Collectively, today's funding package will meet the majority of Mutiny Gold's requirements for development of Deflector Mine and associated infrastructure.
Canadian institution Sandstorm Gold Ltd (NYSE MKT: SAND, TSX: SSL) will provide US$43 million to Mutiny Gold, a first for it in Australia.
Credit Suisse, with an existing AUD$11m loan facility with Mutiny will provide a project debt finance of A$25 million, with the remainder to be provided by a leading Australian Bank. This will total $50 million.
A further A$11m will be sourced in plant leasing.
In detail - Sandstorm Metals Purchase Agreement
The first agreement, comprises US$38m in upfront payments, US$5m in equity and a possible additional US$4m in performance based payments will be by way of a Metal Purchase Agreement.
The MPA signed today with Sandstorm is designed to complement the more traditional bank provided project finance.
Under the terms of the MPA, Sandstorm has agreed to purchase an amount equal to 15% of the gold produced from Deflector.
Sandstorm will make an initial upfront cash payment to Mutiny of US$9 million and will make a future cash remittance of US$29 million, once Mutiny has received final mine permits for Deflector as well as completed certain funding conditions.
Sandstorm will make ongoing per ounce payments equal to the lesser of US$500 per ounce of gold and the prevailing market price of gold.
If Deflector produces more than 85,000 ounces of gold in a given year, Sandstorm will make a one-time US$4 million payment to Mutiny.
A key feature of the MPA is Mutiny's right, but not obligation, for a period of 36 months from the date of the Second Deposit, to repurchase in whole or in part, up to 50% of the Gold Stream.
This would be done by making a payment equal to the greater of US$24.7 million or the value of 14742 gold ounces, whereupon the percentage of gold that Sandstorm is entitled to purchase shall be decreased from 15% to 7.5%.
Internally, the earnings per share modelling conducted by the company shows the Sandstorm funding via the MPA boosts the Mutiny earnings per share model.
Mutiny's managing director, John Greeve, said that Sandstorm's model is aligned with Mutiny's established preference for furthering the development of Deflector through asset accretive and non-dilutive structured finance.
"As the first Australian company to negotiate a transaction of this type with Sandstorm, which we believe in itself is a strong endorsement of Deflector and our broader strategy, Mutiny has broken new ground in this innovative form of project funding.
Working in conjunction with our advisors Noah's Rule we have been able to negotiate the Metals Purchase Agreement in a way that has made it highly complementary to traditional project finance, rather than as an alternative, as it is often seen.
The process has not been without its challenges and has taken longer than we expected but we hope existing shareholders will be delighted with the outcome in terms of the equity dilution avoided", said Greeve.
Credit Suisse Finance Facility
Credit Suisse and Mutiny had previously entered into an US$11 million loan which enabled Mutiny to complete the acquisition of Deflector, conduct a significant 15,000 metre drill program and advance its feasibility studies.
Mutiny is negotiating with Credit Suisse a A$50 million project financing facility, whereby it will provide A$25 millon with the remaining $25m to be provided by a leading Australian Bank.
Credit Suisse is fully aware and supportive of the Sandstorm arrangements.
"This is a very positive move for Mutiny, as we have now created the platform which encompasses the majority of the funding requirements for Deflector.
This is completely in line with our stated objective to minimise overly dilutive equity issues while progressing Deflector. Our next steps will see us continue to resolve the outstanding administrative matters required for final funding of both the Metals Purchase agreement with Sandstorm and the Bank Project Financing, as we move to production." said Greeve.
"With a number of significant projects in our portfolio, entering an agreement limited to a portion of the contemplated Deflector project production, rather than significantly diluting the equity of the entire company, and thus the entire portfolio, makes sense for shareholders.
Theoretically the value achieved for the of 15% of the Deflector gold production values the Deflector Project at between A$240 million and A$280 million compared with the company's current market capitalisation of approximately A$45 million.
"We have also discussed ongoing collaborative development funding arrangements with Sandstorm which could cover our future expansion plans.
There is the potential for a high degree of mutual interest between Sandstorm and Mutiny in supporting our strategy of bringing online a pipeline of gold and copper mines. This is not limited to Deflector and may include future asset acquisitions" Greeve added.
Remainder bank finance
The Bank Project Finance with Credit Suisse and other banks is being finalised in conjunction with AUD$11 million finance leasing of the accommodation village.
That this is strong outcome and an innovative funding package for the development of Deflector mine into production in 2013 is to underplay its significance.
Mutiny Gold's John Greeve set out to minimise dilution for shareholders.
Including a plant leasing agreement, collectively the project funding package announced today will meet the majority of Mutiny Gold's requirements for development of Deflector Mine and associated infrastructure.
Sandstorm and Credit Suisse are industry leaders that have hitched their wagons to Deflector because of the project returns outlined in the Bankable Feasibility Study and likelihood of further exploration upside at Deflector and additional projects not incorporated into the BFS.
The funding serves to de-risk Mutiny in a qantifiable and demonstrable manner.
The theoretical value achieved for the of 15% of the Deflector gold production values the Deflector Project at between A$240 million and A$280 million. This is relative to Mutiny Gold's current market capitalisation of A$44 million.
If nothing else, this demonstrates the complete and demonstrable under-valuation of Mutiny Gold at the current share price of $0.096. Proactive Investors believes the valuation should be closer to $0.40-$0.50 over the next 12 months.
We believe the share price should gain a leg-up from this announcement.
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