A few weeks ago, Sacre-Coeur Minerals (SCM.V) closed a $6.5M gold participating offering. As this isn’t a common way to raise money, we asked CEO Greg Sparks to explain how this mechanism works.
Greg Sparks: ‘The way the gold bond financing works is:
- 1. When we sell gold (typically once or twice per week), we sell at London PM fix on the day of delivery and receive provisional payment usually amounting to about 98% of the ultimate settlement (determined once assays are received).
- 2. On a nominal back-to-back basis with each weekly gold sale, we concurrently buy the weekly equivalent ETF units (about 20 units/wk) with a portion of the proceeds of the gold sale. ZKB ETF units typically trade at about a 2% discount to spot gold price.
- 3. We deposit the weekly ETF purchases in a repository account in our bank in Switzerland, which we hold until the next quarterly distribution to bondholders.
- 4. At the date of quarterly distribution, we tender the requisite ETF units from our repository account to the paying agent (Citibank London) who distributes them proportionately to the bondholders.
We have elected to pay coupon interest on the declining balance in cash, as the administrative issues involved in dealing with fractional ETF units or fractional ounces is too cumbersome. As a gold producer, gold denominated debt financing which commits only a fraction (in our case less than 20%) of our production to amortize the bonds is the method of choice to maintain a tight share structure for the benefit of our shareholders.
Based on successful execution of our business strategy, it is our intent not to do anymore capital raises through issuance of equity.’
Sacre-Coeur plans to double its gold production towards 1200 ounces per quarter at an average cash cost of $600/oz which gives them a net marging of approximately $1000/oz. The company expects to release a feasibility study on its Million Mountain project, which could be in production within 18 months from now.
Disclosure: The author holds a long position in Sacre-Coeur Minerals Ltd. Please see our disclaimer for current positions.