Spanish Mountain Gold to raise up to $3 mln in brokered private placement financing

Spanish Mountain Gold (CVE:SPA) has announced that it will raise up to $3.0 million in a private placement financing to advance its properties in British Columbia. 

The brokered offering, led by Secutor Capital Management, will comprise of flow through units, sold at a price of 33 cents each. 

Each unit will be made up of one common share, which will be designated as a flow through share for Canadian tax purposes, and one half of one share purchase warrant. 

Every warrant will allow for the purchase of one additional share at a price of 45 cents, for a period of 18 months from closing. 

Secutor has also been given an over-allotment option to buy up to an additional 15 per cent of the total size of the financing. The option can be used at any time prior to the closing date, which is anticipated around December 12. 

The company said the new funds will be used to incur exploration expenses on its properties in BC. The financing still needs approval from the TSX Venture Exchange, and is subject to other conditions as well. 

The news today follows Spanish Mountain's announcement earlier this month, of the preliminary economic assessment (PEA) for the project it has been drilling since 2005 in central British Columbia, with the report estimating a pre-tax net present value of US$454 million and an internal rate of return (IRR) of 15%. 

The Spanish Mountain gold project in BC is projected to have a 15 year mine life, producing an average of 197,000 ounces of gold per year for the first 14 years, with total life-of-mine production of 2.8 million ounces of the yellow metal and one million ounces of silver. 

The property, with higher grade gold closer to the surface, has estimated average gold production of 268,000 ounces per year for the first three years of operation, and an average feed grade of 0.7 grams per tonne (g/t) gold. 

The grade for the first three years is relatively high, considering the average grade over the 15-year life of the mine is projected at 0.48 g/t gold. 

According to the company, cash costs of US$526 per ounce for the first three years are also considerably lower than the industry average of $714 per ounce for the first half of this year. For the full life of the mine, cash costs are projected at US$774 per ounce. 

"Due to the nature of the deposit we can benefit from higher grade production over the first few years providing the potential for a reduced payback period," president Brian Groves recently told Proactive Investors.

Using a discount rate of 5% and a 40,000 tonne per day scenario, the resulting pre-tax net present value of US$454 million is much higher than Spanish Mountain Gold's market cap of just $55 million - implying a near 9 times multiple - a significant spread. 

The NI 43-101 report, which shows the economic viability of building a new gold mine and mill complex at the project, estimated a post-tax net present value of $291 million using the same 5% discount rate, with an IRR of 12%, after tax. 

Initial capital costs were pegged at US$755.9 million, including contingency, meaning the project will be easier to finance given comparative projects out there with capex estimates of well over $1 billion. 

The company says it has a strong cash position with no debt and owns 100 per cent of four gold properties in British Columbia.