Silver Lake Resources grabs troubled Harte Gold

Australia’s Silver Lakes Resources (ASX: SLR) said on Friday it had won the bid for Harte Gold (TSX: HRT), whose sole asset is the three-year-old Sugar Zone mine in Ontario, Canada.

The announcement comes only days after a second potential, anonymous buyer for the troubled gold miner emerged.

The deal comprises US$74.5 million in credit to the buyer, reflecting the value of loans Harte owes the South Perth-based miner. It also involves nearly US$22 million out of the money hedge book and accounts associated with the operation of the Sugar Zone, the issuing of Silver Lakes shares at an estimated value of US$28 million, and a small cash consideration of up to US$3 million, the companies said.

Silver Lake has also entered into an agreement to acquire a combined 2% net smelter royalty on the entire Sugar Zone property, for US$22 million payable in Silver Lake shares. The transaction is subject to the successful acquisition of Harte Gold, it said.

The Sugar Zone mine, 30 km north of White River, sits on about 81,000 hectares of a gold-rich greenstone belt east of the Hemlo area gold mines. The asset, in operations since 2019, is expected to have a productive life of 13 years at current production levels.

Sugar Zone is slated to churn out 102,000 ounces of gold by 2023, with sustainable yearly production of 98,700 ounces from that point to 2027.

Despite its potential, the asset gave Harte Gold numerous headaches from the get-go. On top of dealing with poor ventilation underground, the company faced equipment failures, the freezing of its tailings due to severe weather, higher-than-estimated costs, and both the quantity and grade of gold recovered at the mine being lower than expected.

These factors drove the troubled Canadian miner to announce in May it would not generate sufficient cash from the operation to fully fund its planned investment activities, including a tabled expansion of the mine, and its debt service obligations to French bank BNP Paribas.

Shortly after, the Toronto-based company kicked off the process of looking for a buyer last year, as part of a strategic review process.

Harte said in the Fall of 2021 it was in danger of running out of money and warned about an imminent mine shutdown by year’s end unless there was a cash infusion.

Silver Lake came into the picture in November, acquiring credit facilities provided by BNP Paribas to Harte Gold. It also committed to loan the Canadian miner up to C$10.8 million ($8.6m) to fund mining operations through the creditors protection proceedings.

The Sugar Zone underground mine has 797,000 ounces of gold reserves at 7.18 grams gold per tonne, similar in nature to the Rothsay and Mt. Monger mines that Silver Lake operates in Australia, where it produces around 250,000 ounces of gold a year.

Aussie advance

Silver Lake’s Canadian foray is one of the latest incursion into North America for Australia’s mid and large cap gold miners.

Northern Star (ASX: NST) bought the Pogo gold mine in Alaska from Sumitomo in 2018. Newcrest Mining (TSX: NCM; ASX: NCM) followed suit, by securing the Red Chris mine in British Columbia for $1.1 billion in 2019 and buying Pretium Resources in November for US$2.8 billion.

Evolution Mining (ASX: EVN) and St Barbara (ASX: SBM) have also been acquiring properties and juniors in the maple leaf country, but has yet to score a major buy.

Earlier this week, Newcrest cemented its acquisition of Pretium Resources, which granted Australia’s largest gold producer access to the target company’s Brucejack underground gold mine in British Columbia.