PanTerra Gold (ASX:PGI) has signed a binding strategic agreement with Vancouver-based Canarc Resource Corp to acquire a controlling interest in an underground gold mine development in British Columbia, Canada.
The New Polaris Gold Mine has a resource of 1,155,000 ounces at 12.3 grams per tonne gold.
It is a source of low cost, high-grade refractory concentre that could produce 100,000 ounces of gold per annum for 10 years.
There is an offtake agreement for concentrate to extend life of Las Lagunas project to 2028.
The agreement could increase the company's value to US$200 million with a development decision expected in December 2016.
Mr Brian Johnson, Executive Chairman of PanTerra Gold Limited, said that the ability to control the development of the New Polaris resource should ensure continuation of the Las Lagunas project at substantially increased production.
He added the company had entered into negotiations with several substantial US lenders to the resources sector, interested in refinancing the existing Las Lagunas project loan in order to spread repayments over a longer period.
This will permit early cash flows to support anticipated expenditure on the New Polaris project and avoid shareholder dilution. The same financiers have expressed interest in ultimately providing debt funding for the New Polaris development.
Pre-Development and Earn-In Agreement
The agreement provides for PanTerra to progressively spend C$10 million (A$10.25 million) on three stages of pre-development activities to earn a 50% interest in the mine.
PGI may purchase an additional 1% interest from Canarc for 1% of the Net Present Value established by the project's Definitive Feasibility Study.
The move to a controlling interest can occur within six months of completion of the DFS in the fourth quarter of 2016.
New Polaris Gold Mine
The aim of the parties is to jointly develop an underground mine based on resources held by Canarc's wholly-owned subsidiary, New Polaris Gold Mine Limited.
The current resource of arsenopyrite ore contains 1,155,000 ounces of gold at an average grade of 12.3g/t gold with a cut-off at 6g/t gold.
Of this resource, 519,000 ounces is Measured and Indicated, and 636,000 ounces is Inferred.
The relatively small mine should be able to be developed for under US$100 million, including adequate working capital, and be expected to produce high-grade refractory concentrate (90g/t to 100g/t gold) at the rate of 40,000 dry metric tonnes per year.
PanTerra Gold will purchase the concentrate ex-mine site for life of mine, for shipment to the Dominican Republic and production of doré at its Las Lagunas Albion/CIL process plant.
The company will have to provide approximately US$25 million of equity for the development in 2017-18, the majority of which should be able to be generated by the existing Las Lagunas operation.
It is anticipated that gold recovery from the concentrate will be around 85% and yield approximately 100,000 ounces of gold per year for 10 years.
The New Polaris claims, which are adjacent to old underground mine workings, have been held by Canarc for over 20 years during which time they have expended approximately C$30 million on exploration, resource modelling, and metallurgical test work.
Over 73,000 metres of drilling to date has confirmed an ore body of consistent grades and characteristics.
Consultants are confident that with additional drilling, an economically mineable resource will be established that is capable of supporting a 10 year mine life at the targeted production rates.
Pre-Development Expenditure and Earn-In
Stage 1 of the predevelopment expenditure will cost approximately C$500,000 over a five month period and involve production of concentrate from representative ore samples and test work at Xstrata Technology's Albion pilot plant in Brisbane.
The first Stage will also involve a technical and economic review of the proposed mine development and updating of Canarc's existing Financial Model to reflect a 900tpd mining rate, and production of approximately 40,000 DMT pa of concentrate.
Field work for seasonal collection of environmental data at the mine site will commence during this Stage.
Following completion of Stage 1, PGBC will have 60 days in which to elect to proceed to Stage 2 of the predevelopment expenditure, at a cost of approximately C$3.5 million.
Approximately 50% of this expenditure will be on a 10,000m drilling program in order to increase the Measured and Indicated Resource.
The ore body is currently open at depth and along strike with the primary vein averaging 3 metres in width with consistently high ore grades varying from 10g/t gold (at a 3g/t cut-off) to 14g/t gold (at an 8g/t cut-off).
Completion of the seasonal collection of field data for environmental permitting will occur during Stage 2, with consultants confirming the application for approval can be submitted by June 2016 and the approval process should be relatively straightforward with the proposed operations being limited to production of concentrate.
Detailed design and construction budgeting for the tailings dam will be also undertaken during this stage.
On completion of the second Stage of predevelopment expenditure, PGBC will have earned a 20% interest in the Joint Venture ("JV").
The company will then have 60 days in which to commit to proceeding with the third and final Stage of the predevelopment phase of the proposed project.
Stage 3 expenditure of approximately C$6 million will be primarily on the completion of a DFS for the project, which will involve further in-fill drilling, additional metallurgical test work, and preliminary engineering.
On completion, PGI will have earned a 50% interest in the project and be appointed Manager for the JV.
The Agreement allows for the 50% Earn-In to occur over a 30 month period, but the documented aim of the Parties is to finalise the DFS in sufficient time for a development decision to be made by 31 December 2016.
Assuming a decision to proceed with the development is made by the end of 2016, it is intended that engineering be completed and all approvals obtained prior to the summer construction period in mid-2017, with commissioning planned for around Q3 or Q4 2018.
The current mine plan is relatively straightforward and based on stoping from drives developed from a decline through competent ground.
Mining will be undertaken by an experienced Canadian contractor at the planned mine development and production rates.
A relatively small milling circuit involving crushing, grinding, flotation and filtering of the ore will be designed to produce a concentrate with 8% moisture content and grades of approximately 90g/t gold, 14% arsenic, and 25% sulphide sulphur.
The concentrate will be delivered by the JV to a barge load-out wharf on the Taku River, 10 kilometres from the mine site and transferred to 150t capacity self-propelled barges operated by a marine contractor.
PanTerra Gold will purchase all concentrate produced, FOB barge for the life of mine, at a price determined by the average prevailing market price nominated by two selected major, experienced, and reputable traders in refractory concentrates containing precious metals, taking into account penalties for the high arsenic content and other contaminants (which can be handled by the Company's Las Lagunas plant without physical modification other than an enclosed storage facility).
Las Lagunas Project Extension
During the Canadian summer months, PanTerra Gold will barge the annual production of concentrate 55 kilometres downstream to a 10,000t capacity floating storage platform moored in the Taku River estuary near the Port of Juneau in Alaska.
Concentrate will be craned directly to vessels for shipment to the Dominican Republic where the Company will use its existing Albion/CIL process plant at Las Lagunas to recover approximately 100,000 ounces gold per year.
At the anticipated purchase price of concentrate, plus quoted transport charges, and processing costs at Las Lagunas,PanTerra Gold's total non-inflated production costs including royalties are estimated to be approximately US$700 per ounce gold, which would result in annual operating profits in the order of US$50 million at a gold price of US$1200 per oz.
Based on PanTerra Gold borrowing the estimated US$25 million necessary to provide the Taku River barging equipment, and the cost of upgrading the Las Lagunas plant to accommodate the additional project duration, the estimated NPV of the extension to the Las Lagunas project is approximately US$150 million at a 10% discount rate, calculated at commencement of the New Polaris development, January 2017.
This transaction has the potential to substantially increase the value of PanTerra Gold in the medium term with the combined anticipated values of the Canadian mine development, the extension of the Las Lagunas project, and the residual cash flow from the current Las Lagunas tailings retreatment, totalling approximately US$200 million, at a discount rate of 10%.
The 40,000 DMT pa of concentrate from the New Polaris mine will take up only 25% of the Las Lagunas annual plant capacity, providing scope for sourcing additional refractory concentrate that could increase the 100,000 ounces gold per year expected to be recovered from the New Polaris concentrate, with investigations continuing on a number of prospective developments within the region that might add to the New Polaris supply.
The company is now in the position to enhance current production in the near-term if it can purchase high-grade refractory concentrate from existing producers, suitable for blending with the low-grade Las Lagunas tailings.
The company will appoint a major international trading company involved in the market for concentrate containing precious metals, to assist in sourcing additional feed for the Dominican operations.
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