Harte Gold announces assignment of credit facilities to Silver Lake Resources

Australia’s Silver Lake Resources (ASX: SLR) has acquired US$63.3 million in credit facilities that BNP Paribas provided Canadian miner Harte Gold (TSX: HTR) for its Sugar Zone mine in Ontario.

Silver Lake Resources paid for the facilities from its cash reserves.

“With Silver Lake Resources’ exceptionally strong balance sheet, M&A (albeit indirect in this case) doesn’t come as a surprise,” commented Canaccord Genuity mining analyst Tim McCormack. “Harte Gold screens as an attractive asset for a well-funded partner, in our view, as almost its entire production history looks to have been constrained by onerous debt commitments and obligations. Given SLR’s deep pockets, and expertise in high-grade, narrow-vein underground mining, we see the asset as a good fit.”

McCormack noted that the forbearance agreement BNP signed with Harte Gold expires on November 30, at which point Silver Lake Resources has the right to take ownership of the asset, among other options.

The Sugar Zone mine started commercial production in 2019 and was expected to produce 61,000 oz. of gold a year over a fourteen year mine life. Harte Gold’s guidance for 2021 was 50,000-55,000 oz. gold at all-in sustaining costs (AISCs) of US$1,800 to US$2,200 per ounce.

“While the mine has demonstrated incremental improvements during calendar year 2021, it remains loss making and the company has articulated the requirement for a bolstered workforce, acceleration of resource/reserve definition drilling, increased underground development rates and upgrades to underground production growth,” McCormack wrote in a research note to clients. “While sensible solutions, Harte Gold’s significant over-geared balance sheet has seen little scope to implement such measures, hence the distressed situation it is currently in.”

The Australia-based mining analyst also pointed out that Harte Gold “owns the largest exploration property in Ontario (81,287 hectares) and is proximal to Wesdome’s Eagle River and Alamos’s Island gold operations. The property screens as having good exploration potential, which again has lacked investment for reasons previously mentioned.”

In addition, McCormack noted that a feasibility study completed in January that focused on “modest mill expansions and increased mining rates” looked “achievable” in his view.

The feasibility study “outlined a low-cost expansion scenario” that “would see the operation produce at a rate of 1,200 tonnes per day for ~100,000 oz. per year at average AISCs of US$1,025 per oz. for total capital investment of ~US$16.7 million,” he wrote.

In a press release, Silver Lake Resources stated that it “intends to work cooperatively with Harte Gold and its stakeholders to deliver an outcome which will provide the best opportunity to realize the full potential of the Sugar Zone mine and the associated land package.”

At presstime in Toronto Harte Gold was trading at 2¢ per share within a 52-week trading range of 2¢ and 18¢. The company has a market cap of about $21.8 million.

In Australia, Silver Lake Resources was trading at A$1.78 per share within a 52-week trading range of A$1.27 and A$2.08 per share.