.