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LONDON (Alliance News) - Armadale Capital PLC Monday said it has signed a heads of terms agreement with the African Mining Contracting Services group to fund, develop, construct and operate the Mpokoto gold project in the Democratic Republic of Congo.
The agreement, which is subject to a final definitive deal between the two companies, will lead to Africa Mining introducing investors to provide at minimum of USD20 million of debt financing to develop the project into production in the first half of 2016 as a pre-condition.
African Mining will work with Armadale to complete the definitive feasibility study for Mpokoto, which will form the basis of the definitive agreement, expected to be signed in the third quarter. African Mining will provide open cast mining services, assistance with the construction of the infrastructure, and supply management services.
Armadale said the agreement is part of its strategy to develop Mpokoto rapidly through to a low-capital-expenditure, low-operating-cost gold production at a cash cost of USD650 per ounce.
The Mpokoto project currently has a resource of 678,000 ounces of gold from 14.6 million tonnes of ore at 1.45 grammes of gold per tonne to produce around 25,000 ounces per year over a nine-year mine life. Its current worth is around USD55 million at a gold price of USD1,250 per ounce.
The project also has "significant upside potential" and Armadale has an additional 2.4 million to 3.0 million tonnes of ore graded at 1.25 to 1.5 grammes of gold per tonne that it is targeting via exploration. That could produce a further 120,000 to 150,000 ounces of gold.
The four mining licenses for Mpokoto are for a 30-year period, with an option to extend them by a further 15 years.
Of the financing to be introduced by African Mining, USD8.25 million will be needed for the processing plant, USD3.75 million for associated infrastructure, and USD8.5 million for main infrastructure.
The final total sum needed will be confirmed after the definitive feasibility study has been completed, which will be released together with the definitive agreement is signed in the third quarter of 2015. The DFS is currently at a "very advanced stage".
The agreement sets out the indicative terms of the financing, proposing that it will be provided by the way of loan notes secured over the Mpokoto project at a 12.5% interest rate, repayable any time up to 36 months after the loan has been issued. Providers of the loans will also be granted a warrant for a 5% to 10% stake in Kisenge, Armadale's subsidiary that owns the project.
Armadale currently owns 80% of Mpokoto with the Congolese government holding the remaining 20%, which the government will retain after the deal.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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