It took a while, but Standard Tolling (TON.V) has finally found the processing plant it had been looking for since the beginning of the year. The company has signed an agreement to acquire the full ownership of a plant with a throughput of 150 tonnes of ore per day near Huamachuco in Northern Peru. The plant is 80% completed, and CEO Len Clough estimates the processing facility would only need an additional capital investment of $1M before it could be up and running in a short time frame.
Standard Tolling will have to pay $50,000 in cash and issue 5 million post-consolidation shares (there will be a 3 for 1 consolidation of the current outstanding shares of Standard Tolling) and will assume $1.325M in outstanding debt at a cost of 12%. This debt can be subordinated versus newly raised debt if the company pays $500,000 of the principal amount. We have the impression that’s a good deal and that Standard Tolling will be able to subordinate the old debt as it intends to raise C$1.5M in a private placement at C$0.10 per consolidated share with a full warrant valid for three years.
It is our understanding there’s a lot of available ore in that region and there are several small-scale mines within wheelbarrowing distance from the processing plant and with a relatively high throughput of 150 tonnes per day, there are sufficient economies of scale to accept ‘lower’-grade ore and mill it at a profit. The past nine months weren’t exactly prosperous for shareholders of Standard Tolling, but now a mill has been secured, we are looking forward to the future, as a first gold pour could occur quite soon (we are aiming for Q1 2015). The upcoming consolidation and private placement is a necessary evil, but we intend to participate as the full warrant at C$0.15 valid for three years is a very nice sweetener. It took a while, but Standard Tolling now seems to have its ducks in a row as it acquired an almost fully functioning CIL plant on the cheap, as only $50,000 in cash ‘has’ to be paid and the operating cash flow should take care of the $1.325M assumed debt (and likely just $825,000 after repaying a lump sum of $500,000 which allows TON to subordinate the old debt).
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Disclosure: The author holds a long position in Standard Tolling. Standard Tolling is a sponsor of the website. Please see our disclaimer for current positions.
