Troilus Gold shocks naysayers with LOI for up to US$500M!

Executive summary –> Troilus Gold is massively undervalued due to fears of excessive equity dilution to fund its very large gold/Cu project in Quebec. Yet, there are many levers to pull to raise a very substantial portion of cap-ex + working capital from non-equity sources, i.e. debt. On November 13th, management announced a major step forward AND indicated that multiple funding announcements are expected this year. This news, and further de-risking could send the share price significantly higher.

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, Troilus announced receipt of an LOI from a German export credit agency for a loan guarantee of up to US$500M. This means, that if all conditions and extensive due diligence steps are completed, up to US$500M will be advanced at low interest rates (my guess is ~5%).

Interestingly, the market’s reaction to this BIG news 90 minutes into trading is lukewarm. Troilus has an enterprise value {market cap + debt – cash} of ~C$70M at C$0.28/shr.

This potential funding 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. This announcement goes to show the importance of Cu in the Troilus Gold project.

The LOI marks a major milestone in establishing a comprehensive financing solution for cap-ex, cost-overruns & working capital complementing “multiple advanced discussions with other smelters, export credit agencies, commercial banks, and sophisticated global mining finance institutions –> with further announcements expected in the coming weeks.”

Justin Reid, CEO of Troilus, commented, 

“With rising European demand for Cu concentrate and our advantageous proximity to these markets, we are advancing through financing discussions from a solid strategic position. The scale, resilience, and longevity of the Troilus asset have positioned us to move confidently into the financing phase, and we are encouraged by the high level of interest & support from leading global financial institutions. With this first LOI in hand, we look forward to advancing our strategy & unlocking the full potential of this major North American Cu-Au project.”

If multiple export credit agencies contribute to funding, the total cost of capital could come in under 10%, which would be an excellent outcome. Based on the press release, the vast majority of the total funding package could be committed (subject to permitting & due diligence) THIS YEAR!

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.

Today’s BIG LOI news 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 a lot of Troilus Gold’s Cu (if they wanted to). Importantly, this LOI does 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. I now believe it could be 85%+. And, that still leaves royalty & streaming opportunities.

If management follows through with more announcements like this one, the single-largest risk factor facing the Company (funding) could be largely eliminated by year-end!

In my view, this should light a fire under Quebec institutions, the Canadian & Quebec province governments, and large mining companies with operations in Canada, as the press release says things are expected to happen in weeks, not months or quarters.

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 clear that 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 down.

Demonstrated widespread interest in the Troilus Au/Cu 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.

On November 13th, even after this BIG news, the Troilus Au/Cu Project is valued at just 3% of its post-tax NPV (at current Au/Cu prices). With ~C$35M in cash and a lot more de-risking news coming this year, Troilus Gold offers a compelling risk/reward proposition.

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 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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