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Canarc Resource (TSE:CCM) (OTCBB:CRCUF) has found another turnaround opportunity to sink its teeth into, with the company announcing a strategic share exchange agreement with New Mexico's Santa Fe Gold (OTCBB:SFEG) that it says will give the junior mining developer access to a near-term producing gold-silver mine with significant potential. 

The news follows Canarc's termination of its proposed acquisition of Pan American Goldfields in May, which the company concluded was not in the best interest of shareholders after a lengthy period of due diligence. 

Under the terms of the latest deal, Santa Fe will issue 66 million shares of its common stock to Canarc, which will also issue 33 million of its own shares to Sante Fe. Santa Fe will own about 17 percent of Canarc and Canarc will hold roughly 34 percent of Santa Fe once the deal is complete. 

The share exchange is expected to facilitate an extensive turnaround for Santa Fe, including a recapitalization and restructuring of its secured debt, as well as the redevelopment of its Summit gold-silver mine in New Mexico, all while preserving its net operating loss carry-forwards totaling in excess of $78 million. 

Canarc said it will benefit from an an opportunity to replicate the success of Endeavour Silver's (TSE:EDR) business model, a company that is headed by Bradford Cooke, who is also Canarc's chairman. Indeed, Endeavour has made a name for itself in the silver-gold mining business through strategic acquisitions of distressed mines in historic districts with operational turnaround potential; the company is now one of the fastest growing primary producers of silver worldwide with three operating mines in Mexico, and recently reported its ninth straight year of increasing precious metals production in 2013.

The plans are to redevelop Santa Fe's Summit gold-silver mine and Lordsburg mill into a near-term profitable producing asset. Canarc also said it sees an opportunity to acquire other old mines in the Steeplerock district with "good potential for new discoveries". 

As part of the deal, Canarc's Cooke, effective today, will become chairman of Santa Fe, whose board will consist of three current Santa Fe directors and two Canarc nominees, Cooke and Canarc chief executive Catalin Chiloflischi.

Chiloflischi has also been appointed president and chief executive officer of Santa Fe, while Canarc's COO, Gary Biles, has been named chief operating officer of the company.

“Today’s announcement marks an important step forward that will provide Canarc with significant exposure to and management of a growing gold-silver producer in the near term," said Cooke in a statement announcing the arrangement on Tuesday.

"The proposed transaction represents a great opportunity for both Canarc and Santa Fe shareholders to benefit from the combination of Santa Fe’s Summit mine and Lordsburg mill and Canarc’s seasoned management team of mine finders, builders and operators.” 

Santa Fe's senior secured creditors have entered into supportive agreements for the share exchange transaction, which also stipulate they will back the restructuring of approximately $20 million of the company's debt. The New Mexico company has also agreed to launch a non-dilutive gold bond financing with an investment bank, which will place an estimated $22 million of 8% gold bonds due in 2018 that are redeemable in cash or gold ETFs, it said.

"We strengthen our management team and board of directors with world-class talent," said Santa Fe's departing CEO, Jakes Jordaan, adding that Cooke has grown Endeavour from start-up into a significant mid-tier silver and gold producer in 10 years, and listed the company on the TSX and NYSE with a market cap of over $600 million today.

"We believe that under his leadership, Canarc’s seasoned management team of mine finders, builders and operators have the experience and capabilities to turn our Summit mine into a near-term profitable producing asset and execute a well-defined and focused growth strategy in Steeplerock mining district."

Canarc, which plans to reduce its costs by sharing management and staff with Santa Fe, also owns the New Polaris gold mine property in British Columbia, which has measured and indicated resources of about 1.4 million tons and 2.0 million inferred resources grading 0.36 ounces per ton.

The company said this deal is simply the next step forward for Canarc, which sees the junior gold mining sector as "ripe for consolidation". Earlier this year, Canarc, which has been in business since 1988, decided to change its business model to Cooke’s tried and true strategy of acquiring troubled assets that can be made bigger and better. 

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Maza Drilling is a Mexican company established in 2007 in Mazatlán, Sinaloa. Our Canadian founder, Mr. Guy de Launiere, has over 20 years of international experience managing diverse drilling operations. Maza Drilling strives to compete at the highest levels in terms of recovery, effectiveness, efficiency, and affordability at every project while keeping at the forefront of technology to meet our customer’s needs in this demanding market.