Update: Torex Gold Signs $375M Debt Agreement

Aug.12.14 | About: Torex Gold (TORXF)

Summary

Torex Gold signs an agreement for a $300M project finance facility and $75M cost overrun facility at very competitive interest rates.

The required hedging of gold and the Mexican peso is fair and reasonable.

Torex can now focus on its first gold pour, which is expected next year.

Torex Gold (OTCPK:TORXF) has announced it signed a credit agreement with several international banks which will provide $375M in debt, which will allow Torex Gold to fund its El Limon project in Mexico. The loan will mature in approximately 8 years, and will be split in two parts. The $300M Project Finance Facility will have an interest rate of LIBOR + 4.25%-4.75%, whilst the $75M Cost Overrun Facility will carry an interest rate of LIBOR + 7.25%-7.75%. The interest rate on the project finance facility is very decent and probably as good as it gets for a project in Mexico. The cost overrun facility, however, is a bit expensive, and I hope the company won't need this (or is able to source cheaper debt funding, should the need arise).

It took a while, but Torex Gold finally raised the last funds it needed for the El Limon project at relatively favorable terms. The interest rate is very decent, and the requirement to hedge 204,000 ounces of gold and to hedge its exposure to the Mexican peso is very reasonable. All in all, this seems to be a good debt agreement, which is fair and reasonable for both parties. And more importantly, now Torex Gold can really look forward to the future and its first gold pour.

The investment thesis is still standing. I think Torex Gold is more than fairly valued at this point, based on its El Limon zone, but I do expect additional upside potential to come from the Media Luna target, which is just a few miles to the south of El Limon. The foreign lenders seem to be willing to accept the geopolitical risks in Mexico, and have provided the company with a relatively cheap debt facility, which could be seen as a vote of confidence in the project.

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