Goldgroup to invest $75M in Luca Mining as part of cozamin Deal

Goldgroup Mining (GORO) committed to invest $75 million in Luca Mining (LUCMF), a transaction that is expected to give Goldgroup a 19.9% stake in the company after Luca completes its planned acquisition of the Cozamin copper-silver mine in Mexico. Shares of the companies were little changed in premarket trading Monday.

Goldgroup will participate in Luca’s $110 million private placement of subscription receipts, with the proceeds helping finance the Cozamin purchase. Goldgroup’s commitment replaces a $75 million equity backstop previously provided by commodities trader Trafigura.

For investors, the transaction represents a significant deployment of Goldgroup’s recently expanded cash position and gives it a large minority interest in a copper and precious-metals producer. Goldgroup raised about $121.8 million in a private placement completed Sept. 25 and now has roughly $166 million in cash.

After funding the Luca investment, it expects to have about $91 million remaining before transaction costs and other commitments.

Goldgroup’s subscription receipts will convert into Luca common shares after conditions tied to the Cozamin acquisition and required regulatory approvals are satisfied. The company may convert earlier under certain circumstances, provided its ownership does not exceed 19.9% or trigger a requirement for Luca shareholder approval.

As long as Goldgroup owns at least 10% of Luca, it will have the right to nominate two directors to Luca’s board. It will also receive participation and anti-dilution rights under the investment agreement. Goldgroup’s investment and those rights remain subject to approval by the TSX Venture Exchange.

Luca agreed earlier this month to acquire the Cozamin Mine in Zacatecas from Capstone Copper for $290 million in upfront consideration. That includes $275 million in cash and $15 million in Luca shares. The agreement also calls for $35 million in additional consideration after the first anniversary of closing and as much as $60 million in contingent payments linked to future copper prices.

Cozamin is an underground copper-silver operation that has been producing for about 20 years. The acquisition remains subject to regulatory approvals and other closing conditions.