Mutiny Gold (ASX: MYG) has taken advantage of recent weakness in the gold price and a $75 million gold buying facility provided by Credit Suisse to purchase 50,000 ounces of gold at an average price of $1,491 an ounce and book an $11 million profit.
This will mean Mutiny can deliver the gold into the current 50,000 ounce hedge put in place in December 2011, resulting in a total gain of $11 million.
Mutiny and adviser Noahs Rule traded in the gold market of the London Metals Exchange and acquired the 50,000 ounces.
Rationale for the strategy
Mutiny saw an opportunity to use the profit to reduce short-term debt and simplify its balance sheet as part of completing its project financing agreements for development of Deflector gold project in Western Australia.
Mutiny believed the 2011 hedges had maximised in value.
It also took the view that ongoing economic instability in Europe and the U.S. as well as sabre rattling on the Korean Peninsula could see the gold price rally from its current low levels; and Mutiny's managing director John Greeve said the short-term loan provided by Credit Suisse had provided important momentum for the company.
"The $11m loan allowed us to complete the purchase of the Deflector Gold project from ATW Gold Corporation Ltd and fund the highly successful drill programmes and Feasibilities Studies at Deflector."
"The hedge developed in December 2011 was an important component of the facility agreement with Credit Suisse and the company has improved its balance sheet in anticipation of securing a Senior Debt Funding Agreement for project financing."
"We believe that the value of the Deflector Gold project has increased significantly since we negotiated our initial short term loan, and hedging position.
"By using the profits from this transaction to retire our short term debt, we have an opportunity to simplify our funding arrangements and reduce the level of financial exposure to our lenders."
Project funding update
Mutiny has reported it has made substantial progress in attaining bank approval for a Senior Debt Funding Agreement.
In addition, one bank has received credit approval for its 50% share of the debt funding package while two banks are very close to reaching agreement on commercial terms.
An additional bank has expressed interest in participating in the financing agreement.
The project finance loans are in addition to the previously announced US$43 million Metals Purchase Agreement funding from Canadian institution Sandstorm Gold Ltd who remain fully supportive of the project and the company.
Drilling to increase gold resources and production
Mutiny has signalled an intent to significantly expand the scope of its 2013 Deflector drilling programme.
The expanded programme is aimed at increasing the ounces to support a potential increase of gold production from 70,000 ounces to over 105,000 ounces by year three.
"We are confident that we can boost our gold resources by conducting step out drilling to identify new areas of gold
mineralisation close to the mine.
Our objective by expanding our 2013 drilling programme is to enable the company to support a larger, longer life and more economically robust gold mining operation at Deflector", Greeve said.
Supported by the previously announced structural interpretation studies and a planned Sub Audio Magnetic ("SAM") survey exploration programme, the proposed drill programme will target an increase to the current Deflector Deposit resource of 2.86 million tonnes at 6.4g/t gold, 6.8g/t silver and 0.9% copper for 591,000 ounces gold, 629,000 ounces silver and 27,000 tonnes of copper.
Significantly, the resource to date has been defined over 900 metre of strike length, and is interpreted to be open at depth and along strike.
The 2013 expanded drilling programme will include 4,000 metres of diamond and reverse-circulation drilling, up from the 3,000 metres announced in February 2013, to target high-grade grade extensions of Deflector.
It is here that Mutiny believes there is potential to provide significant increases to the current resource base.
Priority drill targets
- High-Grade Southern Plunge Extension - new drilling will target the high-grade southern plunge down to 0mRL (280m below surface), which also aligns with planned development.
- Central & Contact Lode Depth Extensions - Mutiny will test an under-drilled panel 200m in length to the 100mRL (180m below surface). Exploration success should lead to an increase of open pit and underground life of mine.
- Deflector North Strike Extensions - new drilling will follow up RC intersections from the 2012 campaign including: 1 metre a 13g/t from 51 metres and 1 metre at 8.9g/t from 43 metres.
The Geophysical interpretation of the Deflector Corridor and Greater Gearless Well area is near completion with preliminary work providing targeting for the inaugural SAM survey.
Gap Geophysics has been contracted to provide a SAM survey crew, which is scheduled to mobilise to site late-April.
The SAM survey area covers 3km2 including the Deflector Deposit, and nearby prospects Pieces of Eight and Spanish Galleon.
Mutiny Gold has completed a Programme of Works (POW) clearance for activities within the proposed Deflector drilling zone, and plans for drilling to commence shortly after the completion of the processing of SAM survey data.
Engineering works, supply contracts and floatation concentrate off-take agreement are on track to be ready for activation upon completion of project finance.
Key contracts include:
- Process plant (Engineering, Procurement and Construction ("EPC"))
- Ore haulage
- Village construction and servicing
There has been a high level of interest from providers of these key contracts and this has allowed Mutiny to be selective in the discussions with qualifying tenderers.
As a result of Mutiny's early engagement of GR Engineering Services the processing plant design and the detailed design of the ball mill from Citic HIC Australia are at an advanced stage. Plant procurement commitments are ready to be issued at the announcement of project financing.
Negotiations on Off-take Agreements for Mutiny's flotation concentrate have been in progress for a number of months and Mutiny is close to settling the final terms.
Mutiny's project and technical team have been progressing the above key contracts as well as finalising Project Implementation Management Plans and Schedules so that the project is now ready to be activated.
Any opportunity to book a profit and to reduce short-term debt and simplify its balance sheet is to be applauded. Gold is currently trading around $20 an ounce higher than the purchase price.
The progress on project financing with banks is also encouraging despite delays given the current markets. A maxim that good projects will always find funding is never truer in 2013.
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