Terraco Gold (CVE:TEN) says it has agreed to a three-way transaction under which it will get a US$1.0 million non-dilutive cash infusion and an option to acquire a net smelter returns royalty on part of the Spring Valley gold project in Nevada.
The deal represents the third net smelter returns transaction that Terraco has signed relating to the Spring Valley property, which is a joint venture between Barrick Gold (TSE:ABX) andMidway Gold Corp (CVE:MDW).
The Spring Valley project adjoins Terraco's 100 per cent owned Moonlight project that spreads over 35 square kilometres, providing blue-sky potential for the junior gold company. Its Moonlight property adjoins the Barrick project on the North side, where the currently outlined Spring Valley gold ore body is situated a "couple of miles" away from the property boundary.
"In conjunction with our first two NSR transactions on the Spring Valley Project (December 2011 & March 2012), Terraco now has royalty coverage, either by direct ownership or option, of up to 3% NSR on this developing project," said president and CEO of Terraco, Todd Hilditch, in a statement on Monday.
"This is exciting for several reasons in that we believe Barrick's continued work and development at Spring Valley will add additional ounces of gold discovered beyond the current NI 43-101 mineral resource and that Terraco will enjoy significant cash flow (from the 3% NSR) on those growing gold ounces when in production."
The company said in the statement that it believes the valuation of a 3 per cent gold net smelter returns royalty on a Barrick-led project will grow as the project moves toward production.
"We are also excited, in these tough economic and market times, to be able to deliver to shareholders a US$1.0 million cash infusion without issuing a single share, thus no additional shareholder dilution," said Hilditch in the release.
Under the terms of the three-way deal, Terraco's subsidiary will acquire 1/7th of the sliding scale net smelter royalty on certain claims of the project, with the purchase representing a 1 per cent net smelter return when gold prices excceed US$700 an ounce and on production greater than 500,000 ounces of gold from the claims covered by the royalty.
Terraco has also entered into a second royalty purchase agreement with a third-party investor, under which its subsidiary will sell the purchased net smelter return royalty interest to the strategic investor and retain a 50 per cent interest.
For the interest, Terraco will pay the royalty vendor $4.2 million, and issue 800,000 common shares, with the unnamed strategic investor funding the cash portion by paying $5.2 million, giving the company a $1 million cash infusion without the issuance of debt or shares.
Terraco will retain an option to acquire, for $2.6 million, one half of the purchased net smelter returns royalty until December 30, 2016.
The junior gold company said is continues to maintain a debt-free balance sheet and on closing of this transaction, will have in excess of C$2.1 million in the treasury.
The Pershing County district/Humboldt Range in Nevada - where both Spring Valley and Moonlight are located - is also host to Coeur d'Alene Mines' (TSE:CDM) Rochester mine and has attracted the likes of Rye Patch Gold and Pershing Gold.
Aside from royalty coverage on a Nevada gold project owned by a major gold producer, Terraco is also focused on advancing its near-million ounce Nutmeg Mountain /Almaden (Nutmeg) gold deposit in Idaho.
The company is currently completing metallurgical tests at the 3,260-acre Idaho project, which is 126 kilometres north of Boise, Idaho. Drilling from 2012 has been completed, and Terraco expects to be able to update the gold resource and look at a possible preliminary economic assessment (PEA) by the end of June.
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