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Focused on finding more gold at producing property, Scorpio Gold retires debt early

Focused on finding more gold at producing property, Scorpio Gold retires debt early

Photo by Duane Daws

11th March 2015

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – Nevada-focused miner Scorpio Gold has retired $3.4-million in remaining debt to 30% joint venture partner Waterton Global Value ahead of the scheduled maturity date.

Despite gold prices trending lower from the lofty highs recorded in 2012 and soaring debt levels among many industry participants that have seen a sell-off of noncore assets and others succumb to their debt obligations, Scorpio has since 2012 repaid more than $24.5-million in debt to Waterton, while it continues to deliver positive financial results from its flagship Mineral Ridge operation, in Esmeralda County.

“This is a remarkable achievement for a junior gold producer and reflects a strong commitment company-wide to make the Mineral Ridge operation a success. Scorpio Gold is now debt-free and positioned for growth,” president Steve Roebuck told investors during a presentation on Wednesday.

Scorpio took the debt on board when it acquired the Goldwedge and Pinon properties in December 2012. The debt was repaid in part with proceeds from the sale of the Pinon property to a subsidiary of Gold Standard Ventures (GSV), which included cash and shares in GSV. The transaction closed in March last year.

Subsequently, GSV had repaid the C$2.5-million principal amount note receivable issued as payment in the sale and Scorpio recently sold its 6.75-million shares in GSV. Subject to fulfilling certain conditions involving a sale of GSV or its assets, Scorpio stood to receive further bonus cash payments of up to C$3-million.

EXPLORATION FOCUS
Roebuck stressed that in the five years since Scorpio was founded, it had achieved several significant milestones, the most important being its current gold production at a rate of 40 814 oz in 2014. The operation’s expected cash cost was likely to come in at between $800/oz and $850/oz.

Mineral Ridge was forecast to produce between 40 000 oz and 45 000 oz of gold this year, at the same cost as 2014.

The company had in 2010 acquired a 70% interest in the then-idle Mineral Ridge property. Under Scorpio’s control, the mine restarted commercial production by January 2012, followed by acquiring its next significant exploration asset – the fully permitted Goldwedge mine and mill in Nevada’s prolific Manhattan district.

From January 2012 to December last year, Scorpio had produced 112 000 oz of gold from the Mineral Ridge openpit, heap-leach operation.

Roebuck noted that the company’s strategy was from the outset to first establish itself as a producing gold miner, before shifting its focus on finding and expanding its gold resources and reserves. “Scorpio’s is a mine story focused on exploration and discovery,” he declared.

Roebuck conceded that the company’s main criticism was that it had relatively small reserves of about 120 000 oz to 130 000 oz of gold, enabling mine planning only up until the third quarter of 2016.

However, the company had been busy with an extensive drilling campaign across its 5 010 ha land package in Nevada, which it believed still held significant exploration upside.

Despite the company’s gold head grade declining over the last 12 months, the production team continued to find “jewellery boxes” of high-grade ore in the lower-grade halo surrounding the mine’s historic workings.

“We are starting to get a good feel for the project. This is important because we are now starting to look for satellite pits,” Roebuck advised.

Last year, the company conducted a record 44 400 m of exploration drilling and three drills were currently deployed at the Bluelite and Brodie deposits.

Scorpio had also made a “blind” discovery – the Physik discovery – which returned 31.79 g/t over 4.57 m, just 15 m below surface, which underscored the property’s significant potential.

Meanwhile, exploration efforts continued at Goldwedge, where four core holes in 2014 followed up on historical high-grade intercepts from previous operators, while attempting to confirm the style and structural controls of the mineralisation, which would guide the next phase of surface and underground drilling. The results for these efforts were still pending.

Scorpio was in the meantime using the mill, which was permitted to handle 400 t/d, to process high-grade ore from Mineral Ridge. It also provided potential for third-party toll milling.

PRIVATE PLACEMENT
In its endeavour to become a 100 000-oz-plus gold producer within the next two years, Scorpio last week launched a $15-million private placement.

The Vancouver-based company had entered into a nonbinding letter of intent with an affiliate of Coral Reef Capital, under which Coral Reef would acquire 124.17-million units of Scorpio on a nonbrokered private placement basis, at a price of $0.1208 apiece for gross proceeds of $15-million.

Proceeds from the transaction would be used to fund exploration and development of Scorpio’s existing mineral properties and for working capital.

Each unit would comprise one common share and one-quarter of a common share purchase warrant, which would be exercisable for a period of five years to acquire an additional Scorpio share at an exercise price of $0.1208.

The placement was structured to close in two tranches – an initial tranche (tranche A) for gross proceeds of $3.75-million, and a second tranche (tranche B) for gross proceeds of $11.25-million. The tranches were subject to certain conditions precedent, including Coral Reef completing a due diligence review of Scorpio and its operations and definitive documentation, as well as receiving further conditions precedent and the approval of Scorpio's shareholders, respectively.

Closing both tranches remained subject to the TSX-V’s approval.

After both tranches of the placement had closed, Coral Reef would hold about 49.8% of Scorpio Gold's outstanding shares.

Roebuck said that despite the placement resulting in dilution, he believed that it was the right thing to do in order to position the company to potentially take advantage of merger and acquisition opportunities in the current market.

“They [Coral Reef] have the money, and we have the experience. We could also potentially do things with their own assets,” Roebuck said.

As had happened with most gold producers, Scorpio’s TSX-V-listed stock had shed 65% of its value in the last 12 months, and Wednesday closed up 8% at C$0.14 apiece.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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