Argonaut Gold (TSX: AR) has closed an offering of 434 million common shares at 45¢ apiece for gross proceeds of $195.3 million, part of an effort to finance construction of its over-budget Magino gold mine in Ontario.
Argonaut’s 100%-owned Magino mine is an underground, past-producing project located about 40 km northeast of Wawa. Construction to bring mine back into production as an open pit operation has been ongoing since October 2020.
In an earlier release on June 16, Argonaut said the shares would be priced at 45¢ each, representing a 43.6% discount to their five-day, volume-weighted trading price before the announcement. The offering closed on July 5, with the company seeking a “financial hardship” exemption from the Toronto Stock Exchange to complete the financing without shareholder approval. It also saw the company’s largest shareholder, GMT Capital, secure a 27.7% share of the company, up from a 20.3% holding.
Construction at Argonaut Gold’s Magino gold mine in Ontario. Credit: Argonaut Gold
The financing will more than double Argonaut’s common shares outstanding, from around 333 million to 767 million — or up to 832 million shares if a 15% over-allotment option is fully exercised.
The company also announced that it signed a US$250-million debt financing agreement with a syndicate of lenders to help it refinance its existing debt and finance development and expansion at Magino and other producing assets.
The binding commitment letter includes a six-year, US$200-million term loan credit facility and a US$50-million three-year revolving credit facility. The terms of the financing included an equity raise of at least US$150 million; a gold hedging program of 300,000 oz. between 2023 and 2027; a currency hedging program; and a detailed review by independent technical engineers of cost estimates and other information. The debt financing is expected to close at the end of August. The gold hedging program will start in the third quarter of 2023, with 25,000 oz. gold hedged per quarter for six quarters and 15,000 gold oz. for the next 10 quarters at a price of US$1,860 per oz.
Its agreement partners include BMO Capital Markets, Scotiabank, Cormark Securities, Canaccord Genuity Corp., RBC Capital Markets, Desjardins Capital Markets, Echelon Wealth Partners, Laurentian Bank Securities, Paradigm Capital, and Stifel GMP.
Argonaut president and CEO Larry Radford said the debt financing agreement and proposed equity financing “will put Argonaut Gold in a strong financial position to complete the Magino project and move it forward into production by the end of Q1 2023.”
After acquiring Magino in 2012, Argonaut began construction in 2020, when development costs were estimated at about $510 million. A little more than one year later, the capital cost estimate rose by 57% to $800 million. In May 2022, the miner again updated costs to $920 million.
Magino is on schedule for the first gold pour by the end of March 2023, Argonaut said.
Construction at Argonaut Gold’s Magino gold mine in Ontario as of May 2022. Credit: Argonaut Gold
Argonaut also completed a bought-deal private placement of 19.8 million flow-through common shares for total proceeds of $51.8 million in March. That included the full exercise of an over-allotment option to purchase another 2.6 million shares.
That placement was made between Argonaut and several underwriters led by BMO Capital Markets, and including Cormark Securities, Canaccord Genuity, RBC Dominion Securities, Scotia Capital and Echelon Wealth Partners.
A feasibility study for Magino published in December 2017 outlined an open-pit project, with measured and indicated resources of 144 million tonnes grading 0.91 gram gold per tonne for 4.2 million oz. of contained gold. Its mine life is estimated to be 19 years.
Argonaut’s portfolio includes several producing gold mines: the El Castilo mine complex in Durango, Mexico; the La Colorada mine in Sonora state; and Florida Canyon, in Nevada.
At press time, Argonaut shares traded at 42¢ apiece. The stock has traded in a 52-week range of 40.5¢-$4.09. Argonaut has a market cap of $139.7 million.
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