Torrecillas had a defined maiden JORC resource delivered Jan 2012 of 102,100 ounces of gold at a stunning average grade of 16.1 grams per tonne gold.
The payment will also be used to accelerate the reduction in term debt owed to Anglo Pacific Group as well
"This deal, along with the recently announced convertible loan extension represents a completion of the funding needed to finalise the recapitalisation of Minera Gold's balance sheet, accelerate the reduction in term debt owed to Anglo Pacific Group Plc and also provide continued expansion funding to the Torrecillas Gold Project," managing director Ashley Pattison said.
He added the company would now be able to execute its production growth plans and cost reduction program at the project. This includes transferring processing from toll treatment to owner operator.
"We also believe this agreement with SilverStream is an endorsement of the Torrecillas Gold Project and the Minera Gold management team. The deal terms validate the quality and the upside potential of our high-grade asset," chairman Alex Losada added.
"We look forward to our long-term partnership with SilverStream, as we transform Minera Gold into meaningful high-grade gold producer in Southern Peru."
SilverStream chief executive officer Kevin Puil said Torrecillas is SilverStream's first investment since incorporation.
"This Nazca Ocona region in Southern Peru is known for its high-grade gold deposits and long-lived assets. Minera Gold's management team has put in place a solid expansion plan, and we are pleased to assist them in securing the financing necessary to increase production and delineate additional resources at the Torrecillas Gold Project," Puil added.
Gold Stream Agreement
The gold stream agreement covers the Torrecillas Gold Project and surrounding concessions.
SilverStream will provide the company with a US$5 million payment that will be provided over four instalments:
- US$1.6 million upon the signing of the agreement;
- US$1.4 million on achieving two consecutive months of 1,000 ounces or more of production at a C4 cash cost of less than US$1,300;
- US$1.0 million on achieving three consecutive 1,600 ounces or more of production at a C4 cash cost of less than US$1,300; and
- US$1.0 million on achieving three consecutive months of 2,000 ounces or more of production at a C4 cash cost of less than US$1,300.
These payments are expected to be received in full over the next 12 months, with $4 million being banked in 2014. The first tranche was remitted overnight.
It will also be entitled to nominate a non-executive director to the board of Minera Gold.
In return for the payment, Minera agreed to deliver the greater of 70 ounces or 10% of the monthly gold production from its Torrecillas project for the Life of Mine.
SilverStream will purchase the gold at the lower of US$400 or 80% of the spot gold price at the time of delivery.
SilverStream's deposit is to be secured by the concessions of the Torrecillas Gold Project until such time that 2,500 ounces have been delivered to SilverStream under the agreement.
Torrecillas Gold Project
Minera had at the beginning of this month received firm commitments from new and existing shareholders for a $1.7 million loan to place firm orders on capital equipment for the San Santiago CIP circuit in the coming week.
Commissioning of the CIP circuit is expected to commence within weeks from orders being placed.
Operations at Torrecillas, which sold 1,023 ounces of gold at an average head grade of 9.96 grams per tonne gold in the December 2013 quarter, have shifted focus to stockpiling high grade ore sourced from the Torrecillas vein and also stoping from the additional three veins.
Stockpiles are accumulating in preparation for shipping to the San Santiago plant pre commissioning.
The company has also started development of the Tessie I high grade with stopes being prepared for production in the coming weeks.
About 200 tonnes of oxide ore has been delineated from development during the last 10 days, exceeding early budget expectations.
Crews also continue to develop the Ady vein in good quality material. The Ady and Tessie veins are expected to provide valuable oxide material with historical recoveries of up to 97%, throughout the remainder of 2014 and into 2015 on a trial mining basis.
At the Rebeca veins, the company is also working with a small contracting team on the Rebeca I vein, at the northern end of the structure.
While the veins at Rebeca are narrower than the other systems within the Torrecillas Gold Project, its almost vertical dip and superior grade means that mining is low cost, providing valuable high grade feed to supplement the remaining production.
Torrecillas delivered EBITDA of US$0.13 million in the December 2013 quarter from the gold sales at a cash cost of US$ 1,163/oz.
78% of the production for the quarter resulted from ongoing development in the lower three levels of the mine.
On-going exploration and development work at the Torrecillas Mine has continued to improve the prospectivity of the high-grade ore body and provides further evidence that the full potential of the Torrecillas vein is yet to be fully understood.
Exploration continues to encounter high-grade gold mineralisation east of Level 17A, which is outside of the current Inferred Resource, adding more than 45 metres of ore shoot strike.
The vein remains open vertically from Level 17A towards Level 15 and to the east.
Subsequent to quarter end, the company signed a 3 year ore processing services agreement with a private Peruvian entity at a fully permitted 200TPD CIP Gold Circuit in the Acarí District in southern Peru
This is expected to result in a decrease in processing costs of up to US$200 per ounce of gold and an increase in gold recoveries for Minera Gold compared to the current toll treatment agreement.
It also allows the company to assess new opportunities for processing additional tonnes of gold ore to complement the production at the Torrecillas Gold Project.
The processing plant operation is one of three projects being undertaken by Minera Gold in order to drive cash costs down to approximately US$750 at Torrecillas.
The US$5 million agreement with SilverStream provides Minera Gold with the funds to progress its producing Torrecillas Gold Project in Peru including the move from toll treatment to owner operator which will drive down costs.
As SilverStream's first investment since incorporation, it is a ringing endorsement of the Torrecillas Gold Project andMinera's management. The deal terms validate the quality and the upside potential of the high-grade asset.
The changes are aimed at moving Torrecillas toward a production run rate of 19,500 ounces by November 2014 (so, 1,600 ozs per month) increasing to 28,000 production in 2015.
Significantly, cash costs from the change to owner/operator will reduce cash costs from $1,130 to $690 an ounce, which provides a significant margin and earnings generation for Minera given forecast increased recoveries and high grades processed.
Not only does this set the stage for the company to become a "meaningful" high grade gold producer in Peru but will ratchet up the market's valuation ($2.4M) of Minera. The company's shares will be re-listed in a week or so which given the positive changes rung in will be viewed as a watershed for Minera in 2014/15.
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