This morning, African gold developer Roxgold (ROG:TSXV) announced they have mandated Credit Suisse and Societe Generale to find them $75 million in a senior project debt facility by year end. The money will be used to bring the high-grade Yaramoko project in Burkina Faso into production by early 2016.
The project is expected to cost around $105 million in pre-production capital meaning Roxgold and their bankers believe the project can handle a 75% debt load. As of the last quarter, the company had $38 million in cash in the treasury.
The company was guiding a 60% debt load on the project, but with such strong economics, more debt is justified.
“The proposed facility is expected to provide all of the debt required to finance Yaramoko and represents a significant step forward in the development of the project,” commented John Dorward, President and CEO of Roxgold.
Yaramoko is one of the highest grade undeveloped gold projects in the world which provide for large operating margins and a quick payback on invested capital. The project hosts in-pit probable reserves of 1.996Mt at 11.83g/t gold, containing 759,000 ounces (using a 5g/t gold cut-off grade).
With those grades, the company can build a smaller operation, but one that is extremely profitable. In the current mine plan, Roxgold’s management expects to process ore at a average rate of 750tpd which will produce roughly 100,000 ounces of gold per year. All-in sustaining costs are estimated to be $590 per ounce, making it one of the lowest cost producers in the gold sector.
At $1,100 per ounce gold, the project still works at has an after-tax NPV(5%) of $170 million and an IRR of 35% (at $1,300 per ounce gold those numbers improve to $250 million at 49%).
The project has attracted sophisticated investors abroad including London-based private equity firm, Appian Capital which invested $12.5 million to become a 12% holder. When we spoke with Appian’s young founder, Mr. Michael Scherb, he was very complimentary of the management team at Roxgold and their ability to deliver value.
“They (Roxgold management) are great stewards of capital,” Mr. Scherb told us.
Other large investors include: African Lion, Sprott, US Global, Van Eck, Mackenzie and CIBC.
Roxgold expects this financing effort to be complete by the end of this year at which point they expect to have all the necessary permits in hand and that they will be able to begin underground development by early 2015.