Troilus Gold shocks naysayers with LOIs for up to US$1 Billion!

Executive summary –> Troilus Gold is massively undervalued due to fears of excessive equity dilution to fund its very large Cu/Au project in Quebec. On Nov. 13th & Nov. 19th, management announced major steps forward with announcements of three Letters of Intent (“LOI”) totaling US$1B from export credit agencies in Germany, Finland & Sweden. These commitments (subject to extensive due diligence), would fund a large majority of cap-ex + overruns + working capital.

WOW. I have been saying that if Troilus Gold could line up financing for its large (13M oz.) gold (“Au”) / copper (“Cu”) project in Quebec, it would be great for the share price as some investors feared massive equity dilution was inevitable.

On November 13th & 19th, Troilus announced receipt of LOIs from a German export credit agency for a loan of up to US$500M, and up to US$300M from the main Finnish credit agency + up to US$200M from the main Swedish credit agency.

This means, that if all conditions and extensive due diligence steps are completed, up to US$1B could be advanced at low interest rates (my guess is ~5%). Troilus has an enterprise value {market cap + debt – cash} of ~$67M at $0.27/shr.

This potential funding for the German component is tied to a commercial off-take agreement with Aurubis AG, Germany’s largest Cu smelter, on a meaningful portion of the Project’s Au/Cu for up to 15 years.

Potential funding from the Finnish component is contingent on,

“…strategic partnerships with a Finnish equipment provider & Boliden, one of Europe’s largest smelting companies… This collaboration contemplates equipment procurement from the Finnish provider of US$50-100M and an anticipated 10-year Cu-Au concentrate offtake agreement with Boliden, estimated at an annual value of ~US$200M“

Potential funding from the Swedish component is tied to, “up to 25% of the offtake agreement with Boliden under the Swedish Raw Material Guarantee.” These LOI announcements highlight the great importance of Cu in the Troilus Cu/Au project.

These LOIs mark major milestones in establishing a comprehensive financing solution for cap-ex, cost-overruns & working capital needs before even accounting for potential participation from commercial banks & corporations in Europe, and especially in Canada. Nor has management had to tap the royalty/streaming market yet.

Justin Reid, CEO of Troilus, commented, 

“With the addition of US$500 million in LOIs from Finnvera and EKN, we have now received in-principle support representing a significant percentage of the Project’s total capex. This further demonstrates the strength and strategic importance of the Troilus Project on an international scale. The partnerships with the Finnish, Swedish, and German export credit agencies, underscore the strength of the Project’s fundamentals and the confidence these global institutions have in Troilus.“

If multiple export credit agencies contribute to funding, the total cost of capital could come in under 10%, which would be an excellent outcome. Troilus Gold (TSX: TLG) / (OTC: CHXMF) has one of the largest, advanced-stage, Au/Cu projects in N. America –> 303,000 Au Eq. oz/yr for 22 years, peaking at 536,000 oz/yr, and averaging 453k ozs in years 5 to 8). 

The brownfield Troilus Project hosts a past-producing mine on 495 sq. km in north-central Quebec and has a very significant copper (“Cu“) component.

The AISC at $1,109/oz is attractive compared to Newmont’s & Barrick’s most recent quarterly AISCs of $1,611 & $1,507/oz. A Bank Feasibility Study (“BFS“) in May showed a 22-yr mine life on just half of the 13M ounce measured, indicated & inferred resource. Notably, 86% of booked ounces are in the NI 43-101 compliant Indicated category.

This month’s news of not one or two, but three LOIs could come as a shock to major miners with operations in Canada, including Vale Canada, Glencore, Freeport McMoRan & Teck Resources, who likely presumed they could control Troilus’ Cu (if they wanted to). Importantly, these LOIs do not preclude Troilus from signing royalty/streaming deals.

In addition to credit agencies, Mr. Reid and his team are in advanced discussions with financial institutions, PE firms, commercial banks, and Canadian/Quebec institutions. I had hoped that 75%-80% of total funding could come from debt sources, not including royalties/streams. I now believe it could be 85%+.

One of the single-largest risk factors facing the Company (funding) has been substantially (but not fully, as LOIs are not money in the bank) diminished.

In my view, this should light a fire under Quebec institutions, the Canadian & Quebec province governments, and large mining companies with operations in Canada.

Where does this leave companies like Agnico Eagle, Newmont, Barrick, Sumitomo Metal & Mining, Gold Fields, Alamos Gold, Kinross, B2Gold & Eldorado Gold?

I imagine these and other producers might be a hell of a lot more interested in partnering with or acquiring Troilus now that it’s becoming increasingly clear this world-class asset will get funded.

For example, if Agnico were to acquire Troilus to add to its eastern Canada Canadian Malartic, Detour Lake & LaRonde mines, it would enjoy diversification, economies of scale & operating synergies. The Troilus mine will be operating long after Malartic, Detour & LaRonde have closed.

Demonstrated widespread interest in the Troilus Cu/Au Project lends support to something that CEO Reid has been saying all along –> the 22-year mine life will probably end up being more like 30 years, and annual production could potentially increase by a third to a half. This will be a Major Canadian mine.

Even after this BIG news, the Troilus Cu/Au Project is valued at just 3% of its post-tax NPV (at current Au/Cu prices). With ~C$35M in cash and potentially more de-risking news coming, Troilus Gold offers a compelling risk/reward proposition at $0.27/shr.

How much could Troilus be worth after getting commitments for the vast majority of cap-ex + cost overruns + working capital? A LOT MORE THAN 3% OF POST-TAX NPV! Many projects, including ones at earlier stages, are valued at 15% to 40% of NPV (at spot pricing).

Importantly, Troilus could reach initial production within five years. By contrast, most large (> 6M Au Eq. ozs.) peers are 6-10+ years away, making them at much higher risk than a (possibly) funded Troilus Gold.

Congratulations to Mr. Reid and the Troilus Gold team.

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