Fresh from securing a major new cornerstone investor, ambitious gold junior, Southern Cross Goldfields (SXG), appears set to advance from the ranks of aspiring project developers to become a rapidly growing gold producer within 12 months.
The company announced in July that it had secured a A$60 million debt package from major US mining fund TrailStone Group, to fully finance its existing project pipeline and underpin future growth.
Southern Cross is simultaneously undertaking a recapitalisation, raising approximately $6 million in equity, including a $1 million contribution from TrailStone.
In the current capital constrained financial markets, Southern Cross’s achievement represents a significant breakthrough for the company, differentiating it from the many struggling junior developers seeking project finance.
The company will emerge from the TrailStone transaction with a clear path forward, an attractive production pipeline, strong balance sheet, and the financial clout to seize further growth opportunities.
"This is a great position to be in," said Southern Cross Managing Director Frank Terranova.
"We are now starting to see some genuine value emerging within the junior mining space, and Southern Cross will have the technical and financial capacity to take advantage of the opportunities available within this buyer’s market," he said.
The company expects to complete its capital raising in the next few weeks, through a combination of a share placement and a share purchase plan.
It will then move to commence the staged development of both the Mt Boppy Gold Project at Canbelego in Central NSW followed by the Marda Gold Project in south-western Western Australia.
Mt Boppy is a relatively small but high grade, high margin gold project located near Cobar in the Lachlan Fold, and planned to be in production in the first half of 2015. The mine was previously worked by the Southern Cross team, having produced almost 500,000 ounces until being placed on care and maintenance in 2005 due to the low gold price at the time.
More recently, a bankable feasibility study has been completed with a plan to mine a further cut-back to the open pit to take out the remaining economic sections of the ore body, and to refurbish the existing 150,000 tpa plant and camp already on site.
The mine is currently estimated to generate in excess of 64,000 ounces of gold over a two year production term at a cash cost of below A$600 per ounce. It has a total reserve of 76,000 ounces at an attractive grade of 4.3 grams per tonne.
After bringing Mt Boppy into production, Southern Cross intends to focus on its Marda Project, which could be developed to commence production in 2017, utilising a 480,000 tonne per annum process plant to be relocated from the nearby Sandstone project that Southern Cross acquired in March 2013.
Marda, an open pit mine, has an estimated life of four years producing 167,000 ounces of gold at a cash cost of below A$800 per ounce, with gravity recovery accounting for approximately 60% of overall recovery, and the CIL plant taking overall recovery rates to approximately 95%.
This production profile is seen as an initial starting point for the project. It has an existing resource of 500,000 ounces at a grade of 1.9 grams per tonne, with significant exploration potential. The Company holds gold rights over approximately 4,000 km2 of the prospective Yilgarn greenstone in the Marda region alone.
"These are two, high quality projects," said Terranova. "Together, they will provide us with an attractive production profile of approximately 40,000 ounces per year for six years.
"They are in a preferred jurisdiction, here in Australia, They are well advanced, to BFS stage. They are low cost and low risk. With Mt Boppy to be generating cashflow inside 12 months, these projects provide our investors with strong leverage to the gold price, and the prospect of a short term rerating in the Southern Cross market valuation," he said.
The company’s shares currently are trading at 1 cent, with its current placement being offered at a price of 1 cent per share, with one free option for each two shares purchased, at an option exercise price of 1.4 cents per share.
The investment by TrailStone will be one of the first to be made by the fund since inception in April 2013. It is staffed with experienced commodity professionals, including a number of former Deutsche Bank executives. The fund was seeded with an initial US$500m investment by Riverstone Holdings LLC, one of the largest mining investment houses in the world, with approximately $27 billion in funds invested.
"We are truly delighted to have Trailstone as a partner," says Terranova, "and we consider ourselves very fortunate that they have chosen Southern Cross as the vehicle for them to grow their business in this region, working with us to identify opportunities and take advantage of the low valuations in the junior mining space," he said.
"Their decision to back the Southern Cross management team is a remarkable endorsement. Here we have one of the world’s largest mining investors completing a global due diligence process on our assets and management, and choosing to make a major commitment. That has to be a real vote of confidence," he said.
"With their ongoing support, we expect to take shareholder on a very rewarding journey over the coming years as global commodities markets continue to benefit from the industrialisation of China and India," he said.
