Bob Quartermain’s Pretium Resources is the developer of what is one of the world’s most exciting new gold mine developments – and in one of the best mining jurisdictions – Canada’s British Columbia. The deposit is known as Brucejack and is effectively part of a much larger, low grade resource, which Pretium also owns, called Snowfield, which in turn is probably part of an immense low grade resource which also includes Seabridge Gold’s KSM (Kerr-Sulphurets-Mitchell) project. While KSM and Snowfield will probably require a higher gold price and access to huge amounts of capital to develop (quite probably as a single operation which would be one of the world’s biggest gold mines), the Brucejack part of the deposit contains ultra high grade stringers consistent across an area of the deposit known as the Valley of the Kings (VOK) which will make it one of the world’s highest grade gold mines.
The current mining ore reserve for Brucejack is at 16.5 million tonnes grading 14.1 g/tonne gold and 57.7 g/tonne silver for 7.5 million ounces of contained gold and 30.7 million ounces of silver.
Snowfield and Brucejack were owned by Silver Standard Resources for which company Quartermain was President for 25 years and very much the driving force behind the development of the company. After leaving Silver Standard he raised the money to take on Brucejack and Snowfield which Silver Standard did not consider part of their core business, although it retains a significant stake, and set up Pretium Resources to advance the project to where it is today.
Quartermain’s faith in the project was quickly realised and some initial drilling into the high grade areas came up with drill cores that had to be seen to be believed with huge amounts of visible gold – to such an extent that some thought on an initial glance they had to be pyrite. They were definitely not!
Pretium has now announced a US$540 million financing and streaming agreement – concurrent with a go-ahead decision on the development of a major underground gold mine to achieve commercial production in 2017. The capital raised should be sufficient to fund at least 70% of mine construction costs – quite possibly considerably more given the big decline in the Canadian dollar, in which most of the input costs would be incurred, against its US counterpart
The terms of the agreement are fairly onerous, but to raise any money in the current climate is a creditable achievement – and there are get-out clauses with respect to the streaming agreements which could prove worthwhile should there be a big increase in precious metals prices. For some additional opinion on the agreement and its potential pitfalls I’ll refer you to an excellent article by my former Mineweb colleague – Kip Keen – to read click on: Quartermain gets it done
The full Pretium Release on the financing arrangements follows:
Pretium Resources Inc. (TSX:PVG)(NYSE:PVG) (“Pretivm” or the “Company”) is pleased to announce a US$540 million construction financing package (the “Financing”) with the Orion Mine Finance Group and Blackstone Tactical Opportunities (“Orion and Blackstone”). The Financing, which provides for immediate access to US$340 million at closing, will fund a substantial portion of the costs to develop an underground mine at Pretivm’s Brucejack Project. The Financing is comprised of a credit facility for US$350 million, a US$150 million prepayment under a callable gold and silver stream agreement and a private placement of Pretivm common shares for US$40 million. The Financing is expected to close on or aboutSeptember 18, 2015.
- Credit Agreement:
- Senior Secured Loan facility of US$350 million;
- US$150 million will be advanced at closing, and the remaining US$200 million will be drawn within 18 months;
- Fixed interest rate of 7.5%;
- Principal and accrued interest is due at maturity on December 31, 2018, or Pretivm can exercise an option to extend maturity to December 31, 2019 on payment of 2.5% of the principal amount outstanding.
- Offtake Agreement (1):
- Applies to sales from first 7.067 million ounces of refined gold;
- Orion and Blackstone will pay Pretivm for refined gold based on prevailing market prices; and
- Option for Pretivm to repurchase 50% or 75% of the gold offtake on December 31, 2018 for $11 per ounce for remaining gold to be produced; or on December 31, 2019 for $13 per ounce for remaining gold to be produced.
Stream Agreement (1)
- US$150 million in cash will be advanced to Pretivm at closing as prepayment in consideration of a callable stream that applies to 8% of the total precious metals production of 7.067 million ounces of refined gold and 26.279 million ounces of refined silver (the “Refined Precious Metals”);
- Pretivm may elect to repurchase all or a portion of the Refined Precious Metals stream by one of the following options:
- On December 31, 2018, Pretivm can elect to repurchase the entire 8% stream by paying US$237 million or can elect to reduce the stream to 3% of Refined Precious Metals by paying US$150 million, in which case the stream deliveries would commence January 1, 2019; and
- On December 31, 2019, Pretivm can elect to repurchase the entire 8% stream by paying US$272 million or can elect to reduce the stream to 4% of Refined Precious Metals by paying US$150 million, in which case the stream deliveries would commence January 1, 2020.
- If Pretivm does not exercise its right to reduce or repurchase the Refined Precious Metals stream by December 31, 2019, US$20 million will be payable and an 8% stream will apply to the Refined Precious Metals beginning January 1, 2020, with payment of$400 per ounce of gold and $4.00 per ounce of silver.
- In the event of a change of control at Pretivm or the sale of the Brucejack Project by Pretivm prior to the earlier of (a) Pretivm’s reduction or repurchase of the Refined Precious Metals stream or (b) January 1, 2020, Pretivm has the right to repurchase the stream and Orion and Blackstone have the right to sell the stream to Pretivm for consideration equal to the greater of: (i) 13.6% of the consideration received by Pretivm’s shareholders or Pretivm in such a transaction, or (ii) an amount of cash that generates a 15% rate of return on the $150 million stream payment.
(1) The applicable gold ounces from the Brucejack Project under the Offtake Agreement and Refined Precious Metals under the Stream Agreement are the 7.067 million ounces of refined gold and 26.297 million ounces of refined silver which were estimated to be available for sale in the June 2014 Feasibility Study for the Brucejack Project. The gold ounces subject to the Offtake Agreement will be reduced by the amount of refined gold ounces that is subject to the Stream Agreement.
- Each of Orion and Blackstone will subscribe for 3,848,004 of Pretivm’s common shares at US$5.1975 per common share for aggregate proceeds at closing of approximately US$40 million, based on the 20-day volume weighted average price of Pretivm shares at the close on September 15, 2015. The private placement is subject to TSX approval.
“The Orion and Blackstone deal has successfully met our objectives to fund the construction of an underground mine at Brucejack under terms that are competitive, flexible, and that protect Brucejack’s upside for our shareholders,” said Pretivm’s CEO Robert Quartermain. “Having immediate access to US$340 million enables us to keep to our construction schedule. The repayment optionality gives us the scope to refinance during a period of solid cash flows at the mine, and in a potentially higher gold price environment.”
Oskar Lewnowski, Chief Investment Officer of the Orion Mine Finance Group, commented, “As one of the largest investors dedicated to the mining industry, we are delighted to provide a portion of this comprehensive funding solution to the Brucejack Project. We look forward to working with the Pretivm management team on one of the more promising development assets in North America.”
“Blackstone is excited to partner with Robert Quartermain to develop one of the world’s marquee mining assets,” said Jasvinder Khaira, Managing Director of Blackstone Tactical Opportunities. “Our partnership with the Pretivm team is consistent with our strategy of providing innovative and flexible capital to the mining sector to maximize the value of exceptional projects.”
Project Capex and Financing Plan
The US$540 million in proceeds from the Financing cover more than 70% of the estimated capital cost of US$747 million to develop a mine at the Brucejack Project based on the June 2014 Feasibility Study.
At this time, Pretivm is re-examining the remaining capital costs to complete the Project in light of a number of factors. The June 2014Feasibility Study used an exchange rate of US$0.92 to C$1.00, and since the completion of the June 2014 Feasibility Study, the Canadian dollar has decreased in value against the US dollar. As a significant portion of capital expenditures are sourced in Canadian dollars, the decline in the Canadian dollar is expected to be beneficial. In addition, certain of the capital expenditures contemplated in the June 2014 Feasibility Study have already been incurred with the advance of the Project, and Pretivm has begun to examine the opportunities to optimize the Project as engineering advances.
As there is no requirement to fully fund the capex prior to additional advances under the Financing, the timing for additional capital will be evaluated.
Pretivm is also pleased to announce that its Board of Directors has approved a production decision for the Brucejack Project. The production decision was made following receipt of all of the major regulatory permits required to begin development work at theBrucejack Project and the announcement of the financing with Orion and Blackstone.
With US$340 million expected to be in hand from the closing of the financing with Orion and Blackstone, construction at the Brucejack Project will commence with commercial production targeted for 2017.