Southern Cross Goldfields (ASX:SXG) should trade higher after securing a $60 million debt package and a new cornerstone investor to repay debt and fund its existing gold project pipeline in New South Wales and Western Australia.
This leaves the company ideally positioned to seize further expansion opportunities.
TrailStone Group, a global commodity trading and logistics company backed with a US$500 million commitment from Riverstone Holdings, is making available two finance facilities, comprising a $25 million gold loan available immediately; and a $35 million credit facility to be drawn down in stages from the first half of 2015.
In delivering its existing projects, SXG plans to draw on the finance facilities progressively resulting in the maximum debt at any time estimated to be around $35 million.
The company is simultaneously undertaking a recapitalisation to raise a minimum $6 million in order to strengthen its balance sheet and deliver a platform for further growth.
This includes $5 million through a share placement to sophisticated and professional investors at $0.01 per share.
The placement will include one free attaching option for every two shares issued, exercisable at $0.014 per option.
To date, SXG directors and management and other new investors have committed to subscribe for $2 million worth of SXG shares under the placement.
Immediately following the placement, TrailStone will subscribe for a minimum of $1 million of SXG shares at the same issue price, however will not be entitled to receive any free options.
If the placement increases to $8 million, TrailStone will subscribe for $2 million of SXG shares.
On completion of the placement and issue of TrailStone shares, current shareholders will be offered the opportunity to participate in a capital raising on similar terms to the placement.
As part of its consideration for providing the credit facility, TrailStone will be issued with warrants exercisable before the end of 2019, on similar terms as the options.
The warrants will be convertible into ordinary shares on a one-for-one basis once conversion is approved by SXG shareholders.
TrailStone is expected to receive approximately 1.25 billion warrants based upon the current SXG share price, with the exact number of warrants to be determined at the time of draw down of the gold loan.
SXG may receive further funds of up to $17.5 million from the exercise of these warrants, and if all warrants were to be converted, TrailStone would hold up to 44% of the company.
These financing arrangements will be sufficient to repay existing debt and deliver staged development of both the Mt Boppy Gold Project in New South Wales, followed by the Marda Gold Project in Western Australia.
Mt Boppy is an open cut, high grade gold project planned to be in production in the first half of 2015.
It is currently estimated to generate in excess of 64,000 ounces of gold over a two year production term at a cash cost of below $600 per ounce.
The Marda Project could be developed to commence production in 2017.
Utilising the existing Sandstone plant, it has an estimated mine life of four years producing 167,000 ounces of gold at a cash cost of below $800 per ounce.
This project has considerable exploration potential, which if realised, may lead to an extension of the mine life.
SXG is currently capitalised at $9 million.
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