The board of directors of Argonaut Gold (TSX: AR) has approved construction of the company’s wholly owned Magino gold project in Ontario, 40 km northeast of Wawa.
With a two-year construction period anticipated for Magino starting in January 2021, Argonaut expects to pour first gold at the operation in 2023. Before the mine build can begin, the company needs to first file a closure plan and post an assurance bond with the province.
As Argonaut looks to grow its operating asset base, the company has also announced debt financing for the project. This includes debt financing of up to US$175 million, with a US$50 million bought deal offering of senior unsecured convertible debentures and the extension and expansion of its existing US$75 million credit facility, to US$125 million.
While a 2017 feasibility study estimated the initial capital cost for the project at US$321 million, more recent cost estimates pegged the initial outlay at US$360-$380 million, which includes contingency and inflation. The majority of these costs would be due in 2021 and 2022.
In response to the updated cost estimates, Argonaut has developed a financing plan that covers over US$400 million in costs through to 2022. The company closed out the third quarter with US$178 million in cash and expects at least US$50 million from the sale of the convertible debentures, with a further US$30 million expected from the sale of its Ana Paula project in Mexico. In addition, assuming a gold price at or above US$1,600 per oz., the producer expects at least US$142 million in cash flow from its existing operations through to 2022.
The debenture offering, at US$1,000 per debenture, is expected to close around Oct. 13. The underwriters also have the option to purchase an additional 15% of the securities offered to cover over-allotments for 30 days following closing. The debentures mature on Nov. 30, 2025, and can be converted into common shares of the company at a conversion price of approximately US$2.86 per share, with specific conversion conditions.
In addition, the company has received a fixed bid pricing proposal for approximately half of the updated initial capital cost estimate. Argonaut is now reviewing this quote and, if certain terms can be met, expects to enter into a negotiated contract before starting construction next year.
Measured and indicated resources at Magino stand at 144 million tonnes grading 0.91 gram gold per tonne for a total of 4.2 million ounces. The project received federal and provincial environmental assessment approvals in the first quarter of 2019.
A 2017 feasibility study for the project outlines a 10,000-tonne-per-day open pit operation with a 17-year mine life, producing an average of 150,000 oz. gold in the first five years of operation at all-in sustaining costs of US$711 per ounce. The resulting project net present value estimate, at a 5% discount rate, came in at US$288 million.
In July, Argonaut closed a $126.5-million bought deal financing, with the proceeds intended for Magino.