Alkane Resources (ASX: ALK) has reached agreement with Compass Resources to fully acquire a previously agreed production royalty for the Tomingley Gold Project in New South Wales.
Importantly, the acquisition of the royalty improves the financial returns generated from the project.
The company could be in production at Tomingley by the September quarter next year once it begins the 12 month construction phase.
A Definitive Feasibility Study for the project delivered production of 50,000 to 60,000 ounces of gold a year for an initial 7.5 years, and based on a gold price of A$1,700 per ounce the project should generate cash flow (EBITDA) of around A$250 million with an internal rate of return of 32%.
Last month Alkane increased the total gold resource at Tomingley to 811,700 ounces following a successful drilling campaign at the Caloma deposit.
The company has now defined a JORC Resource at Caloma of 5.45 million tonnes at 2.1 grams per tonne (g/t) gold for 811,700 ounces of gold, from the previous resource of 3.68 million tonnes at 1.8g/t for 218,300 ounces of gold.
This has lifted the overall resource at Tomingley to 12.59 million tonnes at 2g/t gold.
These additional resources could add around 50,000 to 60,000 ounces to the ore reserve base and extend the life of the operation.
Project financing
Alkane has also recently agreed to a six month extension to the mandate to Credit Suisse to provide a project financing facility.
This financing comprises a Project Loan Facility of up to A$45 million and a Gold Hedging Facility of up to 163,000 ounces.
Last year Alkane entered into an initial 90,000 ounce gold forward sale that will underwrite a minimum price of around $1,600 per ounce for the first two and a half years of production from Tomingley.
The company previously secured $107 million in new capital for the development of Tomingley and the Dubbo Zirconia Project.
Terms of the acquisition
Alkane will settle the acquisition through the issue of 6 million shares and the issue of 4 million options exercisable at $1.50 within 12 months.
Shares were last trading at around A$1.29, valuing the ordinary share issue at around $7.8 million.
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