TSX- and NYSE-listed Hudbay Minerals has struck a transaction with existing lenders to fund its Snow Lake gold growth initiatives, in Manitoba, raising $115-million.
Though the arrangement, the company will receive an upfront payment in exchange for delivering 79 954 oz of gold in 2022 and 2023, based on gold forwards curve prices averaging about $1 682/oz.
The upfront payment will be paid on May 11.
The gold will be delivered on a monthly basis, at 3 331 oz, over 24 months. The delivery represents about 25% of production from the Lalor gold/zinc/copper/silver mine, in Snow Lake, over the two years.
Hudbay president and CEO Peter Kukielski explains that this arrangement bolsters the company’s liquidity position and can prefund the entire capital budget for the company’s New Britannia gold mill refurbishment, which is the processing plant for the Lalor mine.
The refurbishment will enable a short payback that will help the company to more than double its gold production from the Lalor mine to more than 150 000 oz/y by 2022.
“The transaction allows us to take advantage of the strong gold price environment at a forward price that is significantly higher than our internal gold price forecasts used for reserve calculations and budgeting,” Kukielski says.
He adds that the transaction is a low-risk way to facilitate near-term gold growth, which provides an attractive countercyclical hedge to its base metals business.
On March 30, Hudbay announced its annual reserve and resource update, which included a 35% increase in Snow Lake gold reserves to 2.2-million ounces and extended the mine life to 18 years.
The company also released an updated mine plan for its Lalor mine that increased life-of-mine gold production by 41% compared with the previous mine plan, and more than doubled the average gold production to more than 150 000 oz/y over the first eight years after the New Britannia mill is refurbished.
The New Britannia gold mill is expected to achieve gold recoveries of about 93% compared with current gold recoveries of about 53% at the Stall mill, which enables increased reserves and increases the potential for future conversion of resources to reserves owing to the significantly higher gold recoveries and increased value per tonne of ore.
The updated resource model at Lalor includes 4.4-million tonnes of inferred mineral resources, which has the potential to further extend the Lalor mine life.
In addition, Kukielski says the gold- and copper-gold rich lenses remain open down plunge and offer opportunities to expand Lalor’s resource base once suitable underground drilling platforms have been established over the next two years.
The mineral resources at Hudbay’s satellite gold deposits in the Snow Lake region have the potential to provide additional feed for the New Britannia processing facilities and further extend the mine life.
Hudbay has been exploring the Snow Lake area for satellite deposits with airborne and ground geophysical surveys since 2018.