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Pan American Goldfields Ltd Announces Acquisition Of Control Of The Cieneguita Silver & Gold Project

The Letter Agreement: The principal changes under the Letter Agreement, are that the Company's interest in the Cieneguita shall be increased from 40% to 80%, the Company shall direct the preparation of the feasibility study, and the current small-scale mining operation shall cease on December 31 st, 2012.

B. Feasibility Study

The Company plans to promptly commence a feasibility study for the Cieneguita project. The Company and MRT shall be responsible for the cost of the feasibility study on a pro rata basis based on their respective amended ownership percentages of the Cieneguita project. The definitive agreement will provide the terms and conditions relating to submittal, approval by a management committee, performance, and completion of work plans and budgets for the feasibility study.

In the event that either the Company or MRT fail to fund their pro rata portion of the feasibility study or any development expenditure when due,  the non-contributing partner will have its ownership interest in the Cieneguita project decreased by one percent (1%) for every $100,000 invested on its behalf by the other partner.

C. Reduction of Debt and Purchase of MM Cieneguita Interest

The Letter Agreement also provides for Company and MM to enter into agreements to accomplish the following transactions:

  1. The Company will issue MM 3,333,333 shares of restricted Common Stock in exchange for its 6 % ownership interest in the Cieneguita project (not including the right to receive revenues attributable to 6% of operations on the first 15 meters, if any, through December 31, 2012).
  2. MM will assume all outstanding debt owed by the Company to Mr. Ayub, MRT and Robert Knight (approximately $490,000).
  3. In consideration for the debt assumption, MM will receive half of all monthly Net Cash Flows the Company is entitled to receive from the first 15 meters until the sooner of December 31, 2012 or the date on which the aggregate amount of Net Cash Flows from half of the Company's portion so received by MM equals $490,000. After December 31, 2012, MM's percentage interest in the Net Cash Flows is reduced to 0% and the Company's percentage interest is increased to 80%.
  4. The above mentioned assumption of debt owed by the Company to Mr. Ayub, MRT and Robert Knight will be in full satisfaction including any and all accrued interest with respect to the outstanding debt.

D. Co-Sale, Drag Along and Right of First Refusal Agreement.

The Company and MRT will enter into a Co-Sale, Drag Along and Right of First Refusal Agreement relating to any bona fide, third party industry standard offer or proposal to buy or sell of the Cieneguita project, which provides:

  1. If the Company places its ownership interest in the Cieneguita project up for sale, MRT must, if directed by the Company, agree to offer to sell its ownership interest to any bona fide third party buyer on the same terms as are being offered by the Company.
  2. If the Company elects to sell its ownership interest in the Cieneguita project, MRT will be required to sell its ownership interest if offered similar terms based on its pro rata ownership.
  3. If MRT elects to sell its ownership interest in the Cieneguita project, it must offer the Company a first right to purchase the ownership interest.

Board change

On June 28, 2011, the Company's Board of Directors elected Neil Maedel as Chairman of the Board.

Commenting on Pan American's evolution since both its control group and executive was changed in 2009 and its recapitalization and restructuring subsequently began Mr. Maedel said:

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