Southern Gold Limited (ASX:SAU) (FRA:UH4) has finally reached an agreement with Bluebird Merchant Ventures Ltd (LON:BMV) to offload its Gubong and Kochang joint venture projects in the Republic of Korea.

Southern Gold’s wholly-owned Singaporean subsidiary, International Gold Private Ltd (IGPL), will receive up to 200 million shares in BMV, and BMV will secure full ownership of the Gubong and Kochang projects.

It brings to an end a period of uncertainty surrounding the two projects, which previously had been half-owned by IGPL and BMV respectively.

BMV elected to acquire the 50% it did not own in November last year, but the window to purchase lapsed and the parties have been exploring alternative arrangements since.

“Very valuable equity interest”

Southern Gold managing director Simon Mitchell said: “We have effectively agreed to a share swap deal where we will exchange our subsidiary’s 50% interest in the two (Kochang and Gubong) joint ventures for an approximate 30% interest in BMV once all shares are issued.

“The value of this position will be more easily ascertained by investors, given BMV’s listing on the LSE, with a current deal value of approximately A$13.2 million at current exchange rates.

“In other words, the value of the shareholding in BMV will constitute more than 200% of our A$5.9 million enterprise value given our March 31, 2021, cash balance of A$9 million and market capitalisation of A$14.9 million.

“The BMV shareholding will be a very valuable equity interest and I expect it to significantly increase in value as BMV advances the Kochang and Gubong projects towards their stated near-term objective of gold and silver production.

“As a new and significant shareholder of BMV, our current intent is not to sell small parcels of shares into the market, which would be detrimental to the share price, but to allow the company to grow and advance into its next stage of development.”

Deal details

BMV originally elected to acquire the 50% interests held by IGPL when IGPL did not support BMV’s proposed call to mine each project in mid-2020.

Now, BMV and IGPL have agreed to settle the matter, which will see BMV will either issue to IGPL 200 million BMV shares at US$0.05/share or issue at between 50 million and 200 million BMV shares and pay IGPL US$0.05 per BMV share it does not issue, for a deal value of US$10,000,000.

The transaction will be completed in two tranches with the first tranche being the issue of 50 million BMV shares, within BMV’s ‘headroom’ capacity, on the date when IGPL will transfer its joint venture interests to BMV and the second tranche being the payment of US$7.5 million or the issue of 150 million BMV shares or partly one and partly the other at BMV’s election.

These BMV shares would be issued through an approved prospectus offering, a process expected to take approximately four months but for which up to six months has been allowed.

From the completion date, BMV will be free to advance both gold development projects on a sole cost and risk basis, while Southern Gold also retains the right to nominate an appointee to the BMV board if IGPL’s retained shareholding in BMV is in excess of 15%.

Southern Gold said it did not expect it would exercise this right.

The agreement allows BMV up to six months to complete the second tranche of the transaction.

If it fails to do so then US$7.5 million plus interest must be paid by BMV to IGPL within a further six months; this liability cannot be satisfied by the issue of BMV shares.

If BMV’s prospectus is not approved within the six month period through no fault of BMV, then it can still settle the US$7.5 million plus interest liability for shares, in the most likely scenario within 30 days of the approval of BMV’s prospectus.

If BMV is at fault in failing to complete the transaction within the initial six months or fails, regardless of cause, to make the payment required to be made within the additional six month period, if it applies, then IGPL’s security will become enforceable.

– Daniel Paproth