Executive chairman Nick Ferris of Sona Resources (SYS-V) had been trying to source financing for some time to advance the junior’s Blackdome-Elizabeth gold project in the Clinton and Lillooet mining districts of B.C., 220 km north of Vancouver, but it was a tough slog.
“Trying to raise a dollar these days is so hard,” he says. “The capital markets have become exceptionally dysfunctional.”
So when a chance to work with Beijing-based contractor China Machinery Engineering Corp. (CMEC) came along in the first half of 2012, the Vancouver-based company jumped at the opportunity to do a deal.
CMEC — China’s first large state-owned corporation to integrate engineering contracting and foreign trade with industry — was founded in 1978. Since then it has carved out a niche offering turn-key solutions to companies and governments globally, but mainly in the developing world. CMEC listed on the Hong Kong Stock Exchange late last year.
Under the memorandum of understanding (MoU) Sona has signed with CMEC, the Chinese giant will help the junior arrange a buyer’s credit for production-debt financing through Chinese financial institutions for 85% of its capital requirements for the Blackdome-Elizabeth project, or up to US$55 million.
Ferris says that CMEC would build and deliver turnkey operations for the project based on an engineering, procurement and construction contract; provide for ongoing resource definition and expansion; and collaborate with Sona to train members of the local First Nation communities.
Principal and interest payments (8%) will start three months after the Blackdome-Elizabeth project reaches full commercial production, with Sona serving as project operator.
“We like this deal: the terms I think are attractive for the company, and should be of good benefit to shareholders,” Ferris says in a telephone interview. “We’ve had other interests that have not worked out, so we’re pursuing this. This just appeared to be so straightforward.”
Sona’s 100%-owned Blackdome mine and mill, 67 km northwest of Clinton, was in production for four years in the late 1980s. Sona aims to bring the fully permitted Blackdome mill back into production at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine, and later from feed trucked from the Elizabeth gold deposit, 30 km south of Blackdome. The combined deposits would have a seven- to eight-year mine life.
A preliminary economic assessment by Micon International in 2010 was based on underground mining at the Blackdome deposit first and the Elizabeth deposit second, with all processing at the Blackdome mill after the plant is refurbished. At a gold price of US$950 per oz. over an eight-year mine life, the PEA concluded that costs per tonne mined would be US$208, or US$686 per oz. gold recovered, based on 23,500 oz. gold recovered a year.
Metallurgical recoveries are forecast at 94% for gold and 78% for silver. About 60% of the precious metals could be recovered from the gravity circuit, with the balance from the flotation circuit. Gold and silver from the gravity recovery would be poured into doré bars on-site, with a flotation concentrate shipped to a smelter for processing.
Ferris estimates that it would take 18 months to complete construction. Permitting would be done through the Mines Act, because the company only plans to mine 200 tonnes a day or less at both sites. “There isn’t going to be a lot in the way of new surface disturbance,” he adds. “They’re tiny footprints, both projects, and everything is going to be milled at Blackdome, so it’s fairly uncomplicated.”
Blackdome has indicated resources of 144,500 tonnes grading 11.29 grams gold per tonne and 50.01 grams silver per tonne for 52,600 contained oz. gold and 232,300 oz. silver. Inferred resources at Blackdome add 90,600 tonnes grading 8.79 grams gold and 18.61 grams silver for 25,900 contained oz. gold and 54,400 oz. silver. At the Elizabeth deposit, inferred resources stand at 522,843 tonnes grading 12.26 grams gold for 206,139 contained oz. gold.
Ferris says that he is confident the company can put the deposits into production, and dismisses arguments that the project is too small. “One of the things that I hear all the time is that you need a million ounces in order to build a mine, but that’s kind of silly,” he says. “Gold production has been falling for many years . . . gold is still a rare metal . . . [and] there are very few high-grade deposits. There aren’t a lot of Red Lakes, so large, high-grade deposits are extremely rare.”
Ferris also makes the point that historically, many mines were built based on the “ore in front of them” and they kept mining as they discovered more. “Some of the mines in Ontario and Quebec have been going for decades now, and they’ve never had huge numbers of resources in front of them,” he says. “I wonder how many mines would have gone into production if they needed a 43-101 resource.”
From the Chinese point of view, Ferris says, the MoU will give them a toehold in the Canadian market. “CMEC is a large, well-connected engineering firm, and most of their work is on infrastructure, factories and hydro-power plants,” he says. “Most of their work has been in developing nations and in China, so they get a chance [with this deal] to enter into the developed world with a mine that is fairly quick to production.”
And given the poor market conditions for juniors, Ferris says, he wouldn’t be surprised to see more deals like this one. “People are looking to invest in projects that can produce, and I think you’re going to see deals similar to this, or a variation of them in acquiring near-term production from gold mines.”
At press time, Sona was trading at 57¢ a share within a 52-week range of 18¢ to 82¢. It has 23.5 million shares, fully diluted.