Barrick Agreement

On February 21, 2007, Patagonia Gold S.A. (“PGSA”) entered into a property acquisition agreement (the “Barrick Agreement”) with Barrick Exploraciones Argentina S.A. and Minera Rodeo S.A. (collectively the “Barrick Sellers”) pursuant to which PGSA acquired Barrick Gold Corporation’s (“Barrick”) entire exploration property portfolio which was located in Santa Cruz Province of Argentina. The Barrick portfolio consisted of 70 expedients (mineral titles) in six groups covering approximately 200,000 hectares in the Deseado Massif region of Santa Cruz. This portfolio included the majority of the El Tranquilo, La Manchuria and La Paloma property blocks, which in turn host the Company’s Cap-Oeste, COSE, Manchuria and Lomada gold and silver deposits.

In consideration for the sale of the Barrick properties, the Company paid the Barrick Sellers $0.8 million and issued convertible loan notes (the “Barrick Notes”) with an aggregate principal amount of £2,162,092.65. The Barrick Notes were convertible into that number of shares of the company (“shares”) equal to 10% of the shares in issue following the conversion of the Barrick Notes (including those shares issued pursuant to the conversion). On February 28, 2007, the Barrick Sellers converted the Barrick Notes into 30,345,160 shares at an issue price of 7.125 pence per share. As at September 27, 2011, the Barrick Sellers held 28,323,264 shares representing 3.85% of the total outstanding shares.

The Barrick Agreement also provided for the following:

  • PGSA agreed to spend a minimum of $10.0 million on “in-ground” expenditures over a five year period. This expenditure commitment has been completed.
  • Within 90 days of the delineation of an indicated resource (as defined in NI 43-101) of 200,000 troy ounces or greater of gold or gold equivalent (“AuEq”) on the La Paloma property block, which hosts the Lomada deposit, the Barrick Sellers would be entitled to receive a cash payment of $1.5 million from PGSA. This threshold has not been reached.
  • The Barrick Sellers retained the right to purchase an aggregate interest of up to 70% in the properties sold to PGSA under the Barrick Agreement upon the delineation of an indicated resource of 2.0 million ounces or greater of gold or AuEq (the “Back In Right”).
  • On March 23, 2011, PGSA entered into an amending agreement (the “Barrick Amending Agreement“) with the Barrick Sellers to eliminate the Back In Right in exchange for a 2.5% net smelter return royalty (the “Barrick Royalty“) in favour of the Barrick Sellers on all future production of mineral products from the properties sold to PGSA under the Barrick Agreement. The Barrick Royalty does not apply to the Company’s other properties located in Santa Cruz province or to the Fomicruz Agreement Properties.

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