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Artemis Gold Inc
Symbol ARTG
Shares Issued 48,252,327
Close 2020-06-09 C$ 2.34
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Artemis to acquire Blackwater project for $190M, shares

2020-06-09 09:42 ET - News Release

Mr. Steven Dean reports

ARTEMIS TO ACQUIRE BLACKWATER PROJECT FROM NEW GOLD

Artemis Gold Inc. has signed an asset purchase agreement with New Gold Inc. to acquire the Blackwater gold project in central British Columbia.

Key acquisition terms:

  • Initial cash payment of $140-million at closing of the acquisition;
  • Issuance to New Gold of Artemis common shares equal to the lesser of: (i) the number of consideration shares having an aggregate deemed price of $20-million; or (ii) 9.9 per cent of the issued and outstanding Artemis common shares as at closing;
  • Second cash payment of $70-million, less approximately $20-million (being the aggregate issuance price of the consideration shares), 12 months after closing;
  • An 8-per-cent stream at 35 per cent of the U.S.-dollar spot gold price, reducing to 4 per cent after 279,908 ounces have been delivered;
  • The initial payment is backstopped by major shareholder Ryan Beedie;
  • An equity financing is planned to finance some or all of the initial payment over the next several weeks, with board and management, collectively holding approximately 45 per cent of the shares of the company, planning to commit to approximately half of that equity financing (up to a maximum of $70-million), subject to shareholder approval.

Transaction highlights:

  • The addition of a world-class asset with federal and provincial environmental assessment approvals in place, allowing for the possibility of near-term construction;
  • Significant mineral resource of 9.5 million ounces (measured and indicated);
  • Robust economics based on the 2014 feasibility study. Artemis believes that today's long-term consensus pricing and current spot prices will contribute to driving economic potential.

Artemis strategy to development

Artemis will be targeting improved economics and financeability against the 2014 feasibility study (defined herein) based on Artemis due diligence, including the following:

  • Reducing initial capital expenditures by staging the mine throughput ramp-up, while remaining committed to the full-scale project;
  • Targeting lower initial start-up capital expenditure with one to two subsequent expansion stages to the 20-million-tonne-per-year feasibility study case, estimated to be financed from future operating cash flows;
  • The company's MIK (multiple indicator kriging) approach to resource modelling may further optimize tonnes and grades within the pit;
  • The 2014 feasibility study resource modelling identifies a large, higher-grade zone of mineralization near surface within the southern half of the pit design, which will be the focus of further mine planning analysis by Artemis;
  • The application of the company's grade control drilling approach and modelling methodology may optimize mine scheduling and grade cut-off strategies, as well as better define ore and waste boundaries within the pit;
  • Methodical derisking of key project risks.

While the company considers the 2014 feasibility study to be current, it plans to prepare an updated prefeasibility study based on its revised approach to developing the project over the next three months and will file the technical report within 180 days of this announcement of mineral resources and mineral reserves.

Commitment to indigenous groups

Artemis respects the rights and interests of indigenous groups that may be impacted by the project and intends to fully honour New Gold's existing agreements, including the participation agreement with the Lhoosk'uz Dene Nation and the Ulkatcho First Nation. New Gold has engaged extensively with other indigenous groups that may be impacted by the project, including Nadleh Whut'en First Nation, Saik'uz First Nation, Stellat'en First Nation and Nazko First Nation, and Artemis is committed to continuing these engagements. Establishing a working relationship built on trust, respect and integrity with these indigenous groups will be a priority of the company.

Steven Dean, chairman and chief executive officer of Artemis, noted: "The proposed acquisition of Blackwater is the first meaningful step in our strategy to develop a first-tier gold deposit in one of the world's premier, low-risk mining jurisdictions. As with our team's previous success in developing the Moose River consolidated mine in Nova Scotia for Atlantic Gold, our focus will be the methodical derisking of the project development to enhance NPV, optimize IRR and minimize equity dilution to shareholders.

"Furthermore, the additional attribute of having an environmental assessment approval in hand significantly curtails the timeline to construction and ultimate production. This value cannot be underestimated in today's world. We look forward to completing the acquisition in due course, working with the various key stakeholders to continue to advance Blackwater through the development stage and into operation."

Artemis project development derisking approach

In addition to the technical and financially based optimization development strategy outlined herein, management plans to pursue its proven derisking and structuring strategies in developing the project:

  • Securing a fixed-price construction and performance contract for the processing plant and associated infrastructure;
  • Securing project debt financing for the majority of the initial project capital expenditures;
  • Considering a small amount of gold price hedging to reduce revenue pricing risk and optimize financing terms;
  • Considering contracting ownership of key infrastructure, including the power line, to third parties;
  • Undertaking a high-density grade control drilling program on a portion of the first year's mill tonnage prior to commencement of construction to achieve higher confidence for tonnes and grade, and advance reconciliation to the global resource model.

While managing and reducing development risk, these strategies are designed to:

  • Improve competitiveness of project debt financing;
  • Further enhance net present value of the project;
  • Optimize the internal rate of return of the project;
  • Minimize equity dilution to shareholders;
  • Maximize returns to shareholders.

About the Blackwater project

All technical information on Blackwater is based on a feasibility study technical report entitled "Blackwater Gold Project, British Columbia, NI 43-101 Technical Report on Feasibility Study," with an effective date of Jan. 14, 2014, filed on SEDAR by New Gold on Jan. 22, 2014. To the best of Artemis's knowledge, information and belief, the feasibility study is considered current, pursuant to National Instrument 43-101, and there is no new material scientific or technical information that would make the disclosure of the mineral resources, mineral reserves or results of the feasibility study inaccurate or misleading.

Selected 2014 feasibility study parameters and outputs:

  • Life-of-mine gold and silver production of seven million ounces and 30 million ounces, respectively;
  • First nine years -- average annual gold production of 485,000 ounces at a total cash cost of $555 (U.S.) per ounce and an all-in sustaining cost of $685 (U.S.) per ounce;
  • Conventional truck-and-shovel open-pit mine with 60,000-tonne-per-day whole-ore leach processing plant at full capacity;
  • 17-year mine life with direct processing for first 14 years and processing of stockpile thereafter;
  • Life-of-mine operational strip ratio of 1.88:1.0;
  • Base case economics in 2014 feasibility study -- at $1,300 (U.S.) per ounce gold, $22 (U.S.) per ounce silver and a 0.95 U.S.-dollar/Canadian-dollar foreign exchange rate, or $1,368 (Canadian) per ounce equivalent (compared with current consensus of over $1,900 (Canadian) per ounce equivalent and current spot of approximately $2,300 (Canadian) per ounce equivalent), Blackwater had a pretax net present value at a 5-per-cent discount of $1,044-million, an internal rate of return of 11.3 per cent and a payback period of 6.2 years.

Location

The project is located in central British Columbia, approximately 160 kilometres southwest of Prince George and 446 kilometres northeast of Vancouver. The project is accessible by a major highway and an access road.

Artemis is acquiring New Gold's 100-per-cent recorded interest in 328 mineral claims covering an area of 148,688 hectares distributed among the property and the Capoose, Auro, Key, Parlane and RJK claim blocks. Surface rights over the project area are controlled by the Crown.

Environmental and permitting

The project received a federal decision statement and a provincial environmental assessment certificate in June, 2019, which are major milestones in respect of derisking the project to ultimate permitting and construction.

Additional permits and authorizations are required from both the provincial and federal governments prior to the mine proceeding to the construction and operation phase, including: (i) provincial permits under the Mines Act and the Environmental Management Act for discharge; and (ii) federal authorizations under the Fisheries Act and the Explosives Act. Management will be working closely with New Gold to transition efforts to date to Artemis to ensure management is able to progress the permitting timeline.

Transaction summary

Pursuant to the agreement, Artemis will acquire all of New Gold's property, assets and rights related to the project. The acquisition will be completed through BW Gold Ltd., a wholly owned subsidiary of Artemis. Following the closing, BW will hold a 100-per-cent interest in the project.

Consideration for the acquisition will comprise: (i) the initial payment of $140-million at closing; (ii) approximately $20-million in consideration shares (as described herein); (iii) a cash payment one year following closing of $70-million, less the aggregate deemed issue price (as described herein) of the consideration shares; and (iv) a secured gold stream participation in favour of New Gold (as described herein). New Gold will also have a first-ranking security interest over the Blackwater project until the second payment is made.

Artemis expects to finance the initial payment through an equity financing to be completed prior to closing. Although management is confident it will be successful in financing the initial payment through the financing, in the event of a shortfall, Mr. Beedie, who is also expected to participate in the financing, has provided a commitment letter to finance the initial payment to the extent necessary. Artemis will announce further details regarding the financing, once available.

The deemed issue price of the consideration shares will be the lowest price at which common shares of Artemis are sold pursuant to the financing. The number of consideration shares to be issued to New Gold will be the lesser of: (i) the number of Artemis common shares having an aggregate deemed issue price of $20-million; or (ii) 9.9 per cent of the issued and outstanding Artemis common shares as at closing.

At closing, Artemis will enter into a gold stream agreement with New Gold, whereby New Gold will purchase 8 per cent of the refined gold produced from the Blackwater project. Once 279,908 ounces of refined gold have been delivered to New Gold, the gold stream will reduce to 4 per cent. New Gold will make payments for the gold purchased equal to 35 per cent of the U.S.-dollar gold price quoted by the London Bullion Market Association two days prior to delivery. In the event that commercial production at Blackwater is not achieved by the seventh, eighth or ninth anniversary of closing of the acquisition, New Gold will be entitled to receive additional cash payments of $28-million on each of those dates.

Closing of the acquisition is subject to the satisfaction of customary closing conditions for a transaction of this nature, including obtaining certain regulatory approvals and the approval of the TSX Venture Exchange. The financing will be subject to disinterested shareholder approval by the shareholders of Artemis due to the participation by insiders in the financing. Artemis will announce further details regarding the shareholder meeting to be held to consider the financing, once available. The acquisition is expected to close in 60 to 90 days, or such other date as the parties may agree. Furthermore, as required under applicable securities laws, the company will file an updated technical report on the project, in accordance with NI 43-101, within 180 days of this press release.

Agreements with indigenous groups

In 2019, New Gold executed a participation agreement with the Lhoosk'uz Dene Nation and the Ulkatcho First Nation, the two indigenous groups whose traditional territories overlap the project's mine site. New Gold has continued to engage with other indigenous groups that may be affected by the project, including the Nadleh Whut'en First Nation, the Saik'uz First Nation, the Stellat'en First Nation and the Nazko First Nation. Engagement and negotiations with these groups will be priorities for the company as management progresses toward closing and through to final permitting of the project.

Next steps

In the coming months, the company will be focused on the following activities:

  • Completion of the financing;
  • Completion of all other conditions required to achieve the closing of the acquisition;
  • Engagement and transition initiatives with respect to further permitting requirements;
  • Establishing relationships and continuing engagement and negotiations with indigenous groups that may be affected by the project;
  • Completion of an updated prefeasibility study over the next three months.

Updates will be provided in due course.

Marc Schulte, PEng, an independent consultant to the company, a qualified person as defined by NI 43-101, has reviewed, and is responsible for, the technical information contained in this news release and has reviewed the feasibility study.

We seek Safe Harbor.

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