Argonaut Gold closes loan, reveals Magino hedging details
Argonaut Gold Inc. [AR-TSX] on Friday said it secured US$250 million in loan facilities and completed the sale of a 2% net smelter return royalty on its 100%-owned Magino gold project in Ontario and surrounding land package to Franco Nevada Mining Corp. [FNV-TSX, NYSE] for US$52.5 million
Argonaut also issued 34.7 million shares to Franco-Nevada via a private placement at $0.3931 per common share.
The loan facilities consist of a term loan of US$200 million and a revolving credit facility of US$50 million and will be used to fund ongoing development and construction of the Magino project.
Under the terms of the loan facilities, Argonaut has hedged 25,000 ounces of gold per quarter for six quarters starting in the third quarter of 2023 at a gold price of US$1,860 an ounce, and 15,000 gold ounces per quarter for the 10 quarters, starting in the first quarter of 2025 at a gold price of US$1,860 an ounce.
In addition, the company has hedged 10,000 gold ounces per quarter starting in the first quarter of 2025 at a gold price of US$1,763 an ounce.
Argonaut has also hedged, via forward contracts, the Canadian dollar exposure at an average rate of 1.334 Canadian dollars per US$1 dollar for the next 24 months.
News that the loan has been completed came after the close of trading on October 27, 2022, when Argonaut shares closed at 38 cents. The shares are trading in a 52-week range of $4.09 and 36 cents.
“In completing this financing, Argonaut expects to meet all future financial obligations related to Magino construction and banking covenants while also maintaining a high level of financial flexibility,’’ said Argonaut President and CEO Larry Radford. “As a result, we are confident we have the financial resources to complete the construction of the Magino project and achieve the milestone of first gold and beyond.’’
Argonaut said it has already drawn down the first US$80 million tranche of the loan facilities, which was used to repay the balance outstanding on a former revolving credit facility.
The Magino mine property is a past-producing underground gold mine located 40 kilometres northeast of Wawa, Ontario, approximately 14 kilometres southeast of Dubreuilville. It is estimated to host proven and probable reserves of 58.9 million tonnes, grading 1.13 g/t gold or 2.13 million ounces.
Argonaut recently said it is approximately half way through the construction of a 10,000-tonne-per-day project, and continues to believe that an expansion, including the existing high-grade underground exploration targets, has the potential to meaningfully increase production.
According to the latest technical report, Magino is expected to produce 142,000 gold ounces during the first five years following ramp up to full run rate. The report envisages a mine life of 19 years and a life of mine all in sustaining cost of US$963 an ounce.