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Blackham Resources receives credit approval for first $21 million tranche of prepaid swap

Last updated: 10:42 21 May 2020 AEST, First published: 10:17 21 May 2020 AEST

Blackham Resources Ltd - Blackham Resources receives credit approval for the first tranche of prepaid swap with Mercuria Energy
As part of the arrangement, Mercuria will provide the company with a secured gold hedging facility

Blackham Resources Ltd (ASX:BLK) has signed an updated, indicative term sheet with Mercuria Energy Group providing A$21 million in the form of a prepaid swap on gold with a supporting hedge facility, and an intention to a further A$40 million, for a total of up to A$61 million.

The company has received credit approval from Mercuria for the A$21 million first tranche, which is now only conditional upon finalisation of the usual legal documentation.

Blackham executive chairman Milan Jerkovic said: “This is an excellent result for Blackham as, along with the A$52 million equity injection early this year, provides important funding for our Stage 1 Expansion.

“The ability to upsize the prepay amount by up to an additional A$40 million, and to align this to our revised capital requirement timetable on the Stage 1 Sulphide extension, gives us real flexibility to finish the Stage 1 Expansion and fast track studies for Stage 2.

“We are delighted to be able to enter into an agreement with a global, respected counterparty like Mercuria, and this is extremely positive for the company and our shareholders, and a great show of support for our growth strategy.”

Shares have been as much as 17% higher in early trade to 1.4 cents.

The additional A$40 million will be made available upon further certain conditions being satisfied and is not part of Mercuria’s initial credit approval.

Hedging facility

As part of the prepaid swap facility, Blackham has negotiated a favourable, ongoing hedging facility with Mercuria which will see approximately 34,000 ounces of gold hedged at prevailing spot gold prices over a 12-month period as a condition of the drawdown.

This hedge facility is welcomed in a time of important cash flow management, high gold prices, as well as developing a longer-term relationship with Mercuria.

Capital expenditure timeline

The updated terms of the facility, which replaces the initial indicative non-binding term sheet announced on February 26, 2020, better aligns the drawdown of funds to the company’s current proposed capital expenditure commitment timeline.

The facility gives Blackham the flexibility of drawing a further A$40 million, if required and subject to Mercuria credit approval, which is contingent on Blackham further developing and upgrading its Stage 1 Expansion mine plan and financial model.

Due to COVID-19 issues, the company has delayed the planned construction of the concentrator at Wiluna by six months.

In the meantime, Stage 1 Expansion underground mine development and resource to reserve conversion drilling will continue to further de-risk the proposed Stage 1 mine plan.

A drilling program is underway with seven rigs drilling on-site and this is expected to be completed by the end of the calendar year.

Five of those rigs are drilling at the Wiluna Mining Centre to assist with the mine planning and resource/reserve conversion.

Five-point strategy

Jerkovic said: “This initial funding from Mercuria, together with the $52 million equity funding completed last month, allows us to continue to advance our 24-month, five-point strategy which is to:

  1. Strengthen the balance sheet,
  2. Maintain and increase immediate operational cash flow,
  3. Transition to include gold concentrate production,
  4. Expand production, and
  5. Undertake exploration and feasibility studies to fully develop a more than 250,000 ounce per annum, long life, gold operation”.

The two companies will now prepare all appropriate documents for final execution of the agreement.

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