Edgewater nabs $120M for Corcoesto in Spain

Edgewater ­Exploration (EDW-V) has secured in principle a $120-million debt financing for its flagship Corcoesto gold project in Spain as it moves it towards ­production.

The company has entered into a mandate letter with Credit Suisse and Barclays for the senior debt financing, though the deal  depends on standard conditions being met. Along with the banks completing regular due diligence and credit approval, Edgewater must complete its bankable feasibility study.

The financing goes a long way in covering the expected $160 million the company needs to build the mine and removes one of the hurdles of getting to production. Edgewater, however, had been confident it would secure financing. Company president and CEO George Salamis said in a phone interview that there had been a fair bit of appetite from the banks for the project.

“The banks look at this project and they like it, because they see something that’s not a nosebleed, ridiculous amount of capital to be raised. It’s not a half-a-billion-dollars capital expenditure,” Salamis commented.

“Even if there is a cost overrun or a blowout, if you will, in the capex,” he continued, “it’s not going to be in the hundreds of millions of dollars, given the order of magnitude of capex — it will be in the tens of millions. So that’s not a company killer, in this year of capital cost overruns that are killing companies.”

Edgewater is working on a feasibility study that will nail down the exact capex for Corcoesto later this year.

Salamis said there may be cost inflation compared to the preliminary economic assessment released last November, but that could well be balanced out by improved mine plans. He said that the company may be able to eliminate the underground component of the largely open-pit mine, which would have multiple benefits.  

“It means that added risk component of having to go underground potentially gets swept away, along with the capital,” Salamis said.

The financing news comes a few weeks after Edgewater put out a resource estimate on its Enchi gold project in Ghana, which it is advancing with 49% joint-venture partner Kinross Gold (K-T, ­KGC-N). The Ghanaian government holds a 10% carried ­interest.

The initial resource outlined 20.6 million inferred tonnes grading 1.13 grams gold per tonne over three zones for 749,000 contained oz. gold. Edgewater notes that the resource, hosted mainly in oxidized saprolitic rock, sits at or near surface and generally extends to 75 metres depth.

Salamis said the resource came as a positive surprise: “In terms of forward looking, we’d estimated half a million ounces based on the work we had done. So when we came out with something close to 750,000 oz. at a pretty conservative cut-off level, we were happy with that figure.”

The resource is based on a cut-off of 0.7 gram gold, while a drop to a 0.5-gram-gold cut-off brings the total contained ounces to a little over a million at a grade of 0.89 gram gold.

“In this era of West African companies who are putting out 0.2- to 0.3-gram cut-offs on 0.8-gram average resources, we thought this was a pretty conservative view of a resource,” Salamis said.

But the resource is just an anchor for the Enchi project, with numerous other targets identified and a fair bit of exploration potential. The Enchi property, which Edgewater secured from Red Back Mining before its takeover by Kinross, spans 568 sq. km in southwest Ghana and covers 50 km of the Bibiani shear zone.

Kinross’ Chirano mine located 60 km north also straddles the Bibiani shear and, like Enchi, is spread over several mineralization pods separated by dead zones.

Edgewater had a versatile time-domain electromagnetic survey flown over the property last year that identified 10 new targets on top of the many targets Red Back had already come up with. The company is conducting 10,000 metres of drilling with one rig, plus survey and sample work to follow up on the targets.

But with capital markets tight, Edgewater is concentrating most of its resources on its flagship Corcoesto project. Along with the feasibility study and financing, the company is looking to complete an updated resource, and exploitation and environmental permitting by the end of the year.

“For the time being we have to focus most of our resources on Spain, because that’s the project that’s going to get us into the gold production business,” Salamis said.   

The Corcoesto project sits in the autonomous region of Galicia in the country’s northwest corner, which means all permitting happens at the local and state level with no approvals needed from Madrid.

Edgewater reports it has strong local support, with the mine not presenting relocation or significant environmental problems. The Galician government recently designated Corcoesto as a strategic industrial project.

Last November’s PEA on the project outlined a 6,000-tonne-per-day open-pit mine producing 102,000 oz. gold per year for 10 years. Based on US$1,300 per oz. gold, the financials worked out to a pre-tax net present value of US$206 million using a 5% discount rate, a 24% internal rate of return and a 3.4-year payback.

The mine plan calls for milling 2.1 million tonnes  a year at a 1.7-gram-gold feed grade and achieving an 89.1% recovery. The strip ratio is fairly high at 8 to 1, with the company mining three separate pits, and cash costs expected to be US$713 per oz. gold.

The PEA was based on 5.8 million measured and indicated tonnes grading 1.74 grams gold, plus 20.3 million inferred tonnes grading 1.76 grams gold. The company launched a 20,000-metre drill program soon after the study came out to upgrade a good part of the inferred resource so it could be included in the feasibility study. But the resource update, expected around August, may not add much in the way of total ounces. The deposits are all open at depth, but the company is holding off on deep drilling for the time being.

Edgewater’s share price closed unchanged at 40¢ on news of the financing. The company has 67 million shares outstanding, of which Kinross holds 5%, insiders hold 19% and institutional shareholders hold 38%.