Roxgold finances Yaramoko

Roxgold (TSXV: ROG; US-OTC: ROGFF) has de-risked its Yaramoko project in Burkina Faso with a US$75-million debt-financing package from several European banks, and a US$15-million equity investment from its underground mining contractor in Africa. That will leave the company nearly fully financed to build the 100%-owned gold project, and break ground in this year’s fourth quarter.

Roxgold has awarded a four-year mining services contract to a subsidiary of African Underground Mining Services (AUMS). Under the agreement AUMS will make an initial US$5-million investment in the junior. The contract gives Roxgold the option to issue another US$10 million of its shares in exchange for pre-production underground development work.

Roxgold has also signed a commitment for a US$75-million senior project debt facility with Société Générale Corporate & Investment Banking and Credit Suisse AG. The facility also includes a US$20-million equity-funded cost overrun account and a hedging component (65,000 oz. gold, or 8.5% of Yaramoko’s current reserves over the life of the six-year loan).

In a prepared statement, company president and CEO John Dorward describes the debt-financing package’s interest rate (London interbank offered rate, plus 4.3% to 4.75%) as “very competitive,” and noted that other than the standard Burkina Faso government royalty, the project is not weighed down by third-party royalties, and doesn’t hold streaming arrangements. 

“The ability of management to secure funding from multiple sources in an uncertain gold-price environment appears to underscore the quality of the Yaramoko project,” Andrew Breichmanas of BMO Capital Markets said in a research note, after the financings were made public.

At Haywood Securities, Roxgold is one of mining analyst Tara Hassan’s favoured development names. “In a market that is increasingly focused on asset quality, we believe Roxgold is likely to attract attention given its ability to deliver high-margin ounces for a lesser capital outlay and at reduced execution risk, relative to some peers,” she said in a research note on Oct. 1.

“With Roxgold delineating some of the highest-grade rock in West Africa, a solid team in place to develop the project and attractive exploration upside remaining at the project, we believe it is a name to focus on — even in a challenging gold-price environment.”

Based on a feasibility study completed in April, the planned underground operation would run at 750 tonnes per day and produce an average of 99,500 oz. gold a year over its 7.4-year mine life at all-in sustaining costs of US$590 per oz., which is a 17% decrease from estimates in the preliminary economic assessment. Average total cash costs including royalties are pegged at US$467 per oz. — 12% less than the PEA.

The faesibility study is based only on the project’s flagship 55-zone’s indicated resource, which, at a cut-off grade of 5 grams gold per tonne, stands at 1.6 million tonnes grading 15.80 grams gold for 810,000 contained oz. gold.

Elsewhere in Burkina Faso, Roxgold is exploring its Bagassi South target — part of its Yaramoko permit and just 1.8 km from the project’s 55-zone.

Ron Stewart and Mohamed Abo Daff of Macquarie Research believe there’s room to grow. “We see a possibility for ROG to roughly double its resource base to 1.5 million to 2 million oz., with an associated 50% mill expansion that could cost as little as $10 million,” they say in a research note. “This growth potential is driven by: 1) the downdip potential on the 55-zone; 2) Bagassi South, which could add 200,000 to 300,000 oz. to the existing resource at similar grades; and 3) Haho, a large anomalous and highly prospective target area, located in the Boni shear zone.”

The Macquarie analysts have a $1.40-per-share target price, while Sadowski of Raymond James has a $1.20-per-share price target and Breichmanas of BMO Capital Markets a $1-per-share target.

Over the last year Roxgold’s shares have traded within a range of 39¢ to 93¢ per share, and at press time traded at 72¢.