Edgewater secures $120M financing for Corcoesto

VANCOUVER — Edgewater Exploration (EDW-V) has secured in principle a $120 million debt financing for its flagship Corcoesto gold project in Spain as it moves the project towards production.

The company has entered into a mandate letter with Credit Suisse AG and Barclays PLC for the senior debt financing, though the deal is dependent on standard conditions being met first. Along with the banks completing regular due diligence and credit approval, Edgewater must complete the bankable feasibility study it is currently working on.

The financing goes a long way in covering the expected $160 million the company needs to build the mine and removes one of the hurdles of getting to production. Edgewater, however, had been quite confident it would secure financing, with company president and CEO George Salamis saying in a recent phone interview that there had been a fair bit of appetite from the banks for the project.

“The banks look at this project and they like it because they see something that’s not a nosebleed ridiculous amount of capital to be raised. It’s not a half-a-billion-dollars capex,” Salamis said.

“Even if there is a cost overrun or a blowout if you will, in the capex,” Salamis continued, “it’s not going to be in the hundreds of millions of dollars given the order of magnitude of capex, it will be in the tens of millions. So that’s not a company killer, in this year of capital cost overruns that are killing companies.”

Edgewater continues to work on a feasibility study that will nail down the exact capex for Corcoesto later this year. Salamis said there may be some cost inflation compared to the preliminary economic assessment released last November, but that could well be balanced out by improved mine plans. Salamis said for example the company may be able to eliminate the underground component of the largely open-pit mine, which would have multiple benefits.  

“It means that added risk component of having to go underground potentially gets swept away, along with the capital,” Salamis said.

The financing news comes only a few weeks after Edgewater put out a resource estimate on its Enchi gold project in Ghana, which it is advancing with 49% joint venture partner Kinross Gold (K-T, KGC-N) while the Government of Ghana holding a 10% carried interest.

The initial resource outlined 20.6 million inferred tonnes grading 1.13 grams gold per tonne spread over three zones for 749,000 contained oz. gold. Edgewater noted that the resource, hosted mainly in oxidized saprolitic rock, sits at or near surface and generally extends to about 75 metres depth. Salamis said the resource came as a positive surprise.

“In terms of forward looking we’d estimated about half a million oz. based on the work we had done, so when we came out with something close to 750,000 oz. at a pretty conservative cut-off level we were pretty happy with that figure,” Salamis said.

The resource is based on a cut-off of 0.7 grams gold, while a drop to a 0.5-gram-gold cut-off brings the total contained ounces to a little over a million at a grade of 0.89 grams gold.

“In this era of West African companies who are putting out 0.2 to 0.3 gram cutoffs on 0.8 gram average resources, we thought this was a pretty conservative view of a resource,” Salamis said.

The resource is just an anchor for the Enchi project though, with numerous other targets identified and a fair bit of exploration potential. The Enchi property, which Edgewater secured from Red Back Mining before its takeover by Kinross, spans 568 sq. km in southwest Ghana and covers 50 km of the Bibiani Shear Zone. Kinross’s Chirano mine, sitting some 60 km north, also straddles the Bibiani shear, and like Enchi is spread over several pods of mineralization separated by dead zones.

Edgewater had a VTEM survey flown over the property last year that identified 10 new targets on top of the many targets Red Back had already discovered. The company is now conducting 10,000 metres of drilling with one rig plus survey and sample work to follow up on the targets.

But with capital markets tight Edgewater is concentrating most of its resources on its flagship Corcoesto project. Along with the feasibility study and the financing the company is looking to complete an updated resource and exploitation and environmental permitting by the end of the year.

“For the time being we have to focus most of our resources on Spain, because that’s the project that’s going to get us into the gold production business,” Salamis said.   

The Corcoesto project sits in the autonomous region of Galicia in the northwest corner of Spain, which means all permitting happens at the local and state level with no approvals needed from Madrid. Edgewater reports it has strong local support with the mine not presenting relocation or significant environmental issues. Just days ago the Galician government designated Corcoesto as a strategic industrial project.

Last November’s PEA on the project outlined a 6,000-tonne-per-day open-pit mine producing 102,000 oz. gold per year for 10 years. Based on US$1,300 per oz. gold, the financials worked out to a pre-tax net present value of US$206 million using a 5% discount rate, an internal rate of return of 24%, and a 3.4-year payback.

The mine plan calls for milling about 2.1 million tonnes a year at a 1.7-grams-gold feed grade and achieving an 89.1% recovery. The strip ratio is fairly high at 8 to 1, with the company mining three separate pits, with cash costs expected to be US$713 per oz. gold.

The PEA was based on a resource 5.8 million measured and indicated tonnes grading 1.74 grams gold plus 20.3 million inferred tonnes grading 1.76 grams gold. The company launched a 20,000-metre drill program soon after the study came out to upgrade a good part of the inferred resource so it can be included in the feasibility study. The resource update, expected around August, however isn’t expected to add much in the way of total ounces. The deposits are all open at depth, but the company is holding off on any deep drilling for the time being.

Edgewater’s share price climbed closed unchanged at 40¢ on news of the financing. The company has 67 million shares outstanding, of which Kinross holds 5%, insiders hold 19%, and institutional shareholders hold 38%.