TORONTO (miningweekly.com) – Canadian project developer Chieftain Metals this week reported that it had accepted a term sheet for a $17.5-million bridge loan facility with West Face Capital.

The loan would be made available in two tranches, and would help to update the company’s 2012 feasibility study on its flagship Tulsequah Chief project, in British Columbia, and to repay debt.

Chieftain on Wednesday said that the bridge loan had been structured as a 24-month secured facility, with an interest rate based on the London Interbank Offered Rate plus 15%.

Proceeds from the first tranche in the amount of $7.5-million would be used to update the feasibility study and for general corporate purposes. The first tranche would be issued at 98% of the principal amount.

The second tranche provides the company the ability to draw the Canadian dollar equivalent of $10-million, if needed, to repay amounts owing under the silver and gold purchase agreement the company signed in December 2011, with a subsidiary of Royal Gold.

The second tranche would only become available should the company and Royal Gold not be able to reach an agreement to extend or modify the terms of the streaming agreement. Unless renegotiated, the company is obliged to repay, on December 22, 2014, the $10-million advanced by Royal Gold in December 2011.

A commitment fee of 2% of the second tranche principal amount is payable at closing.

The Bridge Loan is subject to definitive documentation, an inter-creditor agreement between West Face Capital and Royal Gold and disinterested Chieftain shareholder approval under the requirements of the TSX. West Face Capital is an insider of Chieftain as it owns or controls 24.8% of Chieftain’s outstanding shares and is excluded from voting.

The feasibility update is expected to incorporate improvements to the project including optimising the production configuration, the cost of capital, operating costs and mill size; reconfiguring the copper circuit to produce two copper concentrates rather than one, thereby improving marketability of the copper concentrates in aggregate; and adding proven reserves to the mine plan.

Chieftain expected the feasibility update would be complete by the end of the third quarter.

“We are pleased to announce this financing, which will provide us with the necessary funding to complete the feasibility update, cover operating costs through 2015 and satisfy potential obligations under the streaming agreement. We expect that the feasibility update will reflect lower capital costs, resulting in enhanced projected investment returns and will greatly improve the project’s financeability,” Chieftain president and CEO Victor Wyprysky said.