Tanzania focused gold and nickel exploration and development company Katoro Gold has entered into a binding conditional agreement to participate in a strategic gold production opportunity in South Africa, focused on the reprocessing of an existing 1.34 Moz of gold JORC compliant tailings resource.
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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, the company’s broker, to support its commitments under the agreement.
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 and its holding company, Target Mine Consulting.
The JV partners plan to exploit potentially viable deposits of gold and any other minerals from six gold tailings dams owned by Blyvoor in South Africa, which contain a JORC code compliant resource of, in aggregate, 1.34 Moz of gold at an average grade of 0.30g/t gold.
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.
Subject to funding, the JV partners are targeting initial production of up to 250 000 tpm of material from the tailings as part of a production ramp-up to achieve production of 500 000 tpm within two years.
At 500 000 tpm, the project is targeted to produce approximately 35 000 ozpa of gold 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, with additional confirmatory test work planned to optimise the financial projections and conceptual designs for the processing plant.
Cost of production
At 500 000 tpm, 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 500 000 tpm within two years, attractive financial returns are forecast, with projected unlevered IRR estimated at 31% at a gold price of $1 300.
Katoro loan to the JV
Pursuant to the agreement, Katoro is to provide a R15 million loan to the JV, which will fund ongoing development work on the project, with a first payment of R5 million due to be paid by 3 February 2020.
The JV partners may drawdown the balance of the Katoro loan facility, being R10 million, 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.
To fund the Katoro loan facility, Katoro has raised £397 000 in the form of a CLN, which will fund the initial tranche of the Katoro loan facility.
Katoro has also put in place a facility with Sanderson Capital Partners under which the company may require Sanderson to subscribe for up to £400 000 in the form of a CLN 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 expect will fund the additional tranches if necessary/required.
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.
“The JV represents a unique and exciting investment opportunity for the company with the possibility of significant near term revenue generation,” says Katoro Gold executive chairmanLouis Coetzee.
“The six tailings dams, containing, in total, 1.34 Moz of gold, 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 ozpa gold production target, solid recoveries and low initial all in sustaining costs of $664/oz which compares favourably against the current gold price of $1 565/oz.
“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 level,” Coetzee concludes.