In a move which signals that junior gold companies are still a draw for investors, Kirkland Lake Gold (TSX: KGI; LSE: KGI) has struck a bought-deal financing that will raise $7 million to advance the company’s exploration program.
Under the private placement, which is led by National Bank Financial, Kirkland Lake Gold will issue 1.79 million flow-through shares at $3.90 per share. The underwriters have the option to buy up to 128,205 more shares at the same price for gross proceeds of $500,000.
“We are obviously pleased that we were able to do that financing,” George Ogilvie, the company’s president and CEO, said in a telephone interview. “It definitely says that, when it comes to flow-through shares, there is an appetite for companies who are already in production.”
The company’s Macassa underground mine in northern Ontario produced 122,309 oz. in the 2014 fiscal year — which ended on April 30 — for a 34% year-on-year increase.
The financing will be used for infill and exploration drilling to advance its surface-exploration program in an area that is 1.5 km away from the Macassa mine and mill. It finished an initial resource there for near-surface ounces (from surface to a depth of 1,000 feet, or 300 metres) at the end of April.
The ABM zone hosts an indicated resource of 110,000 tonnes grading 8.6 grams gold per tonne for a total of 30,000 contained oz. gold, and an inferred resource of 46,000 tonnes averaging 10.6 grams gold.
The Amalgamated Break trend contains indicated resources of 171,000 tonnes grading 13.7 grams gold for 74,000 contained oz. gold and inferred resources of 73,000 tonnes of 13.7 grams gold for 32,000 contained oz. gold.
The company believes the near-surface resources could represent a second mining front, which would be accessible by a new decline and add a new mining area for the company, which could produce ounces at lower unit costs for development in the near to medium term. It says that the current mill capacity would support production without additional capital or expansion.
The company is operating two drill rigs in the area and plans to expand the near-surface resource over the next six to 12 months. It has already started work on a preliminary economic assessment of the near-surface zones “to assure the market that there is an orebody that is economically viable,” Ogilvie says, adding that he expects the PEA before year-end.
As of March 31, Kirkland Lake Gold had $41 million in cash and $120 million in debt.
“The near-surface exploration program has been delivering promising results, but KGI’s cash-flow constraints have limited the pace at which it could advance this,” analysts at London-based Investec Securities write in a research note. “The raising now provides it with the backing for additional infill and exploration drilling.”
European institutions own 15% of the company; North American institutions, 45%; management and founders, 21%; and retail shareholders, 19%. The junior’s major shareholders include Eric Sprott, Equinox, Resolute Funds and ABC Funds.
At press time Kirkland Lake Gold traded at $3.36 per share within a 52-week range of $2.21 to $5.59 per share. The company has a total of 70 million shares outstanding.
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