Minera Gold (ASX:MIZ) has signed the binding US$4.5 million financing agreement with SilverStream SEZC relating to the acquisition of the fully permitted San Santiago gold-copper mill in Otapara, southern Peru.
This should ensure a firmer opening for the shares this morning.
The mill comprises the larger complex where the company is currently commissioning the gold processing CIP circuit and is expected to reduce all-in cash costs to US$700 an ounce.
The binding agreement follows recent commissioning of the CIP gold processing circuit at the San Santiago processing plant and subsequent gold delivery and sales that commenced this month.
Minera is targeting gold sale of 1,000 ounces this month.
SilverStream had committed US$3 million on exercise of the acquisition option, and a further US$1.5 million on Minera being granted an expanded permit to operate the plant's two copper circuits at a minimum total of 500 tonnes per day.
In relation to the balance of the funding required to complete the acquisition and provide working capital post acquisition, the company has been presented with a number of financing options which are currently being assessed.
Subject to completion of due diligence by Minera Gold and satisfaction of certain conditions precedent by the vendor, the Company intends to complete the acquisition by the middle of September.
The acquisition of the San Santiago where the company is currently commissioning the CIP circuit under an existing lease agreement is expected to be non-dilutive and earnings accretive.
This will not only deliver savings of US$1 million per year on its current lease commitments, it will also deliver a second processing and revenue stream from treating copper sourced from the surrounding 9,000 hectares of concessions being acquired.
The mill currently generates EBITDA of $2 million from current toll treatment.
Notably, the commissioning of the CIP circuit and acquisition of the overall mill is part of the strategy to recommence gold production fully under its control as owner-operator rather than through third party toll treatment.
Current toll treatment production is about 3,300 tonnes per annum of contained copper at an average feed grade of 4% copper.
Minera Gold plans to take full ownership of this output in the short term.
It will also look to expand existing permits to double the mill capacity.
That Minera Gold has signed a binding agreement with SilverStream SEZC for funding of up to US$4.5 million to acquire the San Santiago gold-copper plant is a positive.
This is especially true given the acquisition is expected to be non-dilutive and earnings accretive given EBITDA generated from the current toll treatment of copper through the plant's two copper circuits.
Its acquisition also presents cost saving of US$1 million pa from not having to pay lease fees for San Santiago's CIP gold circuit and will reduce all-in cash costs for Torrecillas from A$780/oz to A$700/oz.
We consider that the acquisition is valuation and hence share price accretive in the short to medium term for Minera.
Our earlier valuation for Minera in the range of $0.007 - $0.012 within 6-9 months may prove conservative.
Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.