Equitas Resources signs a gold prepayment facility with Cartesian

Equitas Resources (EQT.V) has announced it signed a binding term sheet with Cartesian Royalty Holdings to be able to tap into a $5M revolving loan facility whereby Equitas is allowed to draw down $5M from the facility which it can repay by delivering physical gold. Cartesian seems to be quite keen on getting its hands on more royalty or streaming deals, as it’s the same group that dealt with K92 Mining (KNT.V) for its gold prepayment deal for the Kainantu mine in Papua New Guinea.

The revolving credit facility will be available for 5 years, and for every million that has been drawn down, Equitas will be required to repay Cartesian by sending over 2,100 ounces of gold in the first year and 2,300 ounces after the first year. This means that if the entire $5M would have been drawn down, Equitas would be required to deliver 10,500-11,500 ounces of gold to Cartesian, which would result in Cartesian receiving gold at a price of $435-476/oz.

Capital for small companies like Equitas still isn’t cheap, and the Cartesian deal is acceptable as it will allow Equitas to jumpstart the gold production plans at Cajueiro considering the $5M will fund the first CIL plant and the working capital needed to reach full capacity at that plant. However, it’s in Equitas’ best interest not to draw down more than the company needs, and Equitas should most definitely not consider the Cartesian line of credit to be their main source of funding. Once Cajueiro is up and running and in full production, we would hope the company is smart enough to fund its expansion plans by spending the internally generated free cash flow rather than drawing down more cash from the facility, selling the gold at less than half of the market value. We would hope Equitas will be able to get a credit facility from a ‘real’ bank on more commercial terms once the (first) CIL plant is up and running, as even a line of credit with a LIBOR + 10% would be much cheaper than the Cartesian deal.

We had a long chat with representatives of Equitas when we were in Vancouver last week, and will prepare a full report with some more details as we are trying to figure out the total potential production rate and cash cost.

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The author has no position in Equitas Resources. Equitas is not a sponsor of the website, but Zimtu Capital is. Please read the disclaimer