Steppe Gold Ltd (TSE:STGO), the Mongolia-focused miner, has announced a C$15 million investment from well-known Canadian resource investor and gold bull Eric Sprott.
Sprott, via 2176423 Ontario Ltd, a company which he controls, is subscribing for all of the 6,976,944 subscription receipts at C$2.15 each in a private placing, Steppe Gold revealed in a statement on Thursday.
READ: Steppe Gold generating strong cash from Mongolia mine and eyeing output increase to 150,000 ounces per year
"On behalf of the board and the management of Steppe Gold, I am delighted to welcome Mr. Sprott's initial investment. His support serves as a strong endorsement for Steppe Gold's exciting gold assets," said Matthew Wood, executive chairman at Steppe.
The net proceeds will be used to advance the group's exploration and development projects as well as for working capital and general corporate purposes.
Each subscription receipt will convert into units, consisting of one share and one share purchase warrant. The warrant is exercisable into one Steppe Gold share at C$3 each for 24 months from closing, it added. The placing is still subject to Toronto Stock Exchange approval and, if required, that of shareholders.
The proceeds will be placed in escrow on the closing date, to be released to Steppe Gold on receipt of all necessary shareholder and regulatory approvals.
On conversion, each subscription receipt will automatically convert into a unit, for no additional consideration. In the event that approvals are not obtained by October 31 this year, each subscription receipt will be cancelled, and the funds will be returned.
Sprott currently does not own any common shares of Steppe Gold.
On July 6, Steppe revealed that the production ramp-up at its flagship ATO mine was moving apace and the group had achieved commercial output in the second quarter to end-June 2020.
So far, the miner has sold a total of 15,389 ounces of gold and 4,978 ounces of silver in six separate deliveries, generating net cash flow, after royalty payments, of US$25.3 million, the group told investors.
The company said it remains on track to generate around 60,000 ounces of gold in its first year at cash costs of around US$500 per ounce, but with strong cash generation, it is now working to expand the open pit and processing facilities to increase output, targeting 150,000 ounces of gold a year.
Haywood says Buy
In a note Thursday, Haywood Securities analyst Pierre Vaillancourt wrote that the growth in production and cash flow since the startup in April "bodes well" for Steppe. The research firm increased its 2021 production forecast to 60,000 ounces, up from 36,000 ounces.
"We look for further upside from drilling and resource expansion in 3Q20, in addition to stronger production in 2021," Vaillancourt added.
Haywood is maintaining its Buy recommendation and C$3 price target on the stock.
Shares of Steppe surged 14.9% on Thursday afternoon to close at C$2.62 in Toronto.
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