Harte Gold approaches commercial production

Harte Gold (TSX: HRT; US-OTC: HRTFF) is fully funded to finish building its Sugar Zone mine project in northern Ontario — 80 km east of the Hemlo gold camp — and plans to produce gold in July, with commercial production in the fourth quarter.

The company arranged a US$70-million debt package with Sprott Private Resource Lending and Appian Natural Resources Fund in early May.

Sprott is providing a US$50-million, senior-secured debt facility with a 20-month principal holiday and 13-month interest deferral, while Appian has committed to a six-month loan of US$20 million at a 9.5% interest rate. Harte can extend the term at an 11.5% interest rate.

The financing “represents a fully funded solution, with enough liquidity to support ramp-up of our operations and cover any unforeseen downturn in commodity prices, without having to approach the equity markets, or any other financing dilutive to shareholders,” Stephen Roman, Harte’s president and CEO, says in news release.

Studying rock underground at Harte Gold’s Sugar project in northern Ontario. Credit: Harte Gold.

At the end of March, $58 million remained for the year to finish the process plant, continue underground development and expand working capital.

Once finished, the Sugar Zone underground mine will operate for 11 years and produce 904,000 oz. gold — or an average 80,700 oz. gold a year — at US$507 per oz. gold cash costs and US$708 per oz. gold all-in sustaining costs.

According to a preliminary economic assessment (PEA) released on May 3 — the same day news of the financing package broke — the mine would see a three-phase ramp up in production.

In the first phase, the mine would run at 540 tonnes per day, producing 54,500 oz. gold in 2018 and 2019. (Initial operations can operate at this rate.)

The rate rises to 800 tonnes per day in phase two, starting in 2020, and to 1,400 tonnes per day in phase three, starting in 2021. By the third phase, the mine would produce 100,000 oz. gold annually.

The study outlines a $189-million, post-tax net present value (NPV) at a 5% discount rate and US$1,150 per oz. gold price. At US$1,350 per oz. gold, the NPV rises to $299 million.

The post-tax internal rate of return at the same discount rate is 34% at US$1,150 per oz. gold and 50% at US$1,350 per oz. gold.

The mine plan was based on two-thirds of the project’s total resources (534,000 oz. gold was excluded from the PEA because of drill density and lower-grade mineralization).

For the purposes of the PEA, the potentially mineable mineralization was 4.5 million tonnes at a diluted grade of 6.5 grams gold for 941,000 contained oz. gold.

A drill site at the Sugar Zone project. Credit: Harte Gold.

But based on the last resource completed in February, and using a 3 gram gold per tonne cut-off grade, Sugar’s indicated resource stands at 2.61 million tonnes grading 8.52 grams gold per tonne for 714,200 contained oz. gold, and inferred resources are 3.59 million tonnes averaging 6.59 grams gold for 760,800 contained oz. gold.

Average diluted grade over the first 18 months of production would be 5.5 grams gold. From 2020 to 2025, higher-grade areas of both the Sugar and Middle zones would be accessible, providing access to high-grade stopes averaging a diluted head grade of 7.3 grams gold. From 2025 onward, the lower-grade inferred resource would be mined at an assumed diluted grade averaging 5.3 grams gold.

The Sugar Zone requires two ramps: the Sugar Zone North ramp (to 1,000 metres deep) and the Sugar Zone South ramp (to 500 metres deep). Increasing production to 1,400 tonnes per day calls for developing the ramp from the Sugar Zone to the Middle Zone, which would accompany commercial production.

Harte recently finished a 70,000-tonne, advanced-exploration bulk sample, and mined 30,000 tonnes under its first-phase commercial production permit.

In addition to completing the PEA and financing, Harte also signed an impact benefit agreement with the Pic Mobert First Nation.

The agreement includes a 4% net profit interest payable to First Nations, and stock options to buy 500,000 shares in Harte at 40¢ for five years.

“Harte Gold and the Pic Mobert First Nation have worked together since signing an exploration agreement in 2011,” Mike Kozak, an analyst at Cantor Fitzgerald, observes in a research note. “This is a significantly positive and highly important development, effectively signifying that the First Nations are supportive of the Sugar Zone project, and mining operations in general.”

Pierre Vaillancourt of Haywood Securities says “there are a number of opportunities outside the scope of the PEA, which could further improve the mine plan and economics of the project.

“Opportunities include: tighter drilling to boost the grade of existing inferred resources at 5.3 grams gold, compared to indicated resources at 8.5 grams gold; additional definition down-plunge and of the Footwall zone; additional drilling of the Wolf zone; and regional opportunities, with volcanogenic massive sulphide or Hemlo-style potential.”

Vaillancourt has a “buy” rating on the stock and a 90¢-per-share target price “in anticipation of key catalysts and production start later this year. However, we are concerned the extended permitting process may delay the start of production.”

Cantor Fitzgerald’s Kozak has a $1.20 price target on the stock, which is up from $1.10 per share previously.

At press time, Harte’s shares were trading at 42¢ apiece, within a 52-week range of 33¢ (March 2018) to 77¢ (May 2017).

The company has 572 million shares outstanding for a $241-million market capitalization.