Galena Mining Ltd (ASX:G1A) has mandated Taurus Funds Management Pty Ltd to provide US$110 million in project financing debt facilities to take the Abra Base Metals Project in Western Australia closer to production.
This has led to Toho Zinc Co Ltd (TYO:5707) allowing the release of their final A$60 million equity investment and both represent a strong endorsement of the world-class project.
Abra Mining Pty Limited (AMPL), the joint-venture company for the Abra project, mandated Taurus Funds Management Pty Ltd to provide the debt facilities through Taurus Mining Finance Fund No2 LP.
This is made up of:
- A US$100 million term loan (project finance facility); and
- A US$10 million cost overrun loan (cost overrun facility).
Approval of the Taurus debt facilities by Galena’s co-shareholder in AMPL, Toho Zinc, allows the release of their final investment tranche into AMPL once the facilities are in place and drawdown conditions are met.
"Fulsome funding package"
Galena managing director Alex Molyneux said: “The US$110 million of debt funding, together with the final A$60 million investment to be received from Toho on implementation of the facilities, provides an efficient and fulsome funding package to bring the outstanding Abra base and precious metals project to fruition in a way that provides robust shareholder returns.”
Shares in Galena, which has a market cap of approximately $115.1 million, have been as much as 16% higher to 29 cents intra-day.
Taurus debt facility terms
The project finance facility consists of a US$100 million, 69-month term loan primarily to fund capital expenditures for the development of Abra.
Key terms include:
- Fixed interest of 8.0% per annum on drawn amounts, payable quarterly in arrears;
- Arrangement fee of 2.5% and commitment fee of 2.0% on undrawn amounts;
- No mandatory hedging;
- Early repayment allowed without penalty, and;
- US$30 million drawable until the previously announced infill drilling is complete.
The remainder will be drawable once the infill drilling is incorporated into the cash flow model and the model continues forecast compliance with lock-up financial ratios.
A cost overrun facility consists of a US$10 million loan to finance identified cost overruns on the project in capital expenditure and working capital.
Fixed interest of 10.0% per annum will apply to amounts drawn under the cost overrun facility.
In consideration of the Taurus debt facilities, AMPL has proposed to issue the lender a royalty of 1.125% of net smelter return, which is the same amount as the historical vendor royalty terminated by AMPL after completion of the Abra feasibility study.
The Abra Base Metals Project is a globally significant lead-silver project in the Gascoyne region of Western Australia.
Toho final investment tranche
Under the terms of the Toho investment arrangement, the full payment of the final investment tranche will result in Toho increasing its shareholding in AMPL to 40% (from 13.84% currently), diluting Galena to 60% ownership.
Toho, Taurus and Galena have agreed that the final A$60 million Toho investment tranche will be split into two sub-tranches of:
- A$20 million to be received prior to the drawdown of the first US$30 million of the Project Finance Facility; and
- The remaining A$40 million to be received once other conditions to drawing the remainder are met.
Toho is the leading producer of lead in Japan and has entered into a binding offtake agreement to purchase 40% of Abra’s production for an initial period of 10-years from the commencement of production.
The A$30 million investment received from Toho to date has been used to prepare the Abra site and advance early project works.
Project works are around 12% complete, and the site is being prepared for the deployment of key contractors for the construction of the plant and ancillary infrastructure, as well as the deployment of the underground mining contractor.
Key agreements for these services have been awarded (or will be in the near term), further advancing on the completion of permitting, native title arrangements and offtake achieved in 2019.