Theta Gold Mines has entered into a non-binding streaming agreement with Sprott Resources Streaming and Royalty Corporation for $110 million in exchange for gold streaming at the TGME gold project in South Africa.
Theta said on Wednesday that the TGME stream would be a significant milestone on the road to the first gold production from the mine and would cover about 90 percent of the $77 million funding requirement for the first phase of the TGME gold project.
The project is expected to deliver up to 100,000 ounces of gold per year over Sprott’s life of mine (LoM), for which Sprott will pay 10% of the downstream gold price per ounce delivered. Theta has the option to buy back 50% of the capacity at a pre-agreed price, after which Theta will supply 2% of ongoing gold production.
Before the first gold delivery, Theta pays Sprott 9.5% annual interest for an advance in cash or stock.
“We are very pleased to announce this significant milestone in our project funding for the construction of the TGME Gold Project,” said Theta President Bill Guy.
“A transmission contract is a much more cash-friendly style of financing than direct debt financing. It is less risky for a start-up project, where a unique repayment mechanism gives the company the flexibility to manage cash flow until gold supply requirements are met.
Once the financing from Sprott is closed, the company can commit to further improving its ore reserves and potentially further expanding our total mineral holdings to increase production volume and mine life during the current Phase 1 Final Feasibility Study mine schedule, creating a continuous, significant value increase for our shareholders. Guy said the recently published final feasibility study for the TGME project showed sound economic technology for horizontal underground mining and milling with low initial capital costs and high returns.
The study estimated the mine would require a capital investment of A. $232 million and was based on four mines in initial development. The study estimated an initial LoM plan of nearly 13 years and a processing rate of 540,000 tons per year.
First gold production is targeted for the second quarter of 2012, and the mill is expected to produce more than 100,000 ounces per year by the third year of production. During the LoM, Theta could recover up to 1.08 million ounces of gold from the 1.2 million ounces mined.
The environmental impact assessment is ongoing with the local authorities and should be completed later this year with the final approval of the two water permits.