When Vancouver junior miner True Gold Mining Inc. (TSX-V:TGM) inked a US$100 million investment deal last month with two Canadian streaming companies to finance a new $131-million open-pit gold mine in West Africa, it was a rare sprinkling in an otherwise prolonged investment drought.
Junior mining and exploration companies have been particularly hard hit by the general downturn in mining. Since 2012, financings like the one True Gold landed last month have been rare.
According to SNL Metal and Mining’s World Exploration Trends 2014 report, global spending on new mines and exploration was 29% lower in 2013 than in 2012.
Streaming companies such as Vancouver’s Sandstorm Gold Ltd. (SSL:TSX) and Toronto’s Franco-Nevada Corp. (FNV:TSX) have come to the rescue of junior miners such as True Gold with streaming agreements – an alternative to debt or equity financing.
Under an agreement reached last month, Sandstorm and Franco-Nevada will provide True Gold $100 million to help the company build its Karma gold mine in Burkina Faso, West Africa.
That’s in addition to the $80 million True Gold has raised in equity financing since 2013. Sandstorm will provide 25% of the financing, Franco-Nevada 75%.
Under the agreement, Sandstorm and Franco-Nevada will receive 100,000 ounces of gold at a fixed price, to be provided at 20,000 ounces per year over five years, with an option to access an additional $20 million in financing.
After the $100 million is paid back, the syndicate will continue to get a 6.5% royalty on future gold production.
Thanks to the deposit’s geology and high ore quality, True Gold can use a simple heap-leach process to extract the gold. That dramatically reduces the mine’s capital costs, because no processing mill is required. The mine is also just 23 kilometres from Burkina Faso’s third largest city, so it has access to a nearby workforce.
The mine’s low cost is one of the things that sold Sandstorm CEO Nolan Watson on the project. The company’s management team was the other strong selling point.
True Gold CEO Mark O’Dea is the former CEO of Fronteer Gold Inc., which sold to Newmont Mining Corp. (NYSE:NEM) for $2.3 billion in 2011.
“It’s partly that low capital intensity, it’s partly the strong team in Mark O’Dea,” Watson said.
The Karma project is True Gold’s only property. The company expects to pour first gold by the end of 2015 and ramp up to full production of 150,000 ounces of gold per year in 2016.
The life of the mine is projected to be 8.5 years, but Alex Holmes, True Gold’s vice president of business development, said the discovery of additional resources could extend the mine’s life far beyond that.
“We believe in the exploration growth of the project, and the fact that Franco and Sandstorm have decided to partner with us is a pretty big endorsement of that growth,” Holmes said.
