Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14D-9
Solicitation/Recommendation
Statement under Section 14(d)(4)
of the
Securities Exchange Act of 1934
CAPITAL
GOLD CORPORATION
(Name of
Subject Company)
CAPITAL
GOLD CORPORATION
(Name of
Person Filing Statement)
Common
Stock, $0.0001 par value per share
(Title of
Class of Securities)
14018Y205
(CUSIP
Number of Class of Securities)
Christopher
M. Chipman
76
Beaver Street, 14th Floor
New
York, New York 10005
(212) 344-2785
(Name, address and telephone numbers of
person authorized to receive notices and communications on behalf of the persons
filing statement)
With
copies to:
Barry
I. Grossman, Esq.
Sarah
E. Williams, Esq.
Ellenoff
Grossman & Schole LLP
150
East 42nd Street, 11th
Floor
New
York, New York 10017
(212)
370-1300
x Check
the box if the filing relates solely to preliminary communications made before
the commencement of a tender offer.
Capital
Gold Responds to Timmins Gold Hostile Bid
and
Reaffirms Support for Gammon Transaction
NEW YORK, February 14, 2011 –
Capital Gold Corporation (TSX:CGC; NYSE AMEX: CGC) acknowledges that on February
10, 2011, Timmins Gold Corp. (“Timmins”) filed a Form F-4 Registration
Statement (the “F-4”) to proceed with an unsolicited exchange offer
to acquire control of Capital Gold Corporation (“Capital Gold”).
In the
F-4, Timmins questions Capital Gold’s rejection of its previously announced
proposal, the due diligence process undertaken by the special committee of the
Board of Capital Gold (the “Special Committee”) and the Capital Gold Board’s
unanimous determination to terminate consideration of the Timmins
proposal.
In
response to Timmins’ assertions, Capital Gold wishes to provide additional
information about the process undertaken, to summarize its concerns about the
Timmins’ proposal and to highlight a number of the reasons why the Capital Gold
Board supports a transaction with Gammon Gold Inc. (“Gammon”).
Timmins’ Proposal and the
Special Committee’s Due Diligence Process
On
December 23, 2010, a representative of Timmins contacted Capital Gold’s legal
advisor to indicate that the proposal previously made by Timmins for a “merger
of equals” remained open. The proposal was not materially different
from that made on September 3, 2010, which proposed an all-stock transaction in
which each share of Capital Gold’s stock would be exchanged for 2.27 shares of
Timmins’ stock. Notwithstanding the fact that Capital Gold’s Board had
unanimously determined, on three separate prior occasions, that the Timmins
proposal was not superior to the terms set forth in the agreement and plan of
merger, dated as of October 1, 2010, by and among Gammon, Capital Gold
Acquireco, Inc. and Capital Gold (the “Merger Agreement”), based on the price at
which Timmins’ stock traded during the month of December 2010 and advice of
financial and legal counsel, it was determined that the Capital Gold Board had a
fiduciary duty to further explore the Timmins proposal and to determine if it
was a superior proposal, as defined in the Merger Agreement.
On
January 6, 2011, members of the Special Committee and its financial and legal
counsel met with representatives of Timmins and its advisors to discuss aspects
of the Timmins proposal. During that meeting, Timmins represented
that Timmins had sufficient cash available to pay the termination fee and other
transaction expenses required by the Merger Agreement and to fund ongoing
operations of both Timmins and Capital Gold going forward. During
that meeting, Timmins was advised that, in order for the Capital Gold Board to
determine if the Timmins proposal was a superior proposal, Capital Gold would
need to conduct and be satisfied with the results of comprehensive legal,
operational, financial and technical due diligence with respect to
Timmins. The Special Committee informed Timmins that such due
diligence was necessary because of, among other factors, the “going concern”
issue set forth in Timmins’ most recent financial statements and concerns that
Timmins had insufficient cash to pay the termination fee, other transaction
costs, and the ability to finance operations of the combined companies going
forward. As such, Timmins was given a due diligence production
request, together with a list of detailed financial and operational questions
that were appropriate considering the nature of the transaction.
After
initial resistance from Timmins, a site visit to Timmins’ San Francisco Mine was
arranged; however, Timmins refused to grant Capital Gold’s Chief Financial
Officer access to the site or critical financial documents at that
time. Subsequent to the site visit, representatives of Capital Gold
provided Timmins with a second due diligence request list focused particularly
on Timmins’ operations.
In the
weeks that followed, Timmins was unresponsive to Capital Gold’s due diligence
requests and tried to dictate the depth and scope of Capital Gold’s due
diligence review by limiting access to certain financial and technical
information. Capital Gold was never provided access to Timmins’ financial books
and records. Despite these challenges, Capital Gold invested a
considerable amount of time and money reviewing the limited due diligence
materials produced by Timmins and publicly-available information. While
individual members of Capital Gold’s Board based their determination on
different reasons, they unanimously determined to terminate consideration of the
Timmins proposal based on the due diligence conducted and determination made by
the Special Committee that the Timmons proposal presented too high a level of
financial risk. Specifically:
According
to the information provided (and subsequently publicly disclosed by Timmins),
Timmins had approximately $4 million in available cash on hand as of December
31, 2010, with current liabilities exceeding current assets. Timmins
has set forth its financial requirements for 2011 at the bottom of page 60 of
the F-4 to include “exploration expenditures of C$21 million, capital
expenditures of C$5 million for plant and equipment at the San Francisco Mine
and expenditures of C$5 million for general and administrative
expenses.” A further $2.55 million in property option payments are
also due in 2011. Should Capital Gold choose to enter into an
agreement with Timmins, additional one-time expenses of approximately $20
million would be payable, including the Gammon termination fee, change of
control payments and advisory fees. Additionally, with Timmins’ gold
loan owing to Sprott Asset Management LP of approximately $13 million plus
Capital Gold’s 2011 capital requirements of approximately $30 million, the
combined entity would have 2011 capital requirements of in excess of $95
million. It is estimated that a substantial portion of these
expenditures would need to be funded from capital raised from third parties in
the public markets.
Capital
Gold believes that there is considerable risk associated with Timmins’ ability
to raise that amount of capital. Timmins clearly agrees with this
assessment, as the F-4 highlights this risk on page 38: “Timmins’ inability to
access additional capital could have a negative impact on its growth
strategy”. Moreover, even if Timmins were able to raise the necessary
funds, given the volatility of Timmins stock price, it is reasonable to conclude
that Timmins may be required to raise capital at a significant discount to
prevailing market prices, which would cause immediate and perhaps substantial
dilution to the proposed all stock consideration to be received by the Capital
Gold stockholders under the Timmins proposal. The Special Committee does not believe
stockholders should be subjected to this amount of financial
risk.
In
addition to the above financial concerns, the Special Committee unanimously
based their determination on the fact that the information provided by Timmins
with respect to its financial position was not consistent with prior statements
thus raising concerns about its management, internal financial controls, the
ability to fund transaction costs and the operations of the combined company
going forward. The Special Committee had the following concerns that led to
their determination to terminate negotiations with Timmins:
To the
extent that Capital Gold was permitted to conduct timely due diligence on the
operations of Timmins, the Special Committee noted that Timmins’ principal
asset, the San Francisco Mine in Mexico, is in its initial start-up phase and
has yet to reach the operating goals set forth in the November 2010 Micon
Technical Report. Capital Gold has concerns with respect to (i) the
short mine life (ii) the variance in the life of mine grade disclosed and the
actual grade that has been mined to date and what impact that has on the mine
life, (iii) the variance in projected life of mine cash costs and the costs that
have been published to date and what impact this will have on future cash flows
and valuations, and (iii) ultimate leach recovery not reaching the life of mine
expectation of 70%.
Capital
Gold believes that the risk of operational issues is not
insignificant. Timmins clearly agrees with this assessment, as the
F-4 highlights this risk on page 39: “Timmins has a limited operating history
and therefore cannot ensure the long-term successful operation of its business
or the execution of its business plan”. The Special Committee does not believe
its stockholders should be subjected to this amount of operational
risk.
Timmins’
inability to respond to Capital Gold’s due diligence requests in a timely
manner, its lack of a full time chief financial officer and apparent lack of
appropriate internal financial controls raises significant concerns among
members of the Special Committee. In the assessment of the Special
Committee, the management of Timmins lacks sufficient depth to execute a
transformational merger and to operate the combined companies going
forward. The
Special Committee does not
believe its stockholders should be subjected to this amount of management
risk.
4. Other
Transaction Risk
Capital
Gold has completed sufficient due diligence to determine, in the prudent
exercise of its fiduciary duties and following a full and fair evaluation
process, that the proposed exchange offer made to Capital Gold stockholders on
February 10, 2011 by Timmins is not in the best interests of the Capital Gold
stockholders. However, the proposed Timmins exchange offer remains
subject to a number of conditions as set forth in the F-4. The most critical
include the reinstatement of a due diligence condition, a shareholder approval
condition on the part of Timmins’ shareholders and a listing condition (Timmins’
common stock is not listed on any United States securities exchange), all of
which raise material transaction risk in the Timmins offer. The Special Committee does not believe
its stockholders should be subjected to this amount of transaction
risk.
By
contrast, Gammon:
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·
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Has
sufficient cash on hand to fund its own and Capital Gold’s operational
goals going forward;
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·
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Does
not require approval of its stockholders for the transaction with Capital
Gold;
|
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·
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Has
an established and experienced board and management
team;
|
|
·
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Is
a New York Stock Exchange-listed company with financial controls in place
consistent with the requirements of the Securities Exchange Act of 1934,
as amended, the Sarbanes-Oxley Act and all applicable legal and regulatory
requirements;
|
|
·
|
Has
experienced four quarters of consecutive growth;
and
|
|
·
|
Has
expanded their reserves in the last 6
months.
|
As such,
the Capital Gold Board has determined that the Gammon transaction represents a
significant growth opportunity for Capital Gold stockholders at much lower
risk.
Accordingly,
the Capital Gold Board continues to unanimously recommend to its stockholders
that they vote in favor of the Gammon transaction. Additional
disclosure with respect to the Board’s deliberations will be set forth in an
amendment to the Company’s Preliminary Proxy contained within Gammon’s
Registration Statement on Form F-4.
About
Capital Gold
Capital Gold Corporation (“Capital
Gold” or the “Company”) is a gold production and exploration company. Through
its Mexican subsidiaries and affiliates, it owns 100% of the “El Chanate” gold
mine located near the town of Caborca in Sonora, Mexico. On August 2,
2010, Capital Gold acquired Nayarit Gold Inc. Capital Gold is focused on
optimizing the El Chanate operations and advancing the Del Norte deposit in the
Orion District in the state of Nayarit, Mexico. Capital Gold also owns and
leases mineral concessions near the town of Saric, also located in Sonora, that
are undergoing exploration for gold and silver mineralization. Additional
information about Capital Gold and the El Chanate Gold Mine is available on the
Company’s website, www.capitalgoldcorp.com.
Important Information about the
Proposed Exchange Offer by Timmins
The
exchange offer proposed by Timmins and referred to in this press release has not
commenced. As required, Capital Gold will file with the Securities
and Exchange Commission a Solicitation/Recommendation Statement on
Schedule 14D-9. Capital Gold stockholders are advised to read the
Solicitation/Recommendation Statement on Schedule 14D-9 if and when it
becomes available because it will contain additional important
information. Stockholders may obtain a free copy of the
Solicitation/Recommendation Statement on Schedule 14D-9 as well as any
other documents filed by Capital Gold in connection with the proposed exchange
offer free of charge at the SEC’s website at http://www.sec.gov.
Cautionary
Note Regarding Forward-Looking Statements
Statements
in this press release and the statements of representatives and partners of
Capital Gold related thereto, other than statements of historical information,
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements may include, without
limitation, statements with respect to the Company’s plans, objectives,
projections, expectations and intentions and other statements identified by
words such as “projects,” “may,” “could,” “would,” “should,” “believes,”
“expects,” “anticipates,” “estimates,” “intends,” “plans,” or similar
expressions. Investors are cautioned that forward-looking statements are
inherently uncertain and subject to material risks. Actual performance and
results may differ materially from those projected or suggested due to certain
risks and uncertainties, some of which are described below. Such
forward-looking statements include comments regarding the future growth of the
Company. Factors that could cause actual results to differ materially
include timing of and unexpected events during construction, expansion and
start-up; variations in ore grade, strip ratio, tonnes mined, crushed or milled;
delay or failure to receive board, regulatory or government approvals; the
availability of adequate water supplies; mining or processing issues, and
fluctuations in gold price and costs. Many of these factors are beyond the
Company’s control. There can be no assurance that future developments
affecting the Company will be those anticipated by management.
Any
forecasts contained in this press release constitute management’s current
estimates, as of the date of this press release, with respect to the matters
covered thereby. We expect that these estimates will change as new information
is received and that actual results will vary from these estimates, possibly by
material amounts. While we may elect to update these estimates at any time, we
do not undertake to update any estimate at any particular time or in response to
any particular event. Investors and others should not assume that any forecasts
in this press release represent management’s estimate as of any date other than
the date of this press release.
Additional
information concerning certain risks and uncertainties that could cause actual
results to differ materially from that projected or suggested is contained in
the Company’s filings with the Securities and Exchange Commission (the “SEC”),
copies of which are available from the SEC or may be obtained upon request from
the Company. The Company undertakes no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by applicable law.
Contact:
Kelly
Cody, Investor Relations Manager
Capital
Gold Corporation
Tel:
(212) 344-2785
Fax:
(212) 344-4537
Email:
kelly@capitalgoldcorp.com