Orla Mining (TSX: OLA) has reached an agreement with Trinity Capital Partners for a project finance facility of up to US$125 million to build its first mine — the Camino Rojo oxide heap-leach gold project in Mexico.
The facility will include a syndicate of lenders led by mining financier Pierre Lassonde, Agnico Eagle Mines (TSX: AEM; NYSE: AEM) and Trinity Capital.
The project in Zacatecas, 50 km southeast of Newmont Goldcorp’s (TSX: NGT; NYSE: NEM) Penasquito mine, would be built for an initial capex of US$123 million and deliver gold as early as mid-2021.
Once in production, the open-pit mine is expected to produce an average of 97,000 oz. gold and 511,000 oz. silver annually over a seven-year mine life at all-in sustaining costs of US$576 per ounce.
Under the commitment letter, announced on Oct. 21, Lassonde, Agnico Eagle and Trinity Capital will provide an initial US$25-million tranche, which Orla can use to order long-lead items.\
Two subsequent tranches of US$50 million each will be available upon closing and once key permits are received.
The five-year facility bears an annual 8.8% interest rate.
In addition, 32.5 million common share purchase warrants will be issued to the lenders, with an exercise price of $3 per warrant, representing a 97% premium to Orla’s closing share price on Oct. 18, and a seven-year term.
The financing offers Orla flexibility, the company says, given that it can repay the loan in full or in part at any time during the term, without penalty, with cash flow from operations.
The financing doesn’t come with mandatory hedges, production payments, offtake, streams or royalties.
The debt facility “notably reduces the financial risk at a competitive cost of capital and supports our view that Camino Rojo is an attractive asset that is gaining the attention of investors,” Andrew Mikitchook of BMO Capital Markets says in a research note.
Tara Hassan of Raymond James also views the financing positively.
“While the news marks a commitment to a facility only, rather than completion of one, with commitments from two major shareholders, we expect Orla will be successful in closing on a sizable facility that will represent the bulk of the funds required to build the project,” she states in a client note. “We are also encouraged by the simplistic nature of the facility, which will not include many of the covenants and cash sweeps required by a more traditional project finance facility, providing Orla more flexibility as it constructs and commissions the project.”
Camino Rojo — a near-surface, oxide gold-silver deposit with a deeper gold-silver-zinc-lead sulphide zone — has measured and indicated resources of 353.4 million tonnes grading 0.83 gram gold per tonne and 8.8 grams silver per tonne, for 9.5 million contained oz. gold and 100 million oz. silver. Inferred resources add 60.9 million tonnes of 0.87 gram gold and 7.4 grams silver for 1.7 million contained oz. gold and 14.5 million oz. silver.
A feasibility study completed in June envisions an 18,000-tonne-per-day throughput rate. Solution from the heap leach will go through a Merrill–Crowe recovery plant, which precipitates gold and silver, and produces doré.
The study uses gold and silver prices of US$1,250 per oz. and US$17 per oz., and forecasts an after-tax net present value at a 5% discount rate of US$142 million, and a 28.7% after-tax internal rate of return.
In addition to Camino Rojo, Orla owns 100% of the Cerro Quema open-pit heap leach project in Panama.
At press time, Orla’s shares were trading at $1.54 in a 52-week range of 85¢ to $1.80.
BMO has a $2.25-per-share target price, and CIBC raised its target price after the news from $1.85 to $2.20 per share, and upgraded its rating from “neutral” to “outperform.”
Orla has 186 million common shares outstanding for a $287-million market capitalization.