Kerr unveils US$26.7 million Copperstone financing deal

The Kerr Mines Copperstone Mine 16 km north of Quartzite, western Arizona. Source: Kerr Mines Inc.

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The Kerr Mines Copperstone Mine 16 km north of Quartzite, western Arizona. Source: Kerr Mines Inc.

Kerr Mines Inc. [KER-TSX; KERMF-OTC; 7AZ1-FRA] on Wednesday July 18 announced a US$27.6 million project financing deal for its 100%-owned Copperstone Mine in Arizona.

Kerr said it has signed a letter of intent with Pandion Mine Finance LLC for the funds that will be used to finance development and production of gold at Copperstone by the fourth quarter of 2019.

The company said the financing is subject to the execution of a prepaid forward gold agreement, with an anticipated initial tranche of US$19.6 million targeted for August, 2018 and a second tranche of US$8 million in July 2019.  Pandion anticipates signing a definitive agreement in August, 2018, Kerr said in a news release on Wednesday.

Under the agreement, Pandion will receive approximately 95,000 ounces of gold over a 40-month period. However, no gold will be delivered during the first 22 months of production.

Pandion will pay Kerr the market price of delivered gold, less a specified discount per ounce. In addition, Pandion can participate in any portion of any increase in the price of gold.

All other production from Copperstone will be sold into the market place.

Additionally, Pandion would have the option to elect at any time to receive common shares of Kerr Mines at 40 cents a share in lieu of delivery of up to 10,000 ounces of gold, subject to approval by the Toronto Stock Exchange.

Under the deal, Kerr will retain the right to buy out and terminate the agreement at any time.

The Copperstone Mine produced nearly 500,000 ounces of gold between 1987 and 1993 from an open pit operation. Significant remaining infrastructure from that period includes offices, maintenance shops laboratory building, permitted tailings facility, processing facility and mill.

The mine is located in La Paz County, western Arizona, within the Walker Lane mineral belt. The property is accessible from Phoenix on Interstate 10 to Quartzsite and from Quartzsite on Route 95.

Gold in the area is commonly associated with hematite, chlorite, quartz, manganese oxide and copper oxide mineralization. In the case of Copperstone, the gold is not encapsulated in sulphides or silica, and the ores do not contain active carbon. This means the ores at Copperstone are not refractory.

Kerr recently announced the results of an independent pre-feasibility study and resource update for the Copperstone Mine. The resource update is in compliance with NI 43-101 standards of disclosure.

Highlights from the pre-feasibility study are as follows:

  • Average annual sales of 38,347 ounces of gold;
  • Initial capital of $22.7 million, which includes mine equipment capital lease;
  • Payback of initial capital within 2.3 years of 2019 production start;
  • All-in sustaining cost of US$875 per gold ounce;
  • Measured and indicated mineral resource of 1,124,800 tones averaging 7.63 g/t gold

276,100 ounces of contained gold in the inferred category;

  • Proven and probable mineral reserves of 802,048 tonnes, averaging 6.79 g/tonne gold;
  • 175,093 ounces of contained gold in the proven and probable category.

“The results of the prefeasibility display the strong-near term production opportunity for the Cornerstone Mine and robust returns for our investors. This is just the beginning,” Kerr Mines President Martin Kostuik said recently.

Aside from putting the mine into production, Kerr said it will commence a 2018 drilling program designed to convert a significant portion of measured, indicated and inferred resources into the proven and probable category. The aim is to extend the mine life and cash flows.

Shares of Kerr Mines rose 2.38% or $0.005 to 21.5 cents on Wednesday morning. The stock trades in a 52-week range of 41 cents and 19 cents.

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