The agreement is with a subsidiary of Managem SA (Managem), a Moroccan mining group listed on the Casablanca stock exchange.
Avocet Mining notes that Managem has agreed conditionally to acquire an initial minority interest in the Tri-K project which will increase to a majority interest of up to 70%, on completion of an agreed work programme and subject to meeting certain milestones.
Managem has committed conditionally to a total investment of at least US$14 million, consisting of an initial cash payment to Avocet Mining of $4 million and a commitment to undertake a works programme costing at least $10 million, in order to deliver, within 24 months, a bankable feasibility study (BFS) for a carbon-in-leach (CIL) operation at the site, with an ore reserve of at least 1 Moz.
If the ore reserve defined in the BFS is less than 1 Moz, Managem’s ownership will be limited to 60%.
Avocet Mining retains the option to repurchase from Managem its equity and intragroup loans associated with the project and resume full ownership, should the work programme not be completed.
Avocet Mining’s Tri-K currently has a measured and indicated gold mineral resource of 2 Moz (41.3Mt at 1.51g/t) and an inferred gold mineral resource of 1 Moz (25.2Mt at 1.26g/t) (0.5 g/t cut off).
In 2013, Avocet announced a proven and probable reserve of 0.48 Moz (7.9 Mt at 1.89g/t) as part of a feasibility study based on a heap leach operation.
In March 2015, a mining permit for the Tri-K project was granted by the Guinean government.
David Cather, CEO of Avocet Mining says that the company is pleased to be able to join forces with a group with Managem’s track record and capabilities, particularly in Guinea.
“We have been looking to raise financing for the Tri-K project for some time during a difficult period for the mining sector as a whole as well as for Guinea in particular (including the ebola crisis), and we are therefore delighted to confirm that this project is now able to move forwards,” says Cather.
Imad Toumi, Chairman and CEO of Managem, comments: “We are pleased to sign this agreement as we consider Tri-K project to be a high quality and advanced gold opportunity that will strongly contribute to our strategic development objectives in Africa.”
“Guinea is a friendly country, and together with Avocet, we have received strong support and encouragement from the Guinean government.Our ambition is to develop a large-scale gold mining operation in the Mandiana prefecture,” says Toumi.
Joint venture transaction
The proposed financing will be completed in two stages.
In return for an initial cash payment of $4 million, Avocet will transfer the entity holding its interest in the Tri-K mining and exploration permits into Manacet SA, a joint venture (whose equity is to be shared 60%:40% between Avocet and Managem),
Avocet Mining will also transfer 40% of the intragroup loans associated with the project which amounts to approximately $14 million) to Managem.
Avocet will use the $4 million consideration for debt repayment and general working capital purposes.
Transaction fees and associated restructuring costs are expected to be approximately $1.5 million.
Managem will, following completion of the first close, undertake an agreed work programme, expected to be completed within 12 months, which will consist of at least $10 million of drilling, analysis and documentation work to facilitate an anticipated increase in the ore reserves and completion of a Bankable Feasibility Study (BFS) for a Carbon-in-Leach (CIL) operation at the site.
On successful completion of these objectives, Managem’s interest in the project will increase to 70% of the equity and loans associated with Tri-K (subject to ore reserves increasing to at least 1 Moz – otherwise the ownership increase will be limited to 60%).
The proposed financing is conditional upon, inter alia, approval by Avocet’s shareholders, Managem’s competent body and the Guinean government, and that the consent of Manchester Securities.
Manchester Securities is Avocet’s principal lender, which holds security over the group’s interests in Tri-K and is an associate of Elliott Management, Avocet’s largest shareholder, has not been withdrawn.
The form of a mining convention has been agreed in principle with the Guinean government and, subject to being signed and ratified by the Guinean parliament, confirms that the mining permits and exploration licences for the project will be assured.
It is anticipated that first close will take place by the end of 2016, with second close to be completed by the end of 2017.
“Completing this transaction will also herald a major milestone in Avocet’s turnaround strategy with one of its three primary assets now having a clear development route to production at Tri-K and we look forward to working closely with Managem to achieving this medium term goal by 2020,” Cather concludes.