Over the last year, Continental Gold (TSX: CNL; US-OTC: CGOOF) has met a lot of goals in Colombia.
It received the final environmental permit for its Buritica gold project last November, and in May closed private placements with Newmont Mining (NYSE: NEM) and Red Kite.
The company has ordered long lead-time equipment — semi-autogenous grinding and ball mills, tailing filters, thickeners and a water-handling and treatment plant — and hired key project personnel. In April Continental confirmed that it is on track to pour its first gold in early 2020.
But the gruesome deaths last month of six security contractors on the Buritica concession has cast a pall over the company and the country.
The security contractors were apparently accosted and later asphyxiated by a group of illegal miners after an explosion in an illegal underground mine that had been closed by the government.
The company said in a press release that the contractors were carrying out routine inspections underground at an illegal mine on its property. When they entered the mine, they were confronted by a group of illegal miners, after which there was an explosion. A seventh contractor escaped.
Continental Gold did not respond to requests for an interview, but in prepared remarks in its July 29 press release, Ari Sussman, the company’s CEO, strongly condemned the murders.
“It is shameful that this incident has tarnished the remarkable progress made in establishing peace in the municipality over the past 18 months,” he said. “These efforts have been fully embraced by the local community, which has publicly voiced their strong preference for the benefits of legal versus illegal activities.”
Continental noted that the National Government of Colombia, the State Government of Antioquia and the Municipal Government of Buritica had closed “the vast majority” of illegal mines within the Buritica area during an intervention in 2016, however, “a few illegal mines continue to operate.”
“The company is looking to authorities to enforce the rule of law to prevent this kind of tragic event from ever happening again.”
Mateo Restrepo Villegas, Continental’s president, added that the company “will remain vigilant in our efforts to support Colombia in addressing and resolving this problem” and will “remain committed to working with the Colombian government to eradicate illegal mining in the region.”
In the meantime the company is pressing ahead to keep the project on track for production in three years. Continental reported in April that site excavation scheduled in the third quarter and initial concrete pours in the fourth quarter would be finished by June 2018 to install initial structural steel.
Buritica’s capex of US$389 million, outlined in a 2016 feasibility study, will be fully funded, with US$403 million of available cash and debt allocated.
In January, Continental signed a definitive credit agreement with Red Kite Mine Finance for a US$250-million secured debt facility. The debt facility provided immediate access to US$100 million to advance the project.
The second US$100-million tranche is available once Continental secures another US$100 million in net equity financing.
Red Kite also committed to investing another US$25 million in equity (not linked in the US$100 million net equity financing); and a third tranche of US$50 million is available when the Buritica project is at least 65% complete and the company has enough capital (including Red Kite’s final tranche of US$50 million) to complete the project.
The term of the senior facility is 7.5 years and the agreement bears interest at three-month London interbank offered rate (LIBOR), plus 8%, with a minimum 1% LIBOR rate.
The agreement with Red Kite includes a fixed production-linked payment of US$20 per oz. gold on the first 1.25 million oz. produced. The number of ounces subject to payment will be pro-rated if the company doesn’t draw down the full US$250 million.
Continental also issued Red Kite 3 million warrants with a four-year term and an exercise price of US$3.67 per share.
In May, Continental completed two private placements, one with Red Kite Mine Finance and a second with Newmont.
Red Kite bought a 4.6% stake in Continental, investing US$25 million for 8.59 million shares at $4 per share.
Newmont also acquired a 19.9% strategic stake in Continental in a private placement (buying 37.38 million shares for US$109 million. In addition, the two companies signed a binding investment agreement, which included a standstill until the Buritica project reaches commercial production; a 12-month lock-up on share dispositions; participation rights in equity financings to keep its interest; and a right of first offer for any non-equity financing greater than US$30 million.
Newmont and Continental will form joint technical and exploration committees; Newmont will appoint one director to Continental’s board; and the two companies will form an alliance to evaluate opportunities to partner on exploration on other properties Continental has in Colombia.
Drills are also turning for the first time in more than two years. Last month, Continental started a 15,000-metre, first-phase expansion underground drill program.
Three drill rigs are operating and another two are expected at the end of the third quarter. The program will include infill drilling of probable reserves and inferred resources to move them into higher classification categories.
Step-out drilling will also target high-grade extensions along probable reserve blocks and inferred resources, and later in the program, drills will assess multiple targets that have been identified in grassroots exploration since 2015.
Continental describes both the Yaragua and the Veta Sur deposits as “wide open for expansion.”
First drill results from the campaign are expected in September.
Buritica, in Antioquia, has reserves of 13.7 million tonnes grading 8.4 grams gold per tonne for 3.7 million contained oz. gold.
At press time Continental’s shares traded at $3.18 within a 52-week range of $2.62 (May 2017) and $5.75 (February 2017).
The company has 188 million shares outstanding for a $597-million market capitalization.