Katoro Gold plc (AIM: KAT), the Tanzania focused gold and nickel exploration and development company, is pleased to announce that it has entered into a binding conditional agreement (the ‘Agreement’) to participate in a strategic gold production opportunity in South Africa, focused on the reprocessing of an existing 1.34 million ounce of gold (‘Moz of Au’) JORC compliant tailings resource.
As further set out below, Katoro also announces that it has raised £397,000 in the form of a Convertible Loan Note (‘CLN’) with a number of high net worth clients of SI Capital Limited, the Company’s broker, to support its commitments under the Agreement.
Set out below is an overview of the Agreement, the tailings and the CLN, though readers should read the whole of the announcement, including the section headed ‘Important Information for Shareholders’.
OVERVIEW OF THE AGREEMENT, TAILINGS AND CLN
Katoro has entered into a binding conditional agreement to form a 50/50 unincorporated joint venture (‘JV’) with Blyvoor Gold Operations (Pty) Ltd (‘Blyvoor’) and its holding company, Target Mine Consulting (Pty) Ltd (‘Target’ and, together with Katoro and Blyvoor, ‘the JV Partners’).
Project and Resource
The JV Partners plan to exploit potentially viable deposits of gold and any other minerals from six gold tailings dams (‘the Tailings’) owned by Blyvoor in South Africa (‘the Project), which contain a JORC Code compliant resource of, in aggregate, 1.34Moz of Au at an average grade of 0.30g/t Au.
Mining Licence and Environmental Impact Assessment
The Project already has in place the requisite mining licence and environmental impact assessment (‘EIA’) for the reprocessing of the Tailings, allowing production to commence immediately upon commissioning of the processing plant.
Production Plans, Targeted Ounces and Life of Mine
Subject to funding, the JV Partners are targeting initial production of up to 250,000 tonnes per month (‘tpm’) of material from the Tailings as part of a production ramp-up to achieve production of 500,000tpm within two years.
At 500,000tpm, the Project is targeted to produce approximately 35,000 ounces of gold per annum and to have a 35-year life of mine.
Feasibility Studies and Testwork
The Project will seek to use proven mining and processing technologies, whereby the JV Partners believe recoveries of 56% to 60% are achievable, based on feasibility studies and test work completed to date by Minxcon (Pty) Ltd (‘Minxcon’), with additional confirmatory test work planned to optimise the financial projections and conceptual designs for the processing plant.
Cost of Production
At 500,000tpm, the Project has projected low all in sustaining costs (‘AISC’) of approximately US$664/oz for the first five years of full production.
Subject to funding and achieving 500,000tpm within two years, attractive financial returns are forecast, with projected unlevered IRR estimated at 31% at a gold price of US$1,300 (held flat on a nominal basis).
Katoro Loan to the JV
Pursuant to the Agreement, Katoro is to provide a ZAR15.0 million loan (approximately £790,000) to the JV (‘the Katoro Loan Facility’), which will fund ongoing development work on the Project, with a first payment of ZAR5.0 million (approximately £263,000) (‘the Initial Tranche’) due to be paid by 3 February 2020 (‘the Initial Tranche’).
The JV Partners may drawdown the balance of the Katoro Loan Facility, being ZAR10.0 million (approximately £527,000) (‘the Additional Tranches’), as required prior to completion of project level financing. All amounts drawn down constitute a loan to the JV by Katoro and are provided on the terms outlined below.
Financing by Katoro Gold
To fund the Katoro Loan Facility, Katoro has raised £397,000 in the form of a CLN on terms set out below, which will fund the Initial Tranche of the Katoro Loan Facility.
Katoro has also put in place a facility with Sanderson Capital Partners Ltd (‘Sanderson’) under which the Company may require Sanderson to subscribe for up to £400,000 in the form of a convertible loan note on terms that, if drawn down, will be no more favourable to Sanderson than the terms on which investors have participated in the CLN, and which, together with unallocated proceeds of the CLN, the directors of Katoro (‘the Board’) expect will fund the Additional Tranches if necessary/required.
Project Level Financing
Katoro has already held preliminary discussions with potential funding parties for the Project, which the Board believe will be secured at the Project level and will likely be in the form of debt funding.
Recorded December 2019
Louis Coetzee, Executive Chairman of Katoro, said: “The JV represents a unique and exciting investment opportunity for the Company with the possibility of significant near term revenue generation.
“The six tailings dams, containing, in total, 1.34Moz of Au, represents a considerable resource for the JV. In addition, the Project has attractive projected economics and notably the targeted 35-year mine life, 35,000 gold ounce per annum production target, solid recoveries and low initial all in sustaining costs of US$664 per ounce which compares favourably against the current gold price of US$1,565 per ounce.
“Our initial objective is to rapidly secure the project level funding required to construct and commission the plant to reprocess the Tailings in order to start generating revenues. I must emphasise that this is financing at the project level and does not represent dilution at the Katoro Gold plc level.
“In support of this, the necessary approvals are already in place, including a mining licence and EIA, meaning the JV is poised for immediate action as soon as the project funding has been secured.
“We look forward to working with Blyvoor to bring the Project into production and keeping shareholders updated on our progress.
“We will also be providing further market updates shortly in respect of our other interests in Tanzania including the Imweru/Lubando gold projects and our Haneti polymetallic project held in JV with Power Metal Resources plc.”
FURTHER INFORMATION www.share-talk.co.uk
All information is provided on an as-is basis. Where we allow Bloggers to publish articles on our platform please note these are not our opinions or views and we have no affiliation with the companies mentioned