06:17:48 EDT Fri 31 Mar 2023
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Argonaut Gold Inc
Symbol AR
Shares Issued 330,977,075
Close 2022-06-22 C$ 0.79
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Argonaut Gold increases Magino cost estimate to $920M

2022-06-23 09:57 ET - News Release

Mr. Larry Radford reports


Argonaut Gold Inc. has reaffirmed the estimated cost to completion of its 100-per-cent-owned Magino project and arranged a financing package that is expected to fully finance construction of the project.

Debt commitment

The company has received a binding commitment letter from a syndicate of lenders for the financing of a six-year, $200-million (U.S.) term loan credit facility and a three-year revolving credit facility of $50-million (U.S.) for a total debt facility limit of $250-million (U.S.). The proceeds of the facilities are to be used to refinance the company's existing debt and for general corporate purposes, including continuing development and expansion capital of the Magino project in Ontario, Canada, and other producing assets.

Larry Radford, president and chief executive officer of Argonaut, commented: "Magino is a long-life, low-cost mine in an outstanding mining jurisdiction. This debt financing arrangement, alongside the proposed equity financing, will put Argonaut Gold in a strong financial position to complete the Magino project and move it forward into production by the end of Q1 2023."

Key facility terms

The term loan facility of $200-million (U.S.) is a six-year term and is to be repaid in 20 quarterly principal repayments equal to 5.0 per cent of the outstanding balance commencing on Sept. 30, 2023, with no penalty for voluntary prepayment.

The revolving credit facility of $50-million (U.S.) is a three-year term.

The facilities will bear an interest rate of 1.25 per cent per annum on the committed but undrawn portions, and a rate on drawn portions equal to the adjusted term secured overnight financing rate plus 6.00 per cent per annum.

At closing, $80-million (U.S.) from the facilities will be available to refinance existing secured debt, with additional drawdowns available following satisfaction of conditions precedent. Closing is expected by the end of August, 2022.

In addition, conditions precedent to the availability of the facilities include, without limitation:

  • Mandatory gold hedging by the company covering 300,000 ounces at a certain minimum hedge price between 2023 and 2027;
  • Canadian-dollar-to-U.S.-dollar foreign exchange hedging program by the company covering the period up to project completion and rolling 12-month coverage thereafter;
  • A minimum of $150-million (U.S.) (net of fees and expenses) in equity to be raised, of which $123-million (U.S.) must be raised and spent prior to initial drawdown;
  • Independent technical engineers and the lenders to complete a detailed review of:
    • Updated cost to complete estimate and project schedule in respect of the Magino project;
    • Grade control drilling plan and master blasting plan;
    • Magino project operating costs;
    • Other information reasonably requested by the independent technical engineers;
  • Evidence that sufficient financing is available to achieve project completion for the Magino project;
  • Other customary conditions precedent.

Dave Ponczoch, chief financial officer of Argonaut, said: "Under the terms of the new facilities, Argonaut is able to access up to $250-million (U.S.) as needed for corporate and development purposes. The size and terms of the facilities give Argonaut the flexibility to meet all foreseeable requirements for the near future."

The company anticipates that the debt financing solution, together with the equity contribution from the proposed equity financing, will fully finance the remaining portion of its Magino project. Endeavour Financial assisted the company as its financial adviser.

Proposed equity financing

In addition, the company is commencing a marketed offering of common shares of the company. The offering will be conducted through a syndicate of agents led by BMO Capital Markets, Scotiabank and Cormark Securities.

The net proceeds of the offering will be used for the development of the Magino project and for general corporate purposes.

The offered shares will be offered in each of the provinces and territories of Canada, other than Quebec, pursuant to a prospectus supplement to the company's base shelf prospectus dated June 2, 2022, and in the United States on a private placement basis to qualified institutional buyers pursuant to an exemption from the registration requirements of the U.S. Securities Act of 1933, as amended.

The offering is expected to be priced in the context of the market, with the final terms of the offering to be determined at the time of pricing. There can be no assurance as to whether or when the offering may be completed, or as to the actual size or terms of the offering. The closing of the offering will be subject to market and other customary conditions and Toronto Stock Exchange approval.

In addition, the company will grant to the agents an option, exercisable in whole or in part, in the sole discretion of the agents, at any time up to 30 days from and including the closing date of the offering, to offer to sell up to an additional 15 per cent of the offered shares pursuant to the proposed offering on the same terms and conditions to cover overallotments, if any, and for market stabilization purposes.

Copies of the prospectus, following filing of the prospectus supplement, may be obtained on SEDAR and from BMO Capital Markets, Brampton Distribution Centre, care of the Data Group of Companies, 9195 Torbram Rd., Brampton, Ont., L6S 6H2, by telephone at 905-791-3151 (extension 4020) or by e-mail at torbramwarehouse@datagroup.ca. The prospectus contains important detailed information about the company and the proposed offering. Prospective investors should read the prospectus and the other documents the company has filed on SEDAR before making an investment decision.

Corporate governance

The board of directors of Argonaut formed a special committee, consisting of unconflicted members of the board, to consider the proposed terms of the offering, including the number of securities issuable, the number of offered shares issuable to insiders and the offering price being at a discount to the market price. The special committee has met separately from the full board. After careful consideration, the special committee unanimously recommended that the company approve the terms of the offering relating to these matters.

The involvement of insiders in the transactions referred to herein in connection with the offering are related party transactions within the meaning of Multilateral Instrument 61-101, Protection of Minority Security Holders in Special Transactions, and the company is relying on the exemptions in sections 5.5(g) and 5.7(e) of MI 61-101 in connection with such transactions.

Argonaut has made application to the Toronto Stock Exchange, pursuant to the provisions of Section 604(e) of the TSX company manual, for a financial hardship exemption from the requirements to obtain shareholder approval of the offering, on the basis that, absent the offering, the company is in serious financial difficulty due to the lack of available cash and financing resources. The offering is designed to improve the company's financial situation. The application was made upon the recommendation of the Special committee and was based on the determination that the transactions are reasonable for Argonaut in the circumstances.

Argonaut expects that, as a consequence of its financial hardship application, the TSX will commence a delisting review of Argonaut, which is normal practice when a listed issuer seeks to rely on this exemption. Although Argonaut believes that it will be in compliance with all continued listing requirements of the TSX and will be in a strong financial position upon the closing of the offering and the facilities, no assurance can be provided as to the outcome of such review or continued qualification for listing on the TSX. There can be no assurance that the TSX will accept the application for the use of the financial hardship exemption from the requirement to obtain shareholder approval described herein.

Magino construction update

The company has recently completed a detailed review of the estimated cost to completion (EAC) of its Magino project and, consistent with the company's press release dated May 11, 2022, now estimates the EAC at approximately $920-million, a $120-million increase from the Dec. 14, 2021, EAC of $800-million. As at May 31, 2022, the company had committed approximately $659-million, had incurred approximately $473-million, and estimates the project is approximately 50 per cent complete and that the project remains on schedule for first gold pour by the end of March, 2023. The Magino project management team has been augmented to improve project controls.

The updated EAC factors in the following changes:

  • An updated estimate for the engineering, procurement and construction contract, including direct and indirect costs to maintain first quarter 2023 production;
  • Incorporation of actual contractor productivities;
  • Escalation of pricing of consumables, such as diesel and explosives;
  • Refinement of contingency to $34-million (representing a reduction of $26-million) and inclusion of management reserve of $14-million, with management reserve being defined as having an identified scope with a lower probability of needing to be spent;
  • Alignment of the EAC with the scope related to permitting;
  • Scope for additional road construction;
  • COVID-19 costs.

About Argonaut Gold Inc.

Argonaut Gold is a Canadian gold company engaged in exploration, mine development and production. Its primary assets are the El Castillo mine and San Agustin mine, which together form the El Castillo complex in Durango, Mexico; the La Colorada mine in Sonora, Mexico; and the Florida Canyon mine in Nevada, United States. The company also holds the construction-stage Magino project, the advanced exploration-stage Cerro del Gallo project and several other exploration-stage projects, all of which are located in North America.

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