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TomaGold agrees to provide loan to put Gold Reef mine into production; shares soar

Published: 11:55 30 Sep 2014 EDT

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TomaGold's (CVE:LOT) shares jumped as much as 30 percent on Tuesday after the company announced it is investing US$750,000 as a secured loan to put the Gold Reef mine in Arizona into production.

The loan will have a term of one year, and will bear interest at 10 percent per year, with the deal allowing TomaGold 25 percent of the cash flow generated from the mine.

The carried interest will also remain after the loan has been repaid, namely for the full duration of the mine, the company said.

The agreement also includes an irrevocable option for TomaGold to acquire 50 percent of the mine in exchange for US$2 million in capital expenditures on the project. Its option can be used within four years following the full reimbursement of the loan.

The Gold Reef mine covers about 160 acres northeast of Phoenix, and consists of a 200-foot wide gold-bearing quartz vein system that extends 3,000 feet laterally and is up to 300 feet deep. A 20-ton bulk sample from the site returned an average grade of 0.19 ounces of gold per ton, according to TomaGold's statement.

The operator of the mine, Gold Reef Mining, is planning an underground operation, which is expected to minimize surface disruption and permitting issues as no ore processing will take place on site. Gold Reef also currently has a 3,000 ton per month purchase contract with Freeport-McMoRan

"This is a major step forward for TomaGold, both bringing us closer to achieving our goal of becoming a gold producer and bringing strong financial partners into the fold," said president and chief executive officer, David Grondin. 

TomaGold also announced today that it has received a financing offer of US$4 million from a group of investors in Hong Kong to fund the deal, with the company planning to issue up to 13.7 million units. Each unit will be made up of one preferred share and one common share purchase warrant.

"The Gold Reef project will enable us to generate cash flow in the coming year, and the US$4 million financing will allow us to finance this first transaction along with other similar transactions that the management of the company has been working on over the last year, with minimal dilution for our shareholders," said TomaGold's CEO.

"With gold assets at their lowest valuation, we believe this is a great time to acquire high quality gold assets." 

The Gold Reef deal and the private financing are still subject to due diligence, but are expected to close within the next 45 days, the company said.

Shares of TomaGold rose to as high as 9 cents on Tuesday, and were lately trading at 7.5 cents, up more than 15 percent.

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