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Steppe Gold secures $65 million to fast-track ATO Phase 2 build

Steppe Gold has secured funding to fast-track the Phase 2 construction at the ATO gold-silver mine in Mongolia. Credit: Steppe Gold

Steppe Gold (TSX: STGO; US-OTC: STPGF) has secured an investment of $65 million in debt to fast-track its Phase 2 construction of the Altan Tsagaan Ovoo (ATO) gold and silver project in Mongolia.

In a news release, the Mongolia-based precious metals company said that of the total $65 million in loans, $59.7 million has been funded through the Gold-2 National Program, facilitated through the Central Bank of Mongolia. The 2021 Gold-2 Loan proceeds were advanced during the third quarter to Steppe by Mongolia’s Trade and Development Bank (TDBM).

The 2021 Gold-2 Loan entails a special purpose covenant-light loan, with a three-year term at 9% interest and full prepayment rights without penalty.

Steppe Gold also announced that it reached an agreement for an additional $5 million for allocation to working capital to be funded directly from TDBM in the form of a prepaid gold sales loan. The TDBM Gold Loan will be repaid over 12 months based on gold sales, with repayments in cash equivalent at MongolBank gold prices.

“Following on the recent completion of the Feasibility Study for the Phase 2 expansion of the ATO Gold Mine, we are now very proud to announce this landmark $65 million financing package,” Steppe Gold CEO Bataa Tumur-Ochir said in the statement.

Steppe said that the Phase 2 expansion would generate an additional 300 jobs and further solidify its role as one of the largest investors and employers in the region. The Phase 2 expansion has all major permits to fast-track the development and construction of the expanded crushing circuit.

While Steppe Gold faced significant headwinds from the covid-19 lockdowns in Mongolia, including border closures and supply chain issues, the company continued full-scale mining and stacking operations in 2021.

As of November 1, the company has a total of over 2.2 million tonnes of ore stacked on the leach and run-of-mine pads, with about 45,000 ounces of gold recoverable in the short term.

Steppe said that it believes 2022 will be the year of “rapid growth and expansion with full production and further financing” for the Phase 2 expansion project.

The company recently released a feasibility study on the ATO project, outlining a further two years at the producing oxide phase and a 10.5-year expansion that is already underway.

The study underpins 106,000 ounces of gold equivalent (GEO) in years one through five, at capital expenditures of $128 million. Average site all-in sustaining costs have been pegged at $853 per GEO, with solid plans to optimize, notably with grid power.

Using a 5% discount, the study calculated an NPV of $320 million with an IRR of 109% on a pre-tax basis. After-tax, the figures remain robust at an NPV of $232 million, and an IRR of 67%, driven by rapid payback of three years from the initial capital outlay.

The expansion is expected to deliver total gross revenue of $1.72 billion and an EBITDA of $584 million over 12.5 years, with the first concentrate production expected in the fourth quarter of 2023.

Earlier this year, Steppe published a new mineral resource at the ATO mine, doubling it from 1.22 million GEOs to 2.45 million. The updated ATO resource includes 41.6 million tonnes of measured and indicated resources with an average grade of 1.67 grams per tonne GEOs, containing 2.24 million GEOs, comprising 1.39 million ounces of gold and 20.48 million ounces silver.

Steppe’s Toronto-quoted equity gained nearly 5% in early trading on Wednesday to C$1.30 apiece, capitalizing it at C$88.94 million ($71.3 million).