Pure Gold Mining Inc (TSX-V:PGM, LSE:PUR, OTC:LRTNF) has announced the finalization of several agreements with its lending partner, a fund managed by Sprott Resource Lending (TSX:SIL) Corp., including a new debt repayment schedule to enhance its liquidity and provide financial flexibility.
The gold miner also unveiled plans for a strategic review process which might involve a potential sale or merger of the company.
PureGold said its operational turnaround plan is progressing and that its updated life of mine plan remains on track.
"We have initiated a strategic review process to explore potential alternatives for maximizing shareholder value and generating the financial strength to allow the PureGold Mine to achieve its potential,” Mark O'Dea, president and CEO of PureGold said in a statement.
“We remain focused on achieving positive site-level cash flow by Q3 2022, and delivering an updated NI 43-101 technical report and life of mine plan by Q4 2022. If we can maximize the value of the mine, we can also maximize value for our stakeholders, including but not limited to our shareholders, employees, and the local communities surrounding Red Lake."
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The strategic review process, which was initiated with the assistance of advisors, might include a potential sale or merger of the company, sale of some or all of the PureGold Mine, or various other potential long-term financing alternatives, PureGold explained.
It stressed that it has not made any decisions related to strategic alternatives at this time, and there can be no assurance that the evaluation of strategic alternatives will result in any transaction or change in strategy.
Any breach of the agreements with Sprott, including an unsuccessful strategic review process could result in an event of default under the credit agreement, it noted.
The company added that, in order to better forecast the PureGold mine's near-term production, it is postponing its 2022 guidance update until August. The update had previously been scheduled for June.
Amendments to the credit agreement and additional credit facility
The company said it has agreed with Sprott on a second amendment of the restated credit agreement (ARCA) dated April 2021.
Pursuant to the second ARCA, and as previously announced, Sprott has provided PureGold with an additional secured, first-priority, non-revolving credit facility up to a maximum principal amount of US$6 million.
Drawdowns on the additional credit facility are permitted for payments owing to Sprott, including interest, gold stream and production payment agreement (PPA) payments. The first such drawdown is expected to be made in respect of amounts owing to Sprott as of June 30, 2022.
The additional credit facility matures on December 31, 2022 and accrues interest at a rate of 14% per annum.
In addition, PureGold has agreed with Sprott to defer the first four scheduled principal repayments, each 2.5% of the total principal amount, originally scheduled for the last day of September 2022, December 2022, March 2023, and June 2023, respectively, to the bullet payment in August 2026.
The bullet payment will increase from 35% of the total principal amount to 45% as a result. This creates approximately C$12 million of additional liquidity for PureGold within the next 15 months that would have otherwise been allocated to debt repayments.
The company has further agreed with Sprott on temporary reductions to the minimum cash and minimum working capital ratio covenants to US$5 million and 0.75x, respectively, for the months ending June 30 and July 31, 2022.
As of June 30, 2022, the company had C$13 million in cash, C$21 million in available liquidity including the full additional credit facility, and a net working capital ratio of approximately 0.85x.
PureGold cautioned that it might not be able to comply with its covenants in the future without further amendments from Sprott. Other amended terms pursuant to the second ARCA and related agreements include removal of the requirement to pass the completion test, removal of the post-completion test interest step-down, and an increase in the PPA amount from US$12 per ounce to US$14 per ounce.
The consideration for these amendments is a payment of US$0.5 million which will be added to the outstanding principal amount with no upfront cash outlay.
PureGold is a Canadian gold mining company, located in the heart of Red Lake, Ontario. It owns and operates the PureGold Mine, which entered commercial production in 2021 after the successful construction of an 800 tpd underground mine and processing facilities.
Contact the author at jon.hopkins@proactiveinvestors.com